Fashion sector to recover in 2022, supply chain main challenge: Report

The global fashion industry is set for recovery next year, with fashion sales surpassing 2019 levels by 3-8 per cent, according to The State of Fashion 2022 report. Recovery will be the strongest across China and the United States, with Europe lagging behind. Supply chain pressures will be the main challenge, posing a risk to the pace of the recovery, with 67 per cent of businesses expected to raise prices.

Eighty seven per cent of fashion executives surveyed expect supply chain disruptions to affect margins next year. A combination of material shortages, transportation bottlenecks and rising shipping costs will further inflate input costs and strain imbalances between supply and demand.

The report, the sixth in the series, was released today by McKinsey & Company and The Business of Fashion (BoF).

Sustainability remains high on the fashion agenda, with 60 per cent of businesses ramping up investment in closed-loop recycling solutions to reduce environmental impact.

Thirty two per cent of industry executives identified digital as the biggest opportunity for growth, followed by sustainability (12 per cent).

The report is based on exclusive interviews with top industry executives and a survey of more than 220 international fashion executives and experts.

According to the McKinsey Global Fashion Index (MGFI), the fashion industry posted negative economic profit for the first time in 2020 for at least a decade, causing all-time high levels of industry consolidation in 2020 and 2021.

Whilst the overall outlook is optimistic for businesses in 2022, many of the potential gains will be offset by challenges related to the pandemic and the global economy, with issues within the supply chain the biggest cause of concern, the report says.

A record 69 per cent of fashion companies destroyed value in 2021, implying they faced losses, reaching new depths and dragging down overall industry performance. However, MGFI shows that fashion’s recovery looks set to be V-shaped, as performance in the first half of 2021 points to a possible return to positive economic profit by 2022.

In China, the fashion industry across all value segments is already back to pre-COVID sales levels, with the luxury sector in particular set to grow by 70-90 per cent over 2019 sales by the end of 2021.

In the United States, consumer sentiment is on a positive trajectory with 43 per cent of US consumers saying they would increase their fashion spending in 2021, according to McKinsey & Company COVID-19 US Consumer Pulse Survey.

Despite a slower return to pre-pandemic sales levels in Europe, 67 per cent of fashion executives there expect better trading conditions in 2022 than 2021.

The ‘metaverse’ offers opportunities for audience growth and income generation for fashion brands that can monetise their digital products, such as by creating and selling non-fungible tokens (NFTs) and allowing gamers to buy, keep and trade virtual fashion products.

Social shopping is experiencing a surge in engagement from brands; 37 per cent of fashion executives cited social commerce as one of the top three themes that will affect their business in 2022, McKinsey said in a press release.

Sustainability, and particularly the issue of circularity and closed-loop recycling within the global fashion system, is another key area businesses will focus their attention on next year.

At present, less than 10 per cent of the global textile market is composed of recycled materials, according to Textile Exchange.

Sixty eight per cent of fashion executives cited maturity of technological solutions as the most important factor to enable closed-loop recycling solutions to be scaled. While 60 per cent of such respondents said they have invested or plan to invest in closed-loop recycling next year, there is significant progress to be made if this is to become available on a mass scale.

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