A new paradigm is taking shape in the fashion industry in response to rising globalization, changes in consumer spending patterns as well as digital innovation. While McKinsey and Company are projecting strong growth in the industry in 2019, companies that respond to changes in the broader industry are the only ones that will be able to survive.

In 2017, 1,875-fashion retailers shut down, as changing consumer-spending patterns made it impossible for them to remain in operation. The situation turned out worse in 2018 as more than 9,000 retail outlets are believed to have gone out of business.

Amidst the slowdown in the retail sector, the fashion industry is projected to grow at an impressive rate, thanks to the rise in e-commerce. The fashion industry could post growth of between 3.5% and $4.5% in 2019, according to McKinsey and company. Revenues, on the other hand, are projected to rise from $481.2 billion in 2018 to $712.9 billion by 2022.

Growth By Segment

The apparel and clothing segment is expected to account for a considerable chunk of sales in the fashion industry in 2019. However, while absolute clothing numbers are steadily rising, the growth appears to be slowing. The CAGR (compound annual growth rate) could slow from 15.3% as of 2018 to 7.6% by 2022.

The shoe segment also continues to display a trend of dwindling revenue expansion y-o-y (year over year). Growth is poised to shrink from double digits of 13.6% as of 2017 to 10.8% by the end of the year. However, the market size will increase from $96 billion in 2018 to $135 billion by 2022.
The bags and accessories segment while growing at a stronger rate could shrink from double-digit growth of 15.6% in 2018 to 8.7% as of 2022.

Fashion Industry Market Size

North America remains one of the biggest fashion market expected to offer fashion brands the most opportunities in 2019. More than two-thirds of surveyed fashion executives expect North America to provide more opportunities with Europe coming in second at 30%.

Expanding fashion markets outside the West is one of the catalysts poised to accelerate growth in the fashion industry in 2019. Increasing online penetration, thanks to smartphone penetration, should continue to fuel e-commerce expected to accelerate sales growth online.

Emerging worldwide middle classes with stable disposable income is a development that should lead to increased spending in the industry, given the improved buying power. A more comprehensive target market made up of more than 1.2 billionshould be good news for fashion brands.

The fact that a majority of these new customers are within 16 to 24 years and 25- 34 age groups support the thesis for increased sales, as people in the two age groups are known to spend more on fashion.

Claudia Bertolero Miami Fashion Week. Photo by: Miami Fashion Photographer James Santiago.
Claudia Bertolero Miami Fashion Week. Photo by: Miami Fashion Photographer James Santiago.

Lingering headwinds

However, fashion executives have warned that economic uncertainty and political turmoil could take a toll on consumer spending power. The threat of trade wars, as well as pending Brexit, could also hurt the fashion industry.

Polarization of the fashion industry is no longer a secret as the top 20 publicly traded companies continue to account for a majority of all the profits generated in the sector. In 2018, the likes of Nike, Hermes, Richemont, Kering, Pandora, Luxottica, Michael Kors, and LVMH accounted for 97% of all the value created in the industry compared to 70% as of 2010.

Established brands will have to spend more on the development of new brands as well as marketing to safeguard their competitive edge in the industry. Market fragmentation with the entry of new players thanks to increased e-commerce should continue to harm brand loyalty.

Cost of combating online returns of as much as 50% is another headwind that established brands will have to contend with in addition to growing pressures on the use of ethically sourced and green manufacturing materials.

Via News TV