As changing category landscapes, new digital frontiers, and advances in sustainability continue to present opportunities, the fashion industry can return to growth in 2022.
After nearly two years of upheaval, the global fashion industry is regaining its footing. Companies are adapting to new consumer priorities, and digital is providing a growth nexus. Nonetheless, the industry faces significant challenges as a result of supply-chain disruption, patchy demand, and ongoing pressure on the bottom line. With the majority of businesses struggling to make a profit, growth will be a top priority in the coming year.
Revenues in the fashion industry fell by 20% in 2019–20, while earnings before interest, taxes, and amortization (EBITA) margins fell by 3.4 percentage points to 6.8 percent. As the pandemic progressed, the performance disparities that had become a problem in recent years became more visible than ever.
According to the most recent McKinsey Global Fashion Index (MGFI), a record 69 percent of companies were value destroyers in 2020, up from 61 percent in 2019 and just 28 percent in 2011. Approximately 7% of companies exited the market entirely, either due to financial difficulties or acquisition by competitors.
Geographically, China was the standout performer in 2021, with its economy recovering much faster than those of other countries. China and the United States are expected to drive the industry’s growth in 2022, while Europe lags behind and will require the return of international tourism to fully recover. Meanwhile, domestic markets are expected to maintain their recent strong performance.
Discount and Luxury Markets Outperform
Despite a drop in margins, the discount and luxury sectors outperformed the overall market in 2020, while the midmarket remained squeezed. However, performance was uneven, with some countries faring better than others due to strong healthcare systems and economic resilience. Among product categories, sportswear had a breakout year, accounting for 42 percent of positive economic profit in the MGFI index, despite strong growth for Chinese players.
Due to the pandemic’s distortions and reporting gaps, we did not publish our annual list of “super winners” in last year’s report. This year, we return to our analysis, but with a new twist: we smooth out pandemic-induced distortions by calculating the average economic profit for both 2019 and 2020.
Nike, Inditex, Kering, LVMH (including Tiffany), and Hermes were the top five performers in terms of economic profit during that time period. The prominence of luxury brands among the top performers was due to the economic resilience of wealthier demographics, which resulted in ongoing demand for bags, luxury jewelry, and ready-to-wear.
Ten Topics for 2022
We begin our ten key themes for this year by taking the global economy temperature and analyzing the complex effects of the pandemic as it continues its unpredictable progress. In the midst of these difficult dynamics, the imperative for brands will be to secure their recovery.
Simultaneously, they must adapt to changing consumer demand and seize the opportunities presented by new digital frontiers. As sustainability becomes a more pressing concern, brands must increase their efforts to incorporate customer values into their assortments, supply chains, and working methods.