Pessimism will cast a pall over business in 2020 as headwinds prove a heavy weight to bear, but there will be some bright spots for fashion in the year ahead.
For one, innovation will continue to set the apparel and footwear industry’s leaders apart from the laggards, provided their novel introductions hit home with consumers who want more, less and better—all at the same time. And, according to the State of Fashion 2020 report, co-published by McKinsey & Company and Business of Fashion, with sustainability topping the list of the sector’s greatest challenges, those that swap plans and promises for meaningful action could really win favor where sales and loyalty are concerned.
The 10 key trends that will define 2020, according to McKinsey, are a “sharp evolution” from previous years, with the risks riskier and the ramifications more severe.
“What is clear is that setting a course through the turbulence ahead, now more than ever, requires companies to be attuned to their environment and agile in their responses,” McKinsey said. “While the winners at the top maintain their industry dominance, the rest will have to work even harder to keep pace.”
Here, see the 10 trends—both challenges and opportunities—the fashion industry can expect to face as they navigate the new year.
On high alert
Despite President Trump’s recent agreement to nix 15 percent tariffs on apparel and footwear that would have rolled out Sunday, punitive duties are still on the table and more countries could feel the tariff wrath in 2020, so trade tensions will still run high.
Just 9 percent of respondents in Business of Fashion’s and McKinsey’s senior executive survey think conditions will improve for the sector in the new year, marking a steep drop from the 49 percent who thought so last year.
What’s more, recession risk indicators are forcing companies to shore up their resiliency and plan for geopolitical instability.
“Continued caution is advised for the year ahead as mounting underlying turmoil could disrupt relations among both developed and emerging market economies,” McKinsey noted. “Indicators of recession risk are spurring companies across industries to build a resiliency playbook and to plan for other macro risks such as geopolitical instability and the inflammation of trade tensions.”
Though the still unsettled trade tensions between the U.S. and China have ramped up the rate of scale back on sourcing from China, companies still can’t beat the powerhouse Asian nation for its capabilities.
According to McKinsey, brands and retailers should consider spreading out to other high-growth geographies, like India, Southeast Asia, Brazil, Russia, the UAE and Saudi Arabia. Per its 2025 forecast, McKinsey says the population of consumers ages 30 and below will grow to be more than double that of China in the next five years. Indonesia, in particular, is expected to become “the largest modest fashion market in the world.”
“China will continue to provide exciting opportunities and play a leading role in the global fashion industry, but the colossal market is proving harder to crack than brands anticipated,” the consultancy noted. “As some successful players become over-reliant on China and others struggle, companies should consider spreading their risk by expanding to other high-growth geographies.”
Social media growth seems to be slowing, and users are opting out of whiling away as many of their hours idling on the platforms. That means ramping up social commerce will take more than targeted ads. The superfluity of ads, in fact, may be killing engagement.
Static ads, needless to say, won’t work. Brands and retailers will have to give themselves over to storytelling and “marketing strategies that resemble media productions,” McKinsey said. Social-only product drops will also garner attention, as will more organic partnerships with influencers who already live the lifestyle the company is trying to promote.
More than two-thirds of fashion players surveyed said increasing spend on new media platforms like TikTok and Fortnite, versus their traditional counterparts like Facebook and Instagram, will be a key focus in 2020.
“As traditional engagement models struggle on established social media platforms, fashion players will need to rethink their strategy and find ways to maximize their return on marketing spend,” McKinsey said. “Attention grabbing content will be key, deployed on the right platform for each market, using persuasive calls-to-action and, wherever possible, a seamless link to checkout.”
In the neighborhood
In 2020, localization may win out over globalization as companies focus on catering to their home markets to avoid trade spats and deliver on speed to market.
Fifty-five percent of fashion executives intend to focus on a localized brick-and-mortar experience in the new year, and McKinsey expects that will mean a ramped-up presence in neighborhoods and new districts, with stores that speak to the local community.
“Consumer demand for convenience and immediacy is prompting retailers to complement existing brick-and-mortar networks with smaller format stores that meet customers where they are and reduce friction in the customer journey,” according to McKinsey. “The winning formula will feature in-store experiences and localized assortments in neighborhoods and suburbs beyond the main shopping thoroughfares.”
In the past several years, consumers have become increasingly aware of fashion’s impact on the environment, and many don’t like it one bit, so they’re taking their dollars and spending them on cleaner, more conscious brands.
Respondents in the survey said sustainability will both be 2020’s single biggest challenge for the industry and its single biggest opportunity.
The critical focus for the next year should be homing in on a clear definition for sustainability and communicating that message to consumers, many of whom currently indicate that they can’t distinguish brands that are sustainable from those that aren’t.
“The global fashion industry is extremely energy-consuming, polluting and wasteful. Despite some modest progress, fashion hasn’t yet taken its environmental responsibilities seriously enough,” McKinsey said. “Next year, fashion players need to swap platitudes and promotional noise for meaningful action and regulatory compliance while facing up to consumer demand for transformational change.”
In response to demand, brands and retailers are looking into low-impact inputs for the products they’re putting into the market.
Sixty-seven percent of respondents indicated that using innovative sustainable materials will be important for their company in the coming year. Globally, companies are set to file eight times as many fiber innovation patent applications in 2019 as they did in 2013, McKinsey said. Silks and cellulose are expected to become the biotech focus, experts in the report found.
“Fashion brands are exploring alternatives to today’s standard materials, with key players focused on more sustainable substitutes that include recently rediscovered and re-engineered old favorites as well as high-tech materials that deliver on aesthetics and function,” according to McKinsey. “We expect R&D will increasingly focus on materials science for new fibers, textiles, finishes and other material innovations to be used at scale.”
As inclusion becomes paramount and consumers promptly pack up and spend elsewhere when companies get this wrong, McKinsey says brands and retailers will broadcast their diversity credentials “loudly and proudly” in 2020.
Moves like Rihanna’s multi-shape/size/color Savage x Fenty lingerie show will continue to play out as the fashion industry is forced to move further away from its “us-not-you” M.O.
“Consumers and employees are putting increasing pressure on fashion companies to become proactive advocates of diversity and inclusion, rather than being reactive laggards,” McKinsey said. “More companies will elevate diversity and inclusion as a higher priority, embed it across the organization and hire dedicated leadership roles, but their initiatives will also come under increasing scrutiny in terms of sincerity and results.”
E-commerce has given rise to a new wave of production, which allows Asian manufacturers and SMEs to easily and affordably export their goods directly to shoppers.
This new generation of direct-to-consumer original brand manufacturers (OBMs), according to McKinsey, will represent “stiff” competition for established, mass-market brands.
“Established fashion brands and retailers will face growing competition from new Asian challengers, as manufacturers and SMEs step out of their traditional roles and sell directly to global consumers,” McKinsey said. “Expect greater competition from hitherto unknown players in the Asian supply chain who design popular items to sell at affordable prices using cross-border e-commerce platforms.”
Trade shows are largely outmoded—and they’ll be increasingly ill attended if organizers can’t bring the model into the modern digital market more effectively.
As McKinsey notes, the trade show of the future must be “highly digital,” it will have to rethink its target audience, and fresh trends and ideas will have to be brought to the fore.
“Traditional trade shows must respond to the increase of direct-to-consumer activity, shorter fashion cycles and digitization by embracing new roles and fine-tuning their target audience,” McKinsey said. “In a bid to differentiate themselves—or even just to survive—more of these events will add B2C attractions or launch new services and experiences to improve relationships with their traditional B2B audience.”
Fashion tech companies have come out of the gate, raked in funding and found themselves struggling to turn a profit. Over the past two years, the average fashion tech IPO has seen a 27 percent decrease in stock price following public debut, according to McKinsey.
“Valuations of digital fashion players have reached dizzying levels and, despite a slew of high-profile IPOs and private firms achieving unicorn status, investor sentiment is taking a turn for the worse,” McKinsey said. “Investor apprehension is growing over the path to profitability for some digital players, from online pure play retailers and marketplaces, to direct-to-consumer brands and other digital-first business models.”
The “fever” around these companies is expected to abate in 2020, both in public and private markets, as investors look for signs of “real profitability potential,” McKinsey said.