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Wish’s Billion-Dollar IPO Plans Underscore McKinsey’s Fashion Outlook

What does the near-term future hold for fashion? According to McKinsey’s latest State of Fashion report for 2021, the industry is bifurcating along two distinct lines, and Wish’s planned billion-dollar initial public offering underscores the opportunities for companies playing in the value-focused subsector.

Announced Monday, an IPO could raise up to $1.1 billion for Wish, which is planning to sell 46 million shares priced between $22-$24 per share, according to its filing with the Securities Exchange Commission (SEC).

The company—which sells everything from clothes and shoes to athletic gear and pet supplies—does 90 percent of its business on mobile, and has generated $2.3 billion in revenue over the past 12 months, displaying 32 percent year-over-year growth from this time in 2019. In a filing Monday, Wish revealed that it had been recently valued at up to $14.07 billion.

Wish described its value proposition to users as a democratization of e-commerce, touting the affordability of its products—which are primarily unbranded, and are often discounted in excess of 85 percent—as a key factor in its appeal. Its digitally native platform also offers accessibility to shoppers across the globe, the company said, and the site has been translated into 40 languages and tailored to access country-specific payment methods.

What’s more, the company has harnessed “big data technology” to enable “customization on a massive scale,” curating users’ Wish feeds to help them discover the products they’re interested in, quickly. “No two users’ Wish interfaces and product feeds look the same,” the company explained in its filing, and 65 percent of shoppers end up clicking on products that are presented to them through Wish’s algorithm.

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While challenges abound for the retail sector, 30 percent of fashion executives surveyed by McKinsey and Business of fashion for the report seem to agree with Wish’s digital-first strategy, saying that web readiness represents the biggest opportunity for the industry as it moves forward into 2021. “The primary driver of growth in the coming year will continue to be digital channels, reflecting the fact that people in many countries remain reluctant to gather in crowded environments,” according to the report, while an early recovery scenario anticipates more than 30 percent online growth in Europe and the U.S., and over 20 percent growth in China.

Although a company like Wish represents the promised land of low-cost fashion and other wares and “benefits from consumers trading down in uncertain times,” McKinsey’s report says luxury also offers near-term opportunities, despite fashion as a whole posting a decline in profit of approximately 90 percent in 2020, after seeing a 4 percent uptick in 2019.

Still, the sector’s overall outlook is grim. In their State of Fashion report, the pair outlined two potential pathways for the sector’s recovery. “In either scenario, we expect tough trading conditions to persist next year, in some geographies at least,” they wrote, adding that bankruptcies, store closures and job losses are likely to continue to mount in the near term.

The more optimistic of the options—an earlier recovery—would see global fashion sales dropping by between 0 and 5 percent next year compared with 2019 numbers. If this scenario plays out, they said, it will be because of successful virus containment efforts across multiple regions and a relatively snappy economic recovery. Under this projection, the fashion industry would return to 2019 levels of activity by Q3 of 2022.

A later recovery would involve a much deeper decline in sales growth, to the tune of 10-15 percent over the course of 2021 compared with 2019 figures. “In this case, the virus would continue to wreak havoc despite widespread containment measures, and fashion sales would only revert to 2019 levels in the fourth quarter of 2023,” analysts wrote.

While part of retail’s recovery depends, of course, on the management of the virus’ spread and the timeline for vaccine intervention, brands will need to demonstrate “flexibility and agility, alongside operational resilience” in order to weather this storm, the report said. While the fashion sector has lagged in the adoption of technological innovations to streamline and optimize operations, McKinsey believes that data and analytics will play a critical role in a new world where tracking demand across categories, geographies, channels and value segments is paramount to success.

With widespread store shutdowns still impacting brick-and-mortar retail—especially as a second wave of infections takes hold in many areas—shoppers have turned to the web for their shopping needs. But it’s not enough for brands to bolster e-commerce, McKinsey said. As online shopping continues to dominate over the course of 2021, companies must “develop more engaging and social experiences to encourage consumers to connect,” along with discovering “new pockets of demand” and tailoring assortments to local clientele.

Companies will also need to reexamine their supply chains, and “be prepared for further shocks in 2021,” according to the report. The industry is long overdue for a complete overhaul of its waste-making, high MOQ production model, and brands should begin to shift toward on-demand manufacturing capabilities or low-volume commitments to limit liability due to unneeded inventory.

Meanwhile, at the polar opposite end of the fashion spectrum, luxury “benefits from a strong recovery in markets like China,” McKinsey said in the report. Domestic travel within Asian markets has actually returned to 2019 levels, according to recent data from Global Blue, sparking opportunities for well-heeled tourists to shell out on pick-me-ups.

A survey of fashion executives shows a divided outlook on the future of those categories, though. While 31 percent of luxury fashion execs believe 2021 will see improvements for their sector, 39 percent expect conditions to worsen. Forty-one percent of leadership at value fashion brands have a gloomy outlook for next year, while 36 percent said they expect favorable results.

Because of its already heavily digitized retail landscape, executives from Asia were most confident about 2021, with 44 percent saying they feel positive about the year ahead. Their Western counterparts, though, gave more lackluster projections, with 30 percent of European fashion execs saying they believe next year will look better than 2020, and just 24 percent of U.S. respondents saying the same.