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Why McKinsey Says Fashion Will Need to Be ‘Suitably Resilient’ in 2020

The uncertainty that settled over 2019 may reach a boiling point in 2020, and among fashion companies, the outlook is dismal for heading into the new decade.

“Fashion leaders are not looking forward to 2020,” McKinsey & Company said plainly in its annual State of Fashion report with Business of Fashion released Thursday. “The year ahead will open with the industry in a state of high nervousness and uncertainty, with most executives across fashion and the wider business world bracing for a slowdown in growth in the global economy.”

The trade war, the tariffs, the shifting consumer, the newfangled and necessary technology, and the slow trudge to sustainability have collectively contributed to pressures many in the sector have found themselves hard pressed to bypass.

According to the McKinsey Global Fashion Index (MGFI), global fashion industry growth will slow further next year to between 3 percent and 4 percent, down slightly from the 3.5 percent to 4.5 percent it had predicted for growth in 2019.

“In contrast to last year, when there were pockets of optimism in North America and within the luxury segment, we now see pessimism across all geographies and price points,” the report noted. “To make matters more complicated, although we know that external shocks will continue, we don’t know what form they will take.”

Whatever may come to pass in 2020, the one certainty is that polarization will continue, driving an even bigger divide between the winners and losers. Already, McKinsey said, the “Super Winners,” or top 20 players by economic profit, account for more than the combined profit of the overall industry.

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“Not only are they highly value-creating and of immense scale, but they often pioneer innovation in the industry through their product ranges and interaction with consumers,” the report noted. “They are also best positioned to attract the industry’s limited resources and talent, while others risk getting left behind.”

The ‘best and the rest’

As North America battles with tariffs and trade uncertainty and Europe faces Brexit and the general global economic malaise, Asia will emerge as the strongest market, though growth will still be subdued there.

“The most optimistic region is Asia, although even here only 14 percent of executives expect an improvement in conditions,” McKinsey said. Retail sales have been slowing in the Asia-Pacific markets and according to the report, “will continue to disappoint in 2020 as consumer sentiment weakens.”

Looking at expectations for the coming year by segment, as many as 57 percent of executives served for the report think conditions in the premium/luxury sector will be worse in 2020. Fifty-eight percent expect the same for the mid-market and value segments. Overall, 55 percent of surveyed executives expect conditions to deteriorate next year, up from 42 percent last year.

“In luxury, where performance has been strong, there is still little hope of an upturn,” McKinsey said.

While agility has been a buzzword bandied about for several years now, companies will have to make it a vital aspect of their business rather than a nice-to-have. It will be critical to surviving a year that’s expected to have brands and retailers on high alert.

“In 2020, fashion players will need to ensure they are suitably resilient—driving productivity gains while creating operational flexibility, digitizing where most appropriate, divesting non-core assets to free up cash, and carefully monitoring and managing a wide range of risks,” according to the report. “Crucially, all this will require leaders who make quick decisions in an environment of great uncertainty.”