The year ahead will be a year of awakening after the reckoning of 2018—a time for looking at opportunities, not just challenges. Fashion companies have to wake up not only to the tougher economic environment but also to changing consumer trends and shifts in the fashion system. Created by a team of experts, a survey of almost 300 fashion executives, and extensive interviews, The State of Fashion 2019: A year of awakening (written in partnership with the Business of Fashion [BoF]) identifies ten trends that will have a major impact on the fashion industry in 2019.
Our research establishes a common understanding of the forces at work in fashion and identifies where the top priorities, both business and creative, are for 2019 (see video, “Ten trends defining the fashion industry agenda in 2019”). Once again, we combined BoF’s knowledge with McKinsey’s global expertise and analytical rigor.
As our trends indicate, new markets, new technologies, and shifting consumer needs present opportunities but also risks. We predict that 2019 will be a year shaped by consumer shifts linked to technology, social causes, and trust issues alongside the potential disruption from geopolitical and macroeconomic events. Only those brands that accurately reflect the zeitgeist or have the courage to self-disrupt will emerge as winners. The rest of this article highlights the issues and their implications, which will be explored further in a forthcoming McKinsey.com series on each trend.
1. Caution ahead
A potential turn in the economic cycle is prompting concern among industry executives over prospects for 2019. Following a prolonged period of growth and rising costs, strategic priorities for the subsequent period are likely to focus more on being nimble and boosting productivity.
While 2018 was characterized by cautious optimism in the face of uncertainty, this year, various indicators point to clouds on the horizon that could somewhat dampen global economic-growth prospects. Global growth has averaged above 2.5 percent in the years since the financial crisis, but there are signs of a plateau.
As the macroeconomic landscape shifts, we expect companies will seek to protect themselves from slower growth by implementing “shockproofing” measures. These will primarily be aimed at boosting productivity through greater efficiency and cutting costs. To ensure these interventions deliver sustainable benefits over the longer term, fashion players should seek to couple productivity enhancements with necessary innovation efforts, such as the automation of production, analytics-driven decision making, a review of the omnichannel footprint, and reorganization for greater agility. Those that are successful are most likely to reap rewards in terms of outsize performance.
For more on trend 1, see “Caution ahead: Global growth and the fashion industry.”
2. Indian ascent
India is increasingly a focal point for the fashion industry, reflecting a rapidly growing middle class and increasingly powerful manufacturing sector. These, together with strong economic fundamentals and growing tech savvy, make India too important for international brands to ignore.
India is being propelled by strong macroeconomic tailwinds and is predicted to grow 8 percent a year between 2018 and 2022. The Indian middle class is forecast to expand at 1.4 percent a year over the same period, outpacing Brazil, China, and Mexico. As a result, India is set to move from being an increasingly important sourcing hub to being one of the most attractive consumer markets outside the Western world.
For more on trend 2, see “How India’s ascent could change the fashion industry.”
The fashion industry in 2020: Ten top themes from the State of Fashion
3. Trade 2.0
Fashion is inherently sensitive to the policies and politics that shape cross-border trade. Recent talk of trade shifts between the United States and some of its key trading partners has brought the issue to the fore. At the same time, the axes of global trade are shifting, amid a surge in commerce among emerging economies in the Global South. The dynamics may lead to a rethinking of pricing and sourcing strategies in the year ahead.
Overall, we expect trade-related forces will drive two key dynamics in 2019. Escalating trade tensions will see international brands look closely at sourcing, perhaps to the benefit of countries involved in newly negotiated trade agreements. A further increase in south–south trade, especially between emerging Asia–Pacific countries, is likely. Fast fashion, which depends on short lead times, will need to find new strategies to maintain delivery speed and production quality—for example, through nearshoring or even on-shoring. Still, tough commercial decisions will be required in the face of tariffs in key consumer markets. Luxury players, especially those that derive most of their income from China or the United States, may be required to choose between raising prices and managing squeezed margins.
For more on trend 3, see “The fashion market and ‘Trade 2.0.’”
4. End of ownership
In fashion, the shift to new ownership models is driven by growing consumer desire for variety, sustainability, and affordability, and sources suggest that the resale market, for instance, could be bigger than fast fashion within ten years. In recognition of this consumer shift, start-ups will not be the only players making their marks in these segments. Established fashion brands will accelerate the pace with which they embrace new ownership models to further their relevance to consumers.
Turning to the year ahead, we expect 2019 will be known for three developments, in particular. First, the number of brands getting into the rental, resale, and refurbishment business will increase markedly; established players will progressively regard alternative ownership as a force they need to embrace or at least test through new collaboration models with retailers or start-ups in the sector. This will require careful business-model considerations and a clear choice between partnerships, in-house development, or M&A. Second, we predict a notable increase in the number of rental-native brands born exclusively for rental or subscription models. We would also not be surprised to see a unicorn in this space soon. Finally, more consumers will see a growing proportion of their wardrobes made up of preowned or rented products, especially for high-value items and accessories. While traditional players need not yet be alarmed, it will be essential to understand fully the emerging signals of what consumers prefer to own versus rent.
For more on trend 4, see “The end of ownership for fashion products?”
5. Getting ‘woke’
Younger consumers are seriously concerned with social and environmental causes, which many regard as the defining issues of our time. They increasingly back their beliefs with their shopping habits, favoring brands that are aligned with their values and avoiding those that aren’t.
Brands are responding by integrating social and environmental themes into their products and services. The benefits of these policies are clear, but as the causes that some brands champion venture into controversial territory, there are risks and consequences for those that fail to get it right.
For more on trend 5, see “The influence of ‘woke’ consumers on fashion.”
6. Now or never
The consumer psyche is changing fast. Technology leaders such as Amazon, Deliveroo, Netflix, and Uber have raised customer expectations for speed and convenience. Through its Prime offering, Amazon has created an expectation that delivery should be next day, or even same day. Customers now expect to get a taxi, watch a film, or receive a meal almost instantaneously and to make a choice based on an easy-to-assess interface or app.
The implications of these new technologies are considerable and will lead to both defensive and offensive plays. On the defensive side, in 2019, we expect the majority of fashion players will integrate commerce functionality into social media, enabling direct-to-product journeys. They will also likely continue to invest in improving mobile conversion rates, streamlining the checkout process, improving search, and optimizing the user experience. Offensively, we expect brands and retailers to collaborate increasingly with technology companies to develop proprietary tools, such as visual-search engines. We predict that once one solution becomes a clear winner (such as Shazam in music), there will be a step-change increase in consumer adoption.
For more on trend 6, see “Now or never: Immediacy and customer experience in fashion retail.”
7. Radical transparency
The fashion industry suffers from a rising trust deficit. Recent high-profile data breaches at a number of online fashion companies, and in other industries, have left consumers wondering whether they should share information with brands and retailers. As a result, they are demanding to know much more about a range of issues, from where and how items are made to the design provenance and the item’s quality.
Given consumer demands for greater transparency through the value chain, we see three key dynamics in the coming period. First, players will rigorously audit their business practices to identify potential areas that may erode consumer trust. The lens for this analysis could be, “What would my customers think if this was on the front page of a newspaper?” Brands will invest to address any problem areas. As a result, more players will highlight their best practices to create a competitive edge. Some will use new technologies such as blockchain, in which each node of the network sees the whole history of transactions, to boost transparency in the supply chain. Second, we expect more rigorous reporting of social and envinronmental impact. Finally, brands are likely to be more transparent in the event of a crisis. They will respond more quickly, admit when they are at fault more often, and be willing to apologize.
For more on trend 7, see “What radical transparency could mean for the fashion industry.”
Fashion brands—luxury houses, in particular—are often successful because of their heritage. While this continues to be a key advantage, it is no longer enough. In the latest BoF-McKinsey State of Fashion Survey, self-disruption was top of mind for 2019, with 79 percent of executives placing it in the top five trends affecting the industry.
Looking forward, we see three key disruptive developments. To compete with “challenger” brands, established brands will continue to innovate, leveraging their scale to fast-track capability building through M&A, accelerators, and innovation labs. The latter will help companies remain at the forefront of business-model innovation and respond to new fashion trends more quickly. It will be increasingly important to adopt agile ways of working and depart from the traditional operating model. Players will also work to streamline supply chains, enabling faster time to market. In an increasingly fickle fashion environment, market leaders will also need to take more risks to stay ahead. Sublabels will continue to proliferate, allowing brands to experiment while maintaining the authenticity of the parent brand.
For more on trend 8, see “Self-disruption in the fashion industry.”
9. Digital land grab
In last year’s State of Fashion report, we emphasized the importance of platforms as entry points of choice for consumers into their shopping journeys. Their growing dominance through superior convenience, increasing segment coverage, and the launch of private labels continues to be a theme in 2019 for both fashion pure players and multicategory platforms. For example, Amazon is on course to become the leading apparel retailer in the United States, with more than 8 percent estimated total share, and Flipkart has 40 percent share of online fashion sales in India. However, potential for profitable growth fueled by user acquisition is starting to saturate because of market maturity and increased competition. The next horizon in platform evolution is business-model diversification through proprietary technology and knowledge to enrich the offering to consumers and brands. The race is underway.
This year, we are likely to see an accelerated emergence of ecosystems of related and overlapping businesses. There will likely be an intensified race for pole position, with the largest players battling to become the go-to platform for consumers and brands. The holy grail of the industry will be integration of value-added services that remove friction in the consumer and supplier journey through effective use of data analytics at scale. This could lead to a continued wave of M&A activity in a race to find the best complementary offerings for existing platforms. There is also a rising chance of some kind of shakeout for vertical pure players, catalyzed by reduced valuations and the failures of some smaller companies. When generalist e-commerce platforms remain focused on retail margins rather than ancillary services, without occupying a niche, the demise is likely to come sooner rather than later.
For more on trend 9, see “The ‘digital land grab’ in fashion.”
10. On demand
Design and production are typically long and cumbersome processes, sometimes requiring nearly a year to plan and move products to market. Technology, analytics, and nearshoring are part of the solution, enabling companies to respond quickly to source and develop products, squeeze production timelines, and streamline distribution. Start-ups are at the vanguard of this, but some mainstream players are also stepping up and delivering.
In 2019, we expect to see continued investment in speed (both through capability building and M&A) via more onshore and nearshore sourcing, virtual sampling, microfactories (for rapid prototyping), and automation. Reduced lead times will be key drivers of competitive advantage. Small-scale players will likely lead the way, while larger brands will pilot in selected markets. We expect the rising take-up of on-demand capabilities will lead to a spike in personalization and a new generation of customized clothing start-ups, creating a new definition of “made to measure.” In the technology space, automation intellectual property will continue to develop, with patent approvals likely to be critical success factors in the years ahead.
For more on trend 10, see “Fashion on demand.”
For more on the industry’s prospects this year, see The State of Fashion 2019: A year of awakening, the full report on which this article is based (PDF–3MB).