The Stateof Fashion
2023

The State of Fashion 2023

The Stateof Fashion
2023

CONTENTS

10—11

INDUSTRY OUTLOOK

12—17

GLOBAL ECONOMY

20—39

GLOBALECONOMYEXECUTIVE SUMMARYCONSUMERSHIFTS

01: Global Fragility
Managing Inflation for Growth		
02: Regional Realities
Chalhoub Group: Capturing Fashion’s Growth Potential in the Middle East

CONSUMER SHIFTS

40—66

03: Two-Track Spending
Tapestry: Connecting With Customers ‘Is Not Just About Price’
FASHIONSYSTEM

04: Fluid Fashion
How Gen-Z is Propelling Gender-Fluid Fashion
05: Formalwear Reinvented
Hugo Boss: Reclaiming the Formalwear SpaceFASHION SYSTEM

67—111MGFI

06: DTC Reckoning
Allbirds: Conquering the New Multi-Channel Landscape
07: Tackling Greenwashing
A New Approach to Scaling Innovative Materials
Puma: Moving Sustainability Beyond Marketing
08: Future-Proofing Manufacturing
MAS Holdings: Deconstructing Supply Chain Risks, and Rewards

LUXURY2023

09: Digital Marketing Reloaded
How Web3 Is Shaking Up Digital Marketing
10: Organisation Overhaul		

MCKINSEY GLOBAL FASHION INDEX

112—121

THE STATE OF LUXURY 2023

122—127
5

The State of Fashion 2023

CONTRIBUTORSIMRAN AMEDACHIM BERG

ANITA BALCHANDANIFELIX RÖLKENSJOËLLE GRUNBERG

Imran Amed is one of the global fashionindustry’s leading writers, thinkers andcommentators, and is founder, chief
executive and editor-in-chief of The
Business of Fashion (BoF), a modern media
company and the authoritative voice ofthe global fashion and luxury industries.
Imran holds an MBA from Harvard
Business School and a B.Com from McGill
University. He was born in Canada andholds British and Canadian citizenship.
Previously, Imran was a management
consultant at McKinsey & Co.

Achim Berg is a senior partner in
McKinsey’s Frankfurt office, and leads
McKinsey’s Global Apparel, Fashion& Luxury group. He is active in all
relevant sectors including clothing,textiles, footwear, athletic wear, beauty,
accessories and retailers spanning fromvalue to luxury segments. As a global
fashion industry and retail expert, hesupports clients on a broad range ofstrategic and top management topics,
as well as on operations and sourcingrelated issues.

Anita Balchandani is a senior partner
in McKinsey’s London office, and leads
the Apparel, Fashion & Luxury groupin EMEA and the UK. Her expertise
extends across fashion, health andbeauty, specialty retail and e-commerce.
She focuses on supporting clients indeveloping their strategic responses tothe disruptions shaping the industry,
particularly accelerating digital growthand delivering customer-led growthtransformations.

Felix Rölkens is a partner in McKinsey’s
Berlin office, and is part of the leadershipof McKinsey’s Apparel, Fashion &Luxury group. He works with apparel,
sportswear and pure-play fashion
e-commerce companies in Europe andNorth America on a wide range of topics
including strategy, operating model andmerchandising transformation.

Joëlle Grunberg is a senior advisor in
McKinsey’s Apparel, Fashion & Luxury
group and an experienced C-suite leader
in retail, with a specific focus on digital
growth, strategy and transformation,
including M&A. Joëlle previously served
as global president at Boston Brands
Portfolio (Sperry, Saucony, Keds) at
Wolverine and president and CEO of
Lacoste North and Central America.

SARAH ANDRÉSANDRINE DEVILLARDMICHAEL STRAUBJANET KERSNAR

HANNAH CRUMPSarah André is an engagement manager in
McKinsey’s London office and is part of
the Apparel, Fashion & Luxury group. She
works with fashion and luxury companies
as well as investors across Europe andthe US, on topics such as e-commerce,
strategy, sustainability, value creationand M&A.

Sandrine Devillard is a senior partner
at McKinsey’s Montreal office and leads
McKinsey’s Apparel, Fashion & Luxury
group in North America. Sandrine serves
leading retail companies across the US,
Europe and Asia on strategy, activity
creation, organisational and operational
management challenges.

Michael Straub is an associate partner
in McKinsey’s Hong Kong office, andco-leads the Apparel, Fashion & Luxury
practice in Greater China. He partners
with global luxury, fashion and beauty
clients in defining their growth and go-tomarket strategies for China and other
Asian markets.

As executive editor at The Business of
Fashion in London, Janet Kersnar has
a multifaceted content role. With morethan 25 years of experience as a businessjournalist at leading publishing houses
including The Economist Group, Janetis a member of BoF’s senior leadershipteam and is part of BoF Insights, a fashionindustry think tank.

As associate director, editorial strategy at
The Business of Fashion, Hannah Crump
contributes to the execution of special
editorial projects, ranging from casestudies to in-depth market reports. She
partners with industry experts to develop,
edit and produce data-driven research
and analysis for professionals in the global
fashion industry.

6

7

The State of Fashion 2023

ACKNOWLEDGEMENTS

The authors would like to thank Olimpia Franzan, Ella Fraser, Alice Gemvik, Ingrid Hartmann Bjørndalen and James Nakajima from
McKinsey’s London, Stockholm, Copenhagen and New York offices respectively for their critical roles in delivering this report. We
would also like to thank Abhishek Goel for his significant contribution to the MGFI article again this year.
A special thanks to all members of The Business of Fashion and the McKinsey communities for their contributions to the researchand participation in the BoF-McKinsey State of Fashion 2023 Survey, especially the many industry experts who generously shared
their perspectives during interviews. In particular, we would like to thank Lorenzo Bertelli, Tim Brown, Patrick Chalhoub, Joanne
Crevoiserat, Anne-Laure Descours, Suren Fernando, Miriam Fitting, Alejandro Gómez Palomo, Daniel Grieder, Nate Jones, SebastianManes, Pierre Nicolas Hurstel, Erwan Rambourg, Max Schiller, Trevor Testwuide, Brian Trunzo and Erika Wykes-Sneyd. We’d also liketo thank StyleSage for their invaluable data sharing for this report.
The wider BoF team has also played an instrumental role in creating this report — in particular, Marc Bain, Brian Baskin, Nick Blunden,
Sheena Butler-Young, Cathaleen Chen, Robert Cordero, Jael Fowakes, Fred Galley, Olivia Howland, Vikram Kansara, Sarah Kent,
Daniel-Yaw Miller, Malique Morris, Tamison O’Conner, Anna Rawling, Benjamin Schneider, Arunima Sharma, Lauren Sherman, Amy
Warren, Josephine Wood and Robb Young.
We would like to thank the following McKinsey colleagues for their special contributions to the report creation and in-depth articles:
Ekaterina Abramicheva, Saga af Petersens, Elisa Albella, Susann Arnold, Andres Avila, David Barrelet, Colleen Baum, Daniel Bullon,
Cherry Chen, Tiffany Chen, Nic Cornbleet, Andrea De Santis, Gizem Dibekoglu, Purvi Doshi, David Fuller, Abhishek Goel, Antonio
Gonzalo, Arvind Govindarajan, Ezra Greenberg, Jan Hamdan, Holger Harreis, Colin Henry, Steve Hoffman, Julia Huang, Andreas
Huete, Julian Hügl, Nicoline Hürs, Sanchit Jain-Guva, Jonatan Janmark, Katie Kelley, Dale Kim, Krzysztof Kwiatkowski, Franck
Laizet, Nikolai Langguth, Benjamin Lau, Adrienne Lazarus, Phoebe Lindsay, Karl-Hendrik Magnus, Dunja Matanovic, Nicola
Montenegri, Jesse Nading, Gizem Ozcelik, Emanuele Pedrotti, Madelon Poulsen, Kim Rants, Emily Reasor, Giulia Riccardo, Carlos
Sánchez-Atable, Raj Shah, Vorah Shin, Meera Singh, Tom Skiles, Ewa Starzynska, Marie Strawczynski, Cristina Tintore, Bogdan Toma,
Dora Trokan, Prabhu Tyagi, François Videlaine, Cyrielle Villepelet, Sophia Wang, Tiffany Wendler, Laerke Wolf, Hannah Yankelevich,
Isabell Zhang, Rebecca Zhang and Daniel Zipser.
We’d also like to thank Chantal Fernandez and David Wigan for their editorial support, Amy Vien for her creative input and direction,and Marie Victoire de Bascher for the cover illustration.
In addition, we extend a special thank you to Adriana Clemens and Saskia Hedrich for their continued support and extensive
contribution to the report over the years.
9

EXECUTIVE SUMMARY

Resilience in theFace of Uncertainty

The State of Fashion 2023

J

ust as the fashion industry was beginningto find its feet after Covid-19’s turmoil, thelater months of 2022 seem determined
to throw brands and retailers off course
again. Deteriorating macroeconomic and geopoliticalconditions have weighed heavily on the industry
in the second half of the year and continue to leavefashion executives on edge as they look towards 2023.
However, much of the industry is entering thisdifficult period with strong foundations, having
experienced impressive growth in 2021 and in thefirst half of 2022. As economies around the world
began lifting restrictions in 2021 after enduring
the pandemic’s devastation, the fashion industry
benefitted from a burst of pent-up consumer
demand, despite some challenges remaining, like
supply chain disruptions. Global industry revenues
in 2021 grew 21 percent year on year, while theaverage EBITA margin close to doubled, growing 6
percentage points. The industry continued its strong
performance in early 2022, with 13 percent revenue
growth in the first half of the year.
More than 50 percent of the companies tracked
by the McKinsey Global Fashion Index contributed
to the industry’s total economic profit in 2021,
compared to just 32 percent in 2020. The proportionof value destroyers (companies generating negative
economic profit) has thus fallen to its lowest since2013. Our roster of fashion “Super Winners” —the top 20 listed companies by economic profit— comprises many of the usual suspects from theluxury and sportswear categories, while players in
the discount segment have also climbed up the list.
10

But some of these gains were chipped away as
2022 progressed. The war in Ukraine, which started
in February, triggered a string of events, including an
escalating energy crisis across Europe. Troublesome
inflation in many major economies led central banks
to roll out back-to-back interest rate hikes, ending alengthy period of ultra-low and even negative rates, ina bid to temper rising prices and help steer economies
away from recession.
Looking ahead to 2023, the drivers contributing
to a broad state of global fragility are top of mind
for fashion executives. In the BoF-McKinsey Stateof Fashion 2023 Survey, 85 percent of fashion
executives predict inflation will continue to challenge
the market next year. Meanwhile, geopoliticaltensions, specifically around the ongoing war in
Ukraine, have disrupted supply chains and createdan energy crisis that 58 percent of executives also
believe will weaken the fashion market.
In aggregate, McKinsey expects global fashion
sales growth of 5 percent to 10 percent for luxury, andnegative 2 percent to positive 3 percent for the restof the industry in 2023, while the dichotomies that
previously defined the fashion business are expected
to return. Beyond the differences between luxury andplayers from other segments, regional differences
will be pronounced. The US economy, despite theslowdown, is expected to be more robust than othermajor global economies — Covid-19 outbreaks andprecautions continue in China, while Europe suffersfrom an energy crisis and a weakened euro against astrong US dollar.
Against this backdrop, the world map for industry

growth is shifting. Markets that once showed solid
growth potential are now facing a wider range of risks
than they once did, ranging from extreme weather
conditions to political or social unrest. Other regions
such as the Middle East may become new havensof growth, requiring brands to further localise
designs, marketing and merchandising to attract newcustomers. But as fashion executives assess what the
new regional realities mean for their businesses, theirscenario planning will need to factor in more thanfinancial risks and opportunities.
Fashion companies will need to rethink theiroperations. Many will update their organisational
structures, introducing new roles or elevating
existing ones to target key growth opportunities andrespond more effectively to risk. Brands may alsochoose to see the next year as a time to team up with
manufacturing partners to sharpen their supply
chain strategies. This may involve nearshoring tobetter respond to fast-shifting consumer demandor leaning more heavily on data analytics andtechnology to manage inventory efficiently.
Distribution channel mixes are also ripe forreassessment. As e-commerce growth normalises
after its pandemic boom, the sheen has started towear off the direct-to-consumer digital model thatpropelled many brands over the past decade. As
lockdown restrictions lifted, shoppers have made it
clear that although they still value online channels— particularly within luxury, where online DTC andthird-party platforms will continue to drive growth— shoppers also want brick-and-mortar experiences.
Brands will also need to factor in the continued
return of international travel to pre-pandemic rates,
which will be buoyed by a strong US dollar. Wholesale
and physical retail have a new role in revamping
customer journeys, requiring brands to look beyondtier-one cities to be physically closer to consumers.
Brands will have to work hard to remain
attractive to consumers, given the tough economic
environment. Consumer behaviours in 2023 will
depend greatly on household incomes. Whilehigher-income households will be less affected byeconomic pressures and look likely to continue
shopping for luxury goods, as in previous downturns,
lower-income households will likely cut back or eveneliminate discretionary spending, including apparel.
Some will trade down, pivoting to value retailers,marked-down items and off-price channels while
eschewing full price, premium and mass brands.
All this elevates the importance of brands’
marketing strategies. Brands should use the year
ahead to innovate their digital marketing. Budgets
will shift to alternative channels that could generatebetter return on investment than paid social media
ads, such retail media networks, while building stronger
brand communities. This will feed into distribution
channels, as brands will need to seek higher margins
and gather more first-party customer data.
How brands manage and communicate about
issues that are important to consumers will also be
critical. Consider sustainability. New and emerging
regulations along with heightened consumerawareness of fashion’s contribution to the climate
crisis mean that brands will need to be hyper-vigilant
about how they talk about their sustainability-related
initiatives and achievements to ensure they are not“greenwashing,” which could potentially lead to
reputational damage or costly fines.

Executives are bracing for a tough2023; leading brands will deploy
realistic but bold strategies thatcombine careful cost control withstrategic investments in skills growth.
Brands that effectively navigate industry
challenges in 2023 will be better positioned to seize
consumer trends. Coming out of the pandemic,
formal dress codes remain disrupted, pushingbrands to rethink office and special occasion attire.
Meanwhile, consumers are increasingly shopping
across gender categories, and brands that can adapt
their merchandising strategies accordingly will beable to strengthen their relationships with a wider
range of consumers.
Executives are bracing for a tough 2023; leading
brands will deploy realistic but bold strategies
that combine careful cost control with strategic
investments in skills growth. Those that recognisethat growth will be unpredictable or muted, but
still charge forward with investments in innovation
throughout their organisations, will find they are in astronger position to accelerate their businesses when
the uncertainty and fragility subside.
11

INDUSTRY OUTLOOKExhibit 1:

Fashion sales in 2023 are expected to grow in the US and China

Preparing for a
Global Slowdown

Non-luxury fashion retail sales, year-on-year growth, 2020-2023E,%
Europe

US

China
36

31 to 3321
11

15
7 to 98

1 to 3

1 to 63-4 to +1

The State of Fashion 2023

-11

The global fashion industry sharply
rebounded in 2021 and much of 2022. But in today’s
fragile market, expectations of a continued recovery
can downshift quickly. Fashion executives
are largely pessimistic about the year ahead,anticipating that a number of challenges will
negatively impact their businesses and customers.
In the BoF-McKinsey State of Fashion
2023 Survey, 84 percent of industry leaders said
they expect market conditions to decline or staythe same in 2023.1 The response stands in stark
contrast to the cautious optimism the cohort felt
heading into 2022, when 91 percent of executives
predicted market conditions would improve or
remain the same.2
The effects of inflation are weighing heavyon executives as they look to 2023. With prices
in Europe and the US reaching historic highs inlate 2022 and central banks raising interest rates,
consumer demand is expected to suffer. Inflationis also pressuring brands’ costs, as the industry
encounters a competitive labour market and theconsequences of climbing energy prices.
Beyond inflation, surveyed fashion
executives identified a range of concerns that had
not impacted the industry for the better part ofa decade. In the year ahead, industry leaders areworried about geopolitical instability and conflict,supply chain disruptions, increased economic
volatility, and rising energy prices.
Regarding geopolitical tensions,12

respondents specifically referenced the war in
Ukraine that began in February 2022. At thesame time, only 5 percent of executives listed
Covid-19 among their top three concerns in 2023,
demonstrating the public health crisis has been
eclipsed by economic and geopolitical issues.3
Outlooks for 2023 vary by region andcontinent, however. In the US, which is moreinsulated from the effects of the war in Ukraine
and Covid-19, 61 percent of executives expected
the same or better conditions in 2023 than 2022.4
European and Asian fashion leaders were themost pessimistic, with 64 percent and 53 percent
anticipating worsening conditions, respectively.5
The sober outlooks are warranted. In 2023,
the industry’s sales are expected to grow at a slower
rate than in 2022, when the gains from the first halfof 2022 were largely diminished by the decelerationin spending in the second half. Industry growth
figures in 2023 will also be distorted by inflation,with a significant share of sales affected by risingcosts and prices. In this context, 2023 could
witness year-on-year volume declines, which has
not happened for many years.
The luxury segment should show more
resilience in the months ahead than othercategories. Its sales are projected to grow 1 percent
to 3 percent in the second half of 2022 and 5
percent to 10 percent in 2023, based on McKinsey
Fashion Growth Forecasts. For the rest of theindustry, growth in 2023 looks likely to be flat or

-19
-25

-28
H2

2020

H1

H2

2021

H1

H2

2022E

FY

2023E

2 to 7-7 to -5

-9 to -7-22

H1

1 to 3

0

H1

H2

2020

H1

H2

2021

H1

H2

2022E

FY

2023E

H1

H2

2020

H1

H2

2021

H1

H2

2022E

FY

2023E

Note: Growth forecasts reflective of inflation; growth rates calculated on actuals expressed in local currencies
Source: McKinsey Fashion Forecasts; McKinsey analysis; expert interviews

Exhibit 2:

Luxury fashion sales are expected to grow across the board in 2023
Luxury fashion retail sales, year-on-year growth, 2020-2023E,%
Europe

US

China
65

50

51
43

30
15

21

20 to 22
10 to 122 to 43 to 83 to 55 to 1011

15 to 17
9 to 14
6 to 8

-15
-28

-31

H1

H2

2020

H1

H2

2021

H1

H2

2022E

FY

2023E

H1

-24

H2

2020

H1

H2

2021

H1

FY

H2

2022E

2023E

H1

H2

2020

H1

H2

2021

H1

H2

2022E

FY

2023E

Note: Growth forecasts reflective of inflation; growth rates calculated on actuals expressed in local currencies
Source: McKinsey Fashion Forecasts; McKinsey analysis; expert interviews

13

INDUSTRY OUTLOOKExhibit 3:

The State of Fashion 2023

Fashion executives are more pessimistic in 2022 than in 2021
about the conditions the industry faces in the year ahead
even negative.6 While the industry is expected
to contract between 5 percent and 7 percent
in the second half of 2022, it should see slight
improvements in 2023, with growth projected
between negative 2 percent and positive 3 percent.7
European prospects in 2023 are particularly
gloomy. Europe’s GDP is expected to grow byless than 1 percent in 2023,8 and inflation is
expected to remain high, undermining consumer
confidence, which is already at levels as low as 2020.
McKinsey’s Quarterly Consumer Pulse Survey
found 14 percent of Europeans were optimistic
about their country’s economic recovery in thesecond quarter of 2022,9 compared to 15 percent
during the same period in 2020.10
Non-luxury fashion sales in Europe areforecast to grow between negative 4 percent andpositive 1 percent.11 And apparel and footwear will
likely continue to lose wallet share among many
consumers who are feeling the pinch of high petrol
and energy prices and the tapering of pandemicera government support programmes. Luxury
will remain an exception in the region as wealthy
consumers and tourists from the US and Middle
East will be less affected by inflation. Europeansales for the sector are projected to grow 3 percent to
8 percent in 2023.12
The US fashion industry’s growth will also
likely slow, but might show greater resilience than
Europe. The already-strong US dollar is likely
to peak in the first half of 2023, and inflation is
projected to cool by the second half. GDP in 2023 isforecast to grow 1.5 percent, down from 3 percent in
2022.13 Non-luxury fashion companies are expected
to grow modestly in 2023, between 1 percent and6 percent, continuing the trend observed in thesecond half of 2022. Like the rest of the luxury
industry, US luxury companies should outperform
other categories in the country, with forecasted
growth of 5 percent to 10 percent.14 Travel will bea driver for the industry. Domestic leisure travel
spending has already surpassed pre-pandemic
levels and business travel is projected to recover to
96 percent of its pre-pandemic levels in 2023.15
14

China is expected to see a modest recovery
in 2023 after a difficult 2022, when persistentcoronavirus outbreaks and a real estate crisis
undermined the fashion market. The country’s
performance in 2023 will be heavily correlated toGDP, which is forecast to grow between 5 percent
and 7 percent.16 Non-luxury sales are projected
to end 2022 with limited growth of 1 percent to 3
percent in the second half but are forecast to deliver
2 percent to 7 percent growth in 2023.17 After
moderate growth in the first half of 2022, China’s
luxury market should grow 15 percent to 17 percent
year on year in the second half, and 9 percent to 14
percent in 2023. The country’s fashion industry
performance at the end of 2022 and through 2023
will be heavily dependent on Covid-19 outbreaks
and health precautions. China’s substantial
middle class will also be highly impacted by policy
responses to the real estate crisis and international
travel guidelines.
Strategic Actions
The majority of fashion leaders polled for the
BoF-McKinsey State of Fashion 2023 Survey said
they plan to focus on sales growth in the year ahead.
But amid worsening economic conditions, 37 percent
also said they plan to seek cost improvements. This
marks the highest number of respondents looking
to cut or better manage costs since The State ofFashion executive surveys began in 2016.
This comes as many of their biggest
line-item costs are rising. More than 97 percent
of respondents said they anticipate higher costof goods sold as well as selling, general andadministrative expenses in 2023. More than 50
percent of executives expect COGS to increaseby over 5 percent, while 40 percent also expect
SG&A to increase by over 5 percent. Furthermore,a higher number of leaders are planning tostreamline their businesses in the year ahead thanthey were in late 2020 during the pandemic.18
To protect margins, nearly three-quartersof executives stated that they plan to increase theExpectations for how fashion industry conditions will evolve in the year ahead,*% of respondents
Better

Same

Worse

16

Expectations for 2023

28

56

62

Expectations for 2022

29

9

* Compared to current year
Source: BoF-McKinsey State of Fashion 2023 Survey, BoF-McKinsey State of Fashion 2022 Survey

Exhibit 4:

Sustainability presents the biggest opportunity and inflation thegreatest threat to the fashion industry in 2023
Top three opportunities and challenges,% of respondents

Biggest opportunities ahead

Biggest challenges ahead
29

16
13

Sustainability 1

Agility

15
12

Brand
differentiation& customer
experience

1O

Inflation &economic
downturn

Margins &profitability

Declining
consumerdemand &confidence

1 Also mentioned as a top industry challenge or opportunity in The State of Fashion 2022
Source: BoF-McKinsey State of Fashion 2023 Survey

15

prices of their products. Among respondents, 10
percent foresee price hikes of more than 10 percent.
To help mitigate the impacts of inflation on
cost, over 60 percent of executives said they plan to
optimise or re-negotiate sourcing agreements. In
addition, approximately two-thirds of executives
said they are considering nearshoring (moving
production closer to their home markets) to adapt
to unpredictable consumer demand. More than
60 percent of fashion leaders also said they wereconsidering strategic partnerships with suppliers
to increase their speed to market and create more
efficient supply chains that will carry benefits fortheir businesses over the long term.
To reduce their own costs of inventory
management and simplify sourcing agreements,
nearly 75 percent of respondents aim to simplify
inventory by reducing the number of products andstyles, while 65 percent plan to adjust the balance
between seasonal and basic items in assortments.
Many fashion leaders are also anticipating
customers will trade down to value products. As
such, nearly 60 percent of respondents plan toincrease the share of lower-priced items in theirassortments, while 80 percent expect more than
10 percent of their sales in 2023 to be driven bypromotions and discounts.
Growth Priorities
In 2023, fashion leaders anticipate a continuationof the casualisation trend that took hold during
the pandemic as more shoppers shifted to working
from home. Casualwear, followed by sportswear
and sneakers, are the highest-ranking categories
in terms of where executives see the greatest
growth potential. Accessories, jewellery and formal
shoes ranked lowest, reflecting expectations that
consumers will cut spending on non-essential
items during the period of economic uncertainty.
However, while executives believe consumers willcontinue dressing casually in their day-to-day,nearly 40 percent expect occasion wear to be one of
their top three growth categories in 2023, as special
16

events like weddings increase after having been
postponed during the pandemic.

While executives are divided on
how long the economic slowdown
might last, they agree theconditions ahead will be difficult for
the industry to navigate.
Despite the economic challenges ahead,some fashion executives said they remain focusedon sustainability projects, which was cited as
the most important opportunity for 2023 by 16
percent. Meanwhile, only 3 percent of respondents
listed web3 as a top theme shaping 2023 and only
8 percent said it had been a major considerationfor 2022. While metaverse-related initiatives
will likely play a growing role in the industry inyears to come, for now it is a nascent opportunity.
Executives are more focused on addressing
near-term challenges to their businesses.
As they consider where to invest in global
markets, fashion executives cited the Middle East,
North America and Asia Pacific (excluding China
and India) as the most promising regions for 2023
compared to 2022. In line with more optimistic
expectations in these regions, they were also
among the top choices for respondents planning toincrease their footprints in 2023.
While executives are divided on how longthe economic slowdown might last, they agree theconditions ahead will be difficult for the industry
to navigate. In addition to concerns about inflation,
economic slowdowns and margin pressures,
respondents cited changing consumer demand anddeclining confidence as key challenges in 2023.
All told, the state of the global fashionindustry in 2023 will be characterised by a sober
world that is unpredictable and fragile. Fashion
leaders will be challenged to streamline costs,
quickly sharpen their risk management strategies
and modernise their operations to build resilienceamid a tumultuous time ahead.

Shopper browsing apparel in a store. Thomas Barwick/ Getty Images.

The State of Fashion 2023

INDUSTRY OUTLOOK

17

The State of 		
GLOBAL ECONOMY

Fashion 2023

CONSUMER SHIFTSFASHION SYSTEM

01.

02.

03.

04.

05.

06.

07.

08.

09.

10.

GlobalFragility

Regional
Realities

Two-TrackSpending

Fluid
FashionFormalwear
Reinvented

DTC
Reckoning

TacklingGreenwashing

FutureProofing
Manufacturing

Digital Marketing
Reloaded

Organisation
OverhaulAmid the highest
inflation in a
generation, risinggeopolitical tensions,climate crises andsinking consumer
confidence inanticipation of an
economic downturn,the global economy
is in a volatile state.
Fashion brands willneed careful planningto navigate the many
uncertainties andrecessionary risks
that lie ahead in 2023.

Understanding where
to invest globally has
never been easy but
rising geopoliticaluncertainty anduneven postpandemic economic
recoveries, among
other factors, will
likely make it evenmore challenging
in 2023. Brands canre-evaluate regional
growth priorities
and hone theirstrategies so they are
more tailored to thegeographies in which
they operate.

Consumers may be
impacted differently
by the potential
economic turbulencein 2023. Dependingon factors including
disposable income
levels, some will
postpone or curtail
discretionary
purchases; others willseek out bargains,
increasing demand
for resale, rental andoff-price. Fashion
executives should
adapt their businessmodels to protect
customer loyalty andavoid diluting theirbrands.

Gender-fluid fashionis gaining greater
traction amidchanging consumer
attitudes towards
gender identityand expression.
For many brands
and retailers, theblurring of the lines
between menswear
and womenswear will
require rethinking
their productdesign, marketing,and in-store anddigital shopping
experiences.

Formal attire is taking
on new definitions as
shoppers rethink how
they dress for work,
weddings and otherspecial occasions.
While offices andevents will likely
become more casual,special occasions
may be dominatedby statementmaking outfits that
consumers rent or
buy to stand out
when they do decideto dress up.

Though brands
across pricesegments andcategories
have embraced
digital direct-toconsumer channels,
mounting digitalmarketing costs
and e-commerce
readjustments have
put the viability of
the DTC model into
question. To grow,brands will likely
need to diversify
their channel mix,
including wholesale
and third-party
marketplaces,
alongside DTC.

As the industry
continues to grapple
with its damaging
environmental
and social impact,
consumers,
regulators andother stakeholders
may increasingly
scrutinise how
brands communicate
about theirsustainability
credentials.
If brands are to avoid“greenwashing,”
they must show thatthey are making
meaningful andcredible change
while abiding by
emerging regulatory
requirements.

Recent data rules
are spurring a newchapter for digitalmarketing as customer
targeting becomesless effective andmore costly. Brands
will embrace creative
campaigns and newchannels such asretail media networks
and the metaverse toachieve greater ROI
on marketing spend
and gather valuable
first-party data thatcan be leveraged todeepen customer
relationships.

Successful executionof strategies in 2023
will in part hinge on acompany’s alignment
around key functions.
Fashion executives
need a new vision forwhat the organisationof the future will
require, focusing
on attracting andretaining top talent,
as well as elevatingteams and criticalC-suite roles to
execute on priorities
like sustainability anddigital acceleration.

56%

74%
~1/2

56% of fashion
executives expect
conditions in the fashionindustry to worsen in theyear ahead~1/2 of fashion
executives expect toexpand their footprint inNorth America in 2023

74% of US fashion
consumers traded down
to less expensive brands
or products between
April and July 2022

39

%

1/3

79

%

Continued
disruptions in supply
chains are a catalyst
for a reconfigurationof global production.
Textile manufacturers
can create new
supply chain models
based aroundvertical integration,nearshoringand small-batch
production, enabled
by enhanced
digitisation.

>2/3

1 in 2
1 in 2 Gen-Z consumers
on average havepurchased fashion
outside of their gender
identity

39% of fashion
executives expect
occasion wear to beamong the categories
to grow the most in 2023

1/3 of fashion executives
cited challenges todirect-to-consumer
channels as one of the
top themes that will
impact their businessin 202379% of fashion executives
consider the lack ofstandards to assesssustainability performanceas the greatest hurdle
to improving how
consumers perceive theirsustainability efforts>2/3 of apparel chiefpurchasing officers
expect digitisation to
be the most importantcapability for suppliers
to grow in the year
ahead

79%
79% of US apparel andfootwear executives
rate the performance ofretail media networks
as better than othermarketing channels~90%

90% of fashion
executives haveprojected a skills
shortage in theirorganisations

01. GLOBAL FRAGILITYGLOBALECONOMYThe State of Fashion 2023

01. GLOBAL FRAGILITY
02. REGIONAL REALITIES

Amid the highest inflation in a generation, rising geopoliticaltensions, climate crises and sinking consumer confidence
in anticipation of an economic downturn, the global
economy is in a volatile state. Fashion brands will needcareful planning to navigate the many uncertainties andrecessionary risks that lie ahead in 2023.

KEY INSIGHTS
1. A range of destabilising factors, such as inflation and heightened geopolitical tensions,continue to weaken an already fragile world economy, with global GDP growth expected to fall
to approximately 2.5 percent in 2023 as the threat of recession looms over many countries.
2. Consumers are becoming more cautious about their discretionary spending in mostregions. Europeans intend to make the biggest spending cuts on apparel, footwear, andaccessories and jewellery.
3. To protect their companies’ bottom lines, 72 percent of fashion executives plan toincrease prices and 37 percent expect to focus on cost improvements in 2023, a higher
proportion than in 2020.

EXECUTIVE PRIORITIES

20

Broaden scenario
planning

While executives should identify non-negotiable objectives, theirscenarios should capture the full range of economic and politicaloutcomes and contain flexible contingency plans.

Build pricing muscle

Build greater pricing capabilities to adapt to a high-inflation
environment and protect top lines, crafting bespoke pricing
strategies that account for fluctuations in customer purchasing
power and maximise impact across the assortment.

Hone profitability

With supply of capital tight, leaders will need to focus on thebottom line and consider making difficult trade-offs in inventory
and supply chain management to prioritise profitability overrevenue and market share.

21

The State of Fashion 2023

GLOBAL ECONOMY

If any questions remained as to howinterconnected the global economy has become,
2022 provided clear answers. By the end of theyear, few economies were spared from the effects ofescalations in everything from inflation to global
supply chain meltdowns to heightened geopoliticaltensions, all amid a worsening climate crisis thathas contributed to unprecedented environmental
events, from droughts to floods to heat waves. Noneof this looks likely to disappear entirely in 2023.
The impact on the global economy is alreadyevident: the strong GDP growth of 6.1 percent
recorded in 202119 will likely slip below 3 percent in
2022 and to approximately 2.5 percent in 2023.20
The uncertainty around these outcomes remains
very high, reflecting the ongoing volatility of the
global economy.21
In the year ahead, business planning
across the fashion industry must reflect this newstate of fragility. In this environment, scenario
and contingency planning becomes even morecritical as companies must understand whether therange of potential outcomes will require tacticalchanges in their operating plans in the next one
to two years to mitigate risks and seize hidden
opportunities. Business leaders must ask whether
this potential range of outcomes changes their viewon the fashion industry market segments within
which they operate and what their medium- andlong-term strategies should be.
Shocks Spill Over into 2023
Several events in 2022 will continue to shape 2023.
Russia’s invasion of Ukraine has first and foremost
created a humanitarian crisis. It has also severely
disrupted global commodity markets, catapulting
Europe into a severe energy squeeze and causing
many developed and developing economies tostruggle with significantly high prices for basic
food imports.22 23 In Germany, the euro zone’s
largest economy, the annual increase of food prices
reached close to 15 percent in July 24 and energy
22

01. GLOBAL FRAGILITY

costs are expected to triple from 2023,25 shrinking
consumers’ budgets for discretionary goods likefashion.
By contrast, the financial boost from gas
and oil exports is evident in countries such as Saudi
Arabia, where the economy is expected to growat its fastest pace in a decade in 2022 with GDP
expanding by 7.6 percent, creating opportunities
for the fashion industry.26
While Covid-19 has mostly faded from news
headlines in some countries, it continues to causea significant health and economic impact in others.
Nevertheless, during 2022 most governments
rolled back Covid-19 public health restrictions aswell as pandemic-related household and businessaid packages, from tax and other relief for US
households to cash handouts in Japan to loan
guarantees in South Africa.27 China is a notable
exception; new Covid-19 variants and outbreaks
are being met with strict lockdown periods that
continue to raise concerns about the country’s
growth trajectory in the short term.28

Price hikes are expected tocontinue into 2023 as brands passon increased costs to customers.
In the US and Europe, the effects of inflation
are already apparent in fashion. Prices for apparelfor sale online across the US, UK, France, Italy
and Spain increased 22 percent between Julyand October 2022 compared to between Marchand June 2022.29 Price hikes are expected tocontinue into 2023 as brands pass on increased
costs to customers. Inflation could impact fashioncompanies in other ways, including higher
costs of borrowing, potentially causing planned
investments or growth strategies to be delayed orscaled back.
To help curb inflation, the US Federal
Reserve, the European Central Bank and othercentral banks have been aggressively raisinginterest rates — after negative or ultra-low levels forseveral years in many countries30 — bringing what
Jerome Powell, head of the US Federal Reserve,
described as further “pain to households andbusinesses” as part of the “unfortunate costs ofreducing inflation.”31
Here too, China is an exception; a slowing
property market in the country prompted thePeople’s Bank of China to lower key interest rates
in August 2022 after total credit extended to theeconomy hit record lows in the previous month.32
In the US, many economy watchers believethat a recession is increasingly likely in 2023,33 34
while the Bank of England warned in September
2022 that Britain’s economy may already be inrecession, following forecasts of GDP contraction
over two consecutive quarters. In other parts of theworld, a different pattern is emerging: According
to the World Bank, growth in major East Asianand Pacific economies is projected to be higher andinflation lower than in the rest of the world, due
in part to sustained global demand for exports ofmanufactured goods.35
These and other global shifts are impacting
currency markets. During the summer months
in Europe, the euro fell below parity with the
US dollar,36 its lowest level in 20 years, while
in September the British pound hit a record
low against the US currency.37 Meanwhile, theJapanese yen hit its 24-year low against the dollar.38
Currency headwinds are weighing on global
businesses. With the US dollar widely considered to
be a premier currency for international trade, many
companies around the world are having to adjust
their performance outlooks.
To be sure, currency fluctuations are also
creating opportunities for international companies
operating in the US, or countries with currencies
pegged to the dollar, by artificially increasing
their revenue when converting back to their homecurrency.39 40

Consumer Caution
Consumers are facing higher prices on multiple
fronts, from groceries to petrol, straining
household budgets41 and impacting consumer
confidence.42 In a summer 2022 McKinsey
survey, US consumers reported they were twice
as pessimistic about the economy than during
the prior two years.43 In Europe, consumers citedrising prices, the war in Ukraine and extreme
weather events as the top reasons weighing down
their sentiment, according to another McKinsey
survey from the summer,44 with respondents
predicting they would make the biggest cuts inspending on apparel, footwear, and accessories andjewellery.45 In China, continued Covid outbreaks
have dampened consumer spending, as illustrated
by the Golden Week holiday in October 2022, when
consumer spending was down 26 percent year on
year, the lowest level since 2014 and less than half of2019’s spending.46
Many shoppers are becoming more cautious
about their discretionary purchases, indicatingthat the surge in spending on apparel and othersegments following the height of the pandemic
is reaching an end, if it has not already ended.47
According to the BoF-McKinsey State of Fashion
2023 Survey, 45 percent of fashion executives
expect to update their assortment mix to adapt
to lower consumer purchasing power, while 72
percent plan to increase retail prices to help theircompanies manage the inflationary environment.48
Consumer behaviour could turn suddenly,
again, from cautious to confident if economic
signals brighten. However, brands should remain
flexible to respond to a potential, and sudden,
release of pent-up shopping demand and unevenpatterns emerging across different markets.49
Brands should also anticipate the fragility of thesechanges. While high-income households will bemost likely to continue shopping in 2023, given theirrelatively healthier financial foundations, even they
may prioritise saving over spending out of caution.50
23

GLOBAL ECONOMY

The State of Fashion 2023

Plan and Pivot
The fashion industry weathered unprecedented
challenges in recent years, and 2023 will test its
resilience yet again, albeit with some categories
entering the year in a stronger position than others.
According to McKinsey analysis of publicly listedcompanies, the luxury segment’s top-line grew 27
percent in the first half of 2022, compared to thesame period in 2021,51 while luxury groups like
LVMH and Kering reported double-digit growth forthe first nine months of 2022 and have increased
their revenue projections.52 53 54 If the impact ofinflation follows that of prior slowdowns andpredominantly effects lower- and middle-income
consumers,55 industry analysts expect the luxury
category to be more resilient than the rest of the
fashion market.

While high-income households will
be most likely to continue shoppingin 2023, given their relatively
healthier financial foundations,even they may prioritise saving
over spending out of caution.
Even so, companies’ scenario planningduring the year ahead must sufficiently capture theincreased levels of uncertainty, with contingency
programmes under varying scenarios clearly
mapped out. Fashion leaders will need to prepare
for a number of economic and political outcomes.
Some of fashion’s more challenging scenarios
may play out in the developing world, where local
conflicts in manufacturing hubs can escalate
and impact industry practices. For example, the2021 coup in Myanmar is among the factors thathave left the country highly vulnerable to conflictor collapse, according to annual research fromthink-tank Fund for Peace.56
At the same time, trade wars and sanctions
24

01. GLOBAL FRAGILITY

can limit access to raw materials and energy
sources while obstructing supply chains. Severe
floods in Pakistan and Brazil as well as extreme
temperatures in India in 2022 show how climate
disruptions can hinder both raw material
production and manufacturing operations thatare critical to the fashion industry.57 58 Similarly,
new Covid-19 restrictions imposed in China that
impacted factories and ports in 2022 demonstrated
the industry’s reliance on the country as amanufacturing hub.59
When considering scenarios for key
markets, brands should hone their flexibility, agility
and speed to balance the realities of short-termcrises with long-term strategic priorities.60 61 62 63
Key projects, like investments in digitisation
advancement and the reduction of environmental
impact, should not be abandoned.
The ultimate aim for fashion leaders will
be to build resiliency, which will require a renewed
focus on profitability. Before the pandemic, theindustry experienced a period of high growth,during which many brands focused on their top
lines and building market share. Funding was cheap
and accessible, boosted by inexpensive debt andeager investors. In the year ahead, investors are
expected to be more cautious, showing a high, if
not singular, preference for businesses with robust
margins. Brands with weaker margins or market
positions, such as mid-market brands, will be
particularly vulnerable. (See the McKinsey Global
Fashion Index on page 112.) A focus on the bottom
line in this inflationary climate will require difficult
trade-offs between, for example, capping salaries orinvesting in pay rises to retain key employees in acompetitive job market.
Growing profitability will entail multiple
actions, including learning how to better manage
unpredictable consumer patterns while staying
ahead of supply and demand pressures. Companies
that had wanted to avoid supply chain disruptions
ahead of the downturn by placing advanced orders
are now facing record inventory levels and will

likely need to discount substantially to clear
stock.64 Creating greater flexibility across inventory
management systems will help minimise suchchallenges. For example, technology can help
with re-routing supply to low-congestion ports
and shipping lanes to reduce the time goods arein transit or by optimising the assortment mix
between season-agnostic and seasonal products.65
Fashion leaders must also monitor capital efficiency
with granularity to be able to re-allocate resources
as needed.66

Having a resilience mindset will be
non-negotiable in 2023. For fashion executives,
this will require putting contingency planningcentre stage and embedding clear accountability
for business performance throughout every part oftheir organisations. By taking an all-hands-on-deckapproach, leaders can strengthen their companies’
positions to flourish even amid global volatility andeconomic uncertainty.

Exhibit 5:

Inflation, geopolitical instability and supply chain disruptions are the
top risks for fashion businesses in 2023, far eclipsing Covid-19
Top three risks to fashion businesses in 2023,% of respondents

78
66
52

31

28
17

15
7

Inflation

Geopoliticalinstability

Supply chain
disruptions

Increased
economic
volatility

Volatile
energy prices

Risinginterest rates

Financialmarketvolatility

Trade policychanges5
Covid-19
pandemic

Source: BoF-McKinsey State of Fashion 2023 Survey

25

IN-DEPTH

GLOBAL ECONOMYManaging Inflation for Growth
After years of benign macroeconomic conditions, volatility and uncertainty areback on the global agenda, fuelled by soaring energy prices and accelerating
inflation. As rising prices squeeze fashion industry margins, central banks
are lifting interest rates to the highest levels for at least 15 years, producing adampening effect on consumer sentiment. In response, fashion decision makers
need to act quickly to build resilience and plot new avenues to profitable growth.

The State of Fashion 2023

by Emily Reasor, Aaron Rettaliata, Jesse Nading and Jad Hamdan

Industry earnings statements over the
recent period have made for bleak reading. Costpressures have impacted nearly all categories,
putting increased pressure on margins and volume,and making any return to pricing “normalcy”
feel far off. Indeed, secondary effects mean prices
are rising through the value chain, and wages arefollowing suit — in the US they are rising twice as
fast as in 2019. Meanwhile, consumers are drawing
back. McKinsey’s most recent Consumer Pulse
Survey shows 37 percent of consumers plan toreduce discretionary spending and 74 percent say
they are trading down when shopping.67
For most fashion companies, inflation is topof their list of concerns for 2023. However, they also
understand that change does not happen easily orovernight. With buying and merchandising cycles
stretching to 18 months in some cases, decision
makers need to think carefully about how to planfor secondary effects and manage their margin
structures over time. Those that act robustly havean opportunity to establish a durable advantage
against their competitors. Conversely, a tepid
response is likely to lock in a multi-year cycle ofmargin erosion and underperformance.
26

Diverse Challenges
While inflation has near-universal impacts, thespecific challenges facing fashion players often
reflect their regional exposures and businessmodels. In the US, for example, the Federal
Reserve has taken an aggressive approach totaming inflation, with the Federal Reserve’s key
rate expected to rise above 4.5 percent in 2023.
Moreover, private sector wage growth has beenstronger than in other regions, suggesting inflation
may prove sticky in the longer term. In Europe, bycontrast, inflation is being driven by energy prices,and may therefore resolve more easily once theimpacts of the war in Ukraine abate. Still, currency
fluctuations are likely to continue to affect companies
with costs in US dollars and sales in euros.68
Asia is an outlier in the global context, inthat a relatively benign inflation environment isbeing offset by slow growth and the continuationof Covid-related economic impacts, particularly in
China.69 However, the region’s financial health isbeing undermined by rising US interest rates andhigh commodity prices. Meanwhile, Latin America
presents a mixed picture, with some countries

putting in place an aggressive monetary response toinflationary risk, while others remain in relatively
good shape.
Navigating Turbulence
The challenging economic environment has had
asymmetric impacts across fashion businessmodels. However, in general, businesses with thehighest exposures to disposable income are facing
the biggest challenges.
In the luxury and affordable luxury
segments, many well-known brands have remained
insulated, or partially insulated, from the impacts
of inflation and macroeconomic turbulence. LVMH,
which owns brands including Christian Dior, Fendi
and Givenchy, reported organic 20 percent revenue
growth to €56.5 billion (approximately $55.8
billion) in the first nine months of 2022, compared
to a year earlier.70

Among premium brands, the picture ismixed. Value-conscious consumers are trading
down into value, off-price and private label brands,
while higher-income consumers are less likely
to switch. As highlighted in recent US earnings
calls, the environment is particularly tough forcompanies that have overbought inventory and arecontending with supply chain issues. This has led insome cases to declines in gross margins and a waveof discounting.
As consumers trade down, the value
segment may benefit. Indeed, retailers can
optimise their propositions by shifting away frombrand-name products and toward more privatelabel offerings. In addition, an agile approach to
product design can be a winning strategy, allowing
manufacturers to reset their cost bases andcater to shifts in consumer demand, albeit with adelayed impact on the bottom line. Similarly, thediscount segment is well placed to navigate the

Exhibit 6:

US consumers are trading down to lower-priced brands and products
across income groups and generations
Consumers trading down, by generation and income level,% of respondents

US consumers changing their shopping
behaviour, % of respondents

Gen-Z (18–25)

87

N=412

Millennials (26–41)
N=1,107

Gen-X (42–57)
N=1,127

No change

74

N=1,578

74

Trading down1

Low income(<$50k)81

73

26
Baby Boomers (58+)
N=1,363

64

Medium income($50–100k)75

N=1,328

High income($100k+)72

N=1,102

1 Trading down includes one or more of the following: shopped from a lower priced retailer, shopped from lower priced brand, bought private label, bought with a coupon, used buy
now pay later, delayed a purchase, bought a larger size pack for lower price, bought smaller size or quantity, made more shopping trips in search of discounts.
Source: McKinsey & Company US Consumer Pulse Survey

27

GLOBAL ECONOMY

IN-DEPTH

current environment. The strongest demand islikely to be from lower-income consumers, whowill feel the impacts of inflation more than theirpeers.71 Moreover, off-price retailers will benefit bypicking up low-cost inventory from under-pressure
retailers further up the food chain.

The State of Fashion 2023

Fashion Players Can Respond
While inflation is running at the fastest rate
for decades, and consumer sentiment remains
subdued, fashion companies are well-placed to takeaction that could offset pressure on performance.
Here we gather six ideas that leading businesses
have harnessed to optimise their approaches:
Triple your productivity effort:
Amid pervasive price rises through the value
chain, productivity will be a key success factor.
Players should conduct a rigorous assessment of
input costs and double down on indirect spend
and organisational efficiencies to maximise

productivity. Leading manufacturers are also
resetting their cost bases through design-to-value
thinking. Meanwhile, suppliers and verticallyintegrated players can recalibrate their supply anddistribution networks. A third option is to relocate
distribution centres to balance labour economics
with last-mile costs, or use third-party logistics andsupply-chain-as-a-service providers to reduce asset
intensity and distribution overheads.
Reset your assortment and category
strategy: Consumers are letting their wallets
do the talking. In the early months of 2022, 67
percent of consumers that tried a new brand cited
value as a reason for switching, an increase of 9
percentage points from October 2020. Meanwhile,
about a third of consumers have switched to a
private label brand over the past year.72 Fashion
players can respond to these trends by revising
their assortments and sharpening entry-level pricepoints. Retailers, meanwhile, can extend privatelabel offerings. Winners will also leverage data andExhibit 7:

Within fashion, prices are rising more in some categories than others
US Consumer Price Index, June 2021-June 2022,
CAGR %
8.2

CPI for all items

5.5

Apparel

3.9

Men’s underwear, nightwear,
swimwear and accessories

Boys’ apparel

3.6

Men’s trousers and shorts

4.2
2.7
2.2

7.3
9.0

Girls’ apparel

6.7

Infant and toddler apparel

10.0

Women’s suits and separates
Women’s underwear, nightwear,
swimwear and accessories

Footwear

3.9

Women’s outerwear

Watches and Jewellery

4.3

Women’s dresses

Source: BLS

9.5

Men’s shirts and sweaters

Men’s apparel

Women’s apparel28

Men’s suits, sport coats
and outerwear

5.6
3.5
2.7

analytics capabilities to work out where consumers
are most price sensitive and which segments are themost exposed to inflation. Looking ahead, retailers
seeking to improve private-brand penetration could
foster awareness and loyalty by adopting consumerled brand strategies and category management, as
well as ramping up design capabilities.
Surgically rebase your value equation:
Instead of implementing broad price increases thaterode customer trust, retailers could reprice bycustomer and product segment, taking into accountboth margin performance and willingness to pay.
In parallel, they could introduce personalised
promotions and loyalty initiatives, especially for
products that are highly exposed to inflation or
are important to customers. This can strengthen
relationships while alleviating margin pressure
by reducing the need for mass promotions.
Fashion players that take a surgical approach tothese endeavors are more likely to emerge withprofitability and consumer relationships intact. In
addition, to win or retain near-term market share,businesses may consider absorbing some higher costs.
Consider adjusting discounts andpromotions: Several leading players are
re-evaluating their pricing and promotion
mixes, helping them manage volatility without
punishing consumers. In addition, forward-looking
companies have shown that data and analytics canhelp them become more precise in their efforts,
as well as more effective in managing inventory
surplus, value perception and margins. There isalso an opportunity to better manage attributes
that the data reveals are valuable to consumers.
Reimagine your labour model: To counterthe effects of labour cost inflation, retailers could
look for opportunities across their business model.
These may comprise deploying more technology
and analytics, resetting labour allocation,
reviewing scheduling and taking an end-to-end
approach to managing costs. Half of US retail
employees are considering leaving their jobs, amuch higher proportion that in the wider economy.
Therefore, it makes sense to invest in the frontline

employee experience, leveraging recruitment
and talent analytics to beef up capabilities, andrefreshing ideas that could encourage staff toremain in their jobs.
Scale up management capacity anddecision making: In a challenging macroeconomic
environment, executive teams have a vitalrole to play. This is an ideal time for decision
makers to remove bottlenecks and streamline
communications and workflows with vendors,
supply teams, design teams, and store ande-commerce operatives. Tactically, this could
mean improving visibility into cost structuresand strategically communicating across theorganisation — and with vendors and suppliers. By
accelerating decision making, fashion players canfocus minds on delivering pricing that achieves
the highest return on investment, especially when
responding to competitor moves. Accordingly,
leaders need to define KPIs that both trackcustomer behaviours and measure the effectivenessof initiatives. For instance, by carefully monitoringproduct categories for declining volumes and basket
size, they can spot signs of behaviour changes
caused by price sensitivity.
Inflation and economic uncertainty are
powerful drivers of fashion industry performance,
and are unlikely to abate anytime soon. Therefore,
the task for decision makers over the coming
months will be to impose short-term tacticaldiscipline on business models, but at the same timeembed strategies that promote flexibility, clarityand fast decision making across geographies andoperations.
Emily Reasor is a senior partner in McKinsey’s Denver office, leads McKinsey’s
Retail and Growth, Marketing and Sales practices, and leads the Pricing
and Margin Management service line for the Americas. Aaron Rettaliata
is a partner in McKinsey’s Pittsburgh office, leads McKinsey’s Retail andConsumer Goods practice and leads the Merchandising service line in North
America. Jesse Nading is an associate partner in McKinsey’s Denver office
and is a leader in McKinsey’s Retail practice, with expertise across growth andcommercial topics for apparel, fashion, food and specialty retail. Jad Hamdan
is an engagement manager in McKinsey’s Denver office and specialises incommercial retail topics among fashion and specialty retail players, including
growth transformation, pricing and promotions.
The authors would like to thank Felix Rölkens, Kevin Bright, Andres Moinge,
Gokmen Ciger, Claus Heintzeler and Sarah André for their contribution tothis article.

29

02. REGIONAL REALITIESUnderstanding where to invest globally has never been
easy but rising geopolitical uncertainty and uneven postpandemic economic recoveries, among other factors,
will likely make it even more challenging in 2023. Brands
can re-evaluate regional growth priorities and hone theirstrategies so they are more tailored to the geographies inwhich they operate.

The State of Fashion 2023

KEY INSIGHTS
1. Growing geopolitical uncertainty and slower-than-expected recoveries from thepandemic have shifted the world map of growth opportunities for fashion brands, andexecutives are intending to take action.
2. Markets that fashion brands have prioritised in their growth strategies, such as China,
are signalling a slowdown ahead.
3. Regions like the Middle East and the US have emerged as priorities for the year ahead:
88 percent and 78 percent of fashion executives believe the respective regions will
have the same or higher growth prospects in 2023 compared to the previous year.

Shoppers in Seoul, South Korea. Shutterstock.

EXECUTIVE PRIORITIES

30

Re-evaluate
regional risk

Identify regions that are continuing to drive growth amid
economic uncertainty, such as the Middle East and the US, andfocus investment in those markets.

Look beyond financial
outcomes

When identifying regional opportunities and defining priorities,
place greater emphasis on reputational factors, geopoliticalrisks, cultural differences and regulatory complexity.

Lean into localisation

Adopt an increasingly nuanced, localised approach tomarketing and merchandising, empowering local teams tofacilitate region-specific opportunities and respond quickly toevents on the ground.

31

The State of Fashion 2023

GLOBAL ECONOMY

In the weeks that followed the Russian
invasion of Ukraine in early 2022, more than
500 global companies across a range of sectors
announced they would cease operations in
Russia.73 Many brands cited trade restrictions
and operational difficulties as they began exitingor suspending operations. Some companies
chose to also take a side in the war. They issued
condemnations of violence or coupled theiroperational decisions with humanitarian
donations. Some brands decided to hold or evenexpand their businesses in Russia, capitalising on
the vacuum left by the departure of brands from
Europe and the US. But for most brands that left,
curtailing business in Russia was done with theintention of showing solidarity with and support for
those calling for peace.74
Not so long ago, such a statement
would have been considered unusual, evencontentious. Fashion brands have long aimed to
be politically neutral in order to avoid alienating
not only their customers, but also investors andbusiness partners. But in today’s polarised andinterconnected world, a global brand’s public,
political and social affiliations can impact its
relationships with consumers75 and business
partners. In opting to forgo operations within aparticular market, companies may lose revenues
in the short term, but leaders should weigh up the
impact on brand equity and consumer trust in othermarkets in the longer term.
For fashion executives, the politicisationof the private sector adds a new dimension to how
and where they focus on growing their businesses
globally. Decisions about whether to invest in acountry or region can no longer be confined toits economic potential. Today, fashion leaders
should consider the social tensions and politicaluncertainties that can obstruct business operations
or escalate reputational risk. Many of the priorities
based on the geographic markets that were central
to the fashion and luxury industry in recent years
are shifting as a result.
32

02. REGIONAL REALITIESChina Through a Changing Lens
In recent years, many Western fashion brands
pivoted their foreign investment to the Chinese
market, with good reason. Even during the
pandemic in 2020, China accounted for 25 percent
of global apparel and footwear sales, ahead of the
US and Western Europe with 20 percent and 22
percent respectively.76
China’s GDP has more than doubled over thecourse of a decade, from $8.5 trillion in 2012 to $17.7
trillion in 2021,77 fuelled by urbanisation andincreased productivity, alongside a large and growing
middle class with disposable income, helping it togrow faster than other major global economies.
Though still a critical market, China is
now facing a changing growth trajectory.78 In
October 2022, the International Monetary Fund
forecast China’s GDP to grow 3.2 percent for theyear,79 compared with 8.1 percent in 2021,80 citing aproperty sector crisis and partial or full lockdowns
in response to outbreaks of new Covid-19 variants
in more than 70 cities, spanning key fashion
shopping hubs like Shanghai, Beijing, Shenzhen,
Guangzhou and Chengdu.81 In the third quarter of2022, the country’s GDP grew below target, castinga shadow over investor sentiment amid concerns
about the country’s longer term outlook.82 HSBC
estimated that retail sales were down 40 percent
year on year in April and 50 percent in May due tostore closures.83
Even without the threat of further Covid
outbreaks, the Chinese market presents otherchallenges specific to foreign fashion brands. For
example, some Chinese consumers are startingto favour domestic brands over their foreigncounterparts. Sales of foreign-branded sneakers
on Chinese online retailer Tmall decreased 24
percent year on year in 2021, while domestic
brands’ sneaker sales grew 17 percent. Sportswear
apparel saw a similar shift, with foreign-brandsales declining 33 percent compared with domestic
brands’ 13 percent growth year on year. 84

Meanwhile, income inequality in China
is widening, nearly reaching 2008 levels,85 andyouth unemployment is rising.86 In addition, major
institutions like the World Bank are concernedthat the country is too reliant on debt-financed
infrastructure and real estate investment as ameans to stimulate growth.87 As of September 2022,
the value of new home sales and levels of property
investment were down 29 percent and 12 percent
year on year, ominous signs when 70 percent ofChinese household wealth is tied up in real estate.88
Amid all this, however, China’s long-term
growth projections remain robust. By 2040, its
GDP is projected to reach $47 trillion, widening the
gap with the US, at $28 trillion, and the euro zone,
at $19 trillion.89 90 China will likely remain a coremarket for fashion consumption in the long term,with significant untapped opportunities among acustomer base whose sentiment for luxury brands
in particular is holding strong.91
Fashion brands can adjust their strategies
accordingly. Many brands are already directing
their investments into China’s shopping hubs
where growth appears to be the most robust.
Brands opening new or refurbished stores include
Hermès in Wuhan, Ralph Lauren and Louis Vuitton
in Chengdu, and Marni and Maison Margiela
in Shanghai. Others are doubling down on theluxury duty-free opportunity by expanding in theemerging shopping hub of Hainan.92
Resilience in America
US-based fashion groups Capri Holdings andTapestry, which generate more than half theirsales in North America,93 delivered strong resultsin 2022.94 95 Overseas brands also fared well, with
the Americas being the fastest-growing market
for Spanish fashion group Inditex, with sales
increasing 45 percent year on year in the first halfof 2022,96 while Swiss sportswear brand On grewsales in North America at 102.5 percent year on
year over the same period.97

It was not just at home that Americans
continued to shop. As pandemic-related travel
restrictions lifted, shopping in Europe was madeeven more attractive to Americans, bolsteredby a strong dollar against the euro and poundsterling. Luxury brands in Europe cited American
tourists as a key driver of increased first-half sales,
including a 47 percent rise at LVMH and 53 percent
rise at Kering.98

For fashion executives, thepoliticisation of the private sector
adds a new dimension to how andwhere they focus on growing theirbusinesses globally.
With overall US retail sales expected toclose 2022 on a two-decade high,99 the sector
will have a strong foundation heading into 2023.
Meanwhile, the US has also reclaimed its spot as
the largest market for luxury goods in the world in
2022,100 even if the country will likely concede thisposition to China again in the near term. “The US
is proving to be a long-lasting source of growth forthe luxury industry, fuelled by younger generations
who are highly engaged with the category,” said
José Neves, co-founder and chief executive of luxury
e-commerce platform Farfetch,101 which generated
over 20 percent of its revenue from the US market
in 2021;102 further confirming its confidence inthe market, it acquired a minority stake in Dallasbased luxury department store Neiman Marcus in
2022.103
Some fashion companies are targeting
second-tier US cities for new growth, as wealthierdemographics have taken advantage of remote
work to seek out alternatives to higher-cost cities
like New York, Los Angeles and San Francisco.104
Luxury labels Saint Laurent and Gucci are set toopen stores in locations like Detroit, New Orleans
and Columbus.105 MyTheresa and Saks Fifth Avenue,
33

GLOBAL ECONOMY

02. REGIONAL REALITIESExhibit 8:

US may be more resilient than other key markets,
but brands should be cautious and be prepared for apotential slowdown in the US market, too.

Japan and Korea has been driving the countries’
economic recoveries, as they largely filled thevoid left by home-bound Chinese tourists. Japan’s
economy recovered to its pre-pandemic size inAugust 2022, fuelled by increased consumer
spending after Covid restrictions were eased in
March 2022,110 while Korea reached the same
milestone in April 2021,111 and the country’s
consumption and GDP growth rates continued to
exceed analyst expectations in 2022.112
During the pandemic, Western brands inthese countries learned how to adapt to Covid
restrictions, such as by introducing remote sales
strategies. For Italy-based Moncler, private
appointments and distance sale transactions,where customers make purchases from home via
video calls with sales associates, now account for
30 percent of sales in Korea and 20 percent inJapan.113 Meanwhile, department store groups
Shinsegae, Lotte and Hyundai are expanding in
Korea to accommodate global brands’ desire tocapture domestic demand.114 Other brands have laid
the foundations for further growth in Japan. For
example, foreign luxury labels including Hublot,
Zegna115 and Chanel116 have opened stores recently
in Tokyo’s main shopping districts. Hermès saw
sales in Japan increase by 22.7 percent in thethird quarter of 2022, with the company citing theloyalty of local customers.117

Growth Drivers in APAC

Optimism in the Middle East

In the Asia-Pacific region, Japan and South Korea
are renewing their reputations as dependable
growth drivers, particular in luxury, amid China’s
recent slowdown and sustained post-pandemic
demand. But both markets require brands to
update their local strategies to capitalise on
shifting shopping habits.
Consumer demand in Japan and Korea
was particularly resilient coming out of pandemic
lockdowns, benefitting from an influx ofinternational tourists.109 Domestic shoppers in

The outlook for fashion in the Middle East in 2023
is more bullish than for many other markets; in the
BoF-McKinsey State of Fashion 2023 Survey, 88
percent of executives indicated that they believe theMiddle East will have the same or more promising
growth prospects in 2023 compared to the previous
year.118 Global energy prices are rising and the Gulf
Cooperation Council currencies are pegged to an
appreciating US dollar. The GCC luxury market
was worth nearly $10 billion in 2021 — a 23 percent
increase on pre-pandemic levels — and is expected

The Middle East and North America are expected to be the regionswith the highest growth potential in 2023
Markets by expected growth prospects in 2023 compared to 2022,% of respondents
PromisingSameOverall Sentiment(Net Intent)

Unpromising

55

Middle East

12

+43

39

39

22

+17

APAC (excl. India and China)

35

44

21

+14

India

35

China

32

North America

The State of Fashion 2023

33

38

27

32

+8

35

-3

Western Europe

21

39

40

-19

Latin America

21

39

40

-19

Eastern Europe

17

Africa

15

32
41

51
45

-34
-30

Source: BoF-McKinsey State of Fashion 2023 Survey

among other luxury retailers, have also begun staging
or strengthening VIP events in cities like Palm Beach,
Dallas and Miami to deepen relationships withwealthier clients who are not based in the country’s
traditional fashion capitals.106
However, amid uncertainty in the stock
market and rising inflation — as well as the Federal
Reserve continuing to hike up interest rates — theUS is not immune to economic turbulence felt
elsewhere.107 Credit card data from the autumn
of 2022 showed Americans had cut back on
buying luxury goods ahead of the holiday season,suggesting shopping sentiment could be peteringout. The sharpest cuts were among middle-income
customers.108 Luxury brands may find entry-level
customers in particular pull back their spending
as economic conditions deteriorate. To be sure, the34

to grow to $11 billion in 2023.119
A significant proportion of Middle Eastern
luxury spending was repatriated during the
pandemic as luxury consumers were unable
to travel to Europe. Now, 60 percent of luxury
spending occurs domestically.120 In addition to
opening new stores, luxury brands are finding otherways to home in on the GCC market, such as staging
fashion shows locally and creating local content
by collaborating with Middle Eastern artists on
capsule collections and producing photoshoots in
the region.121
Capturing Global Rewards
In the year ahead, geographic diversification
will likely be as important as ever, but also more
complex, as rapidly shifting economic, political andsocial forces take centre stage. When prioritisingregions for global expansion, leaders can review
their footprints and identify areas of growing
demand while placing greater emphasis on factors
beyond revenue potential, such as reputational andother risks.
Alongside an enhanced framework for risk,
brands can employ a more nuanced and complex
structure to evaluate the effects of political,
regulatory and cultural scenarios they may
encounter at home and abroad.122 This may requireleaders to assess the interplay between different
markets alongside factors within them. They willneed to place greater emphasis on developing a
local mindset, where on-the-ground know-how
will allow fashion leaders to penetrate the market
more deeply.123 Local experts will also be criticalfor anticipating and responding to any suddenchanges to scenarios and will be a point of contact
for external stakeholders, such as trade or industry
bodies.124 The deeper the understanding of a region,
the more effective a brand will be in doing businessthere.

35

EXECUTIVE INTERVIEWThe State of Fashion 2023

Chalhoub Group: Capturing Fashion’s
Growth Potential in the Middle East

36

A Level Shoes store in Dubai. Chalhoub Group.

Patrick Chalhoub
Group President, Chalhoub Group

Luxury brands looking for a bright spot in
2023 are focused on the Middle East, whereindustry veterans like Patrick Chalhoub
have served as regional partners for decades.
The group president of Dubai-based retailerand distributor Chalhoub Group is bullish
about growth prospects in some markets but
cautions that brands will need to enhancetheir localisation strategies and do more topersonalise their offering for increasingly“assertive” customers in the region.
— by Janet Kersnar

When scanning the globe toidentify growth opportunities
in the year ahead, most fashion
executives responding to the BoFMcKinsey State of Fashion 2023
Survey cited the Middle East as aregion that holds greater promisein 2023 than in 2022. Indeed,sales of luxury fashion in the
Gulf Cooperation Council alone
reached around $4.2 million in
2021, an increase of 39 percent
on 2019 levels. Future growth in
the region is pegged to the returnof international tourists ande-commerce acceleration, among
other factors.125
Capturing growth in the region
will require brands to double
down on localisation andpersonalisation strategies,
according to Patrick Chalhoub,37

GLOBAL ECONOMY

The State of Fashion 2023

group president of Chalhoub
Group, a Dubai-based luxury
goods retailer and distributor
which was set up by his father
in 1955 and is now the regional
distribution and franchisepartner for hundreds of global
fashion and beauty brands
including Dior, Tory Burch andYves Saint Laurent along withjoint ventures with LVMH,
Christian Louboutin and Farfetch.
While growth prospects arerobust across the GCC region,
Saudi Arabia, where luxury sales
have been recording double-digit
growth, stands out for Chalhoub’s
top executive. He sees the fashionindustry playing a role in the
country’s sweeping Vision 2030
programme aimed at modernisingand diversifying its economy.
As a veteran fashion executive
in the Middle East, youwill have witnessed many
economic and social shifts
impact the fashion market
over the years. What is having
a significant impact today?
We’re living in very interestingtimes in the Middle East.
Because current economic
developments are like nothing
we have seen for many, many
years, there is a lot of wealththanks to additional revenues
coming from oil. The Middle
East, and the GCC in particular,
is becoming an international
business destination, but also aninternational tourist destination,with initiatives like the Red
Sea Project [on Saudi Arabia’s
west coast] that will be adding
thousands of hotel rooms by theend of this decade.
What the fashion industry needs
to do is make sure we maintainrelevance for our local customers.
Imagine that historically —38

EXECUTIVE INTERVIEW
before 2020 and 2021 — twothirds of luxury spending by
GCC shoppers happened abroad
because they perhaps weren’t
getting the experience, service,choice or journey they wanted
when shopping locally. We needto make sure that we do notdecrease the amount they arebuying outside the GCC, but
increase the amount they arebuying locally. [We need to] bethere to fulfil what they want more.
There are well-establishedconsumer markets acrossthe GCC, but what about, forexample, Egypt, where thegovernment is investing in thedevelopment of new cities andbig infrastructure projects?
There is certainly movementin Egypt in terms of economic
development. All those projects
happening along the Red Sea —with all those new hotels opening— are a huge part of this drive
to become more of an attractive
destination to tourists fromaround the world.
But this comes with its own
short-term challenges which
are probably more complicatedthan in other countries. Energy
is expensive, inflation is high, theexchange rate is difficult [withthe Egyptian pound weakened
substantially against the US
dollar in 2022]. In Egypt, there is
still a lot of heavy administrative
ways of doing business, often
for the wrong reason or reasons
inherited from the past that
tried to limit imports to help
local manufacturing develop.
I’m not sure that measures taken
30 years ago are still relevant
today but changing them is still
complicated there. So Egyptis there to develop but it issomething that needs to graduallybuild up and develop in our fieldof activity [in the luxury fashion
market].
Localisation seems to be a
big theme for global brands
around the world, with
consumers increasingly
buying local brands imbued
with local culture andheritage. How are you seeing
this play out in the Middle East?
There is a movement in the
Middle East, but not a movementof national pride like in China. We
do want to buy locally … and wehave seen a proliferation of local
fashion designers but we need tocontinue developing them. We
are only just getting started withthat.
Our group has been actively
involved in assisting in earlystage local disruptor brands. We
recently set up the Fashion Lab,an open innovation platform. Our
regional incubator has assisted
start-ups ranging from Dania
Shinkar [handbags] to Noms Life
[lifestyle brand] and Kaf by Kaf[ready-to-wear] to Cones & Rods
[eyewear].
What can global brands do toensure that they are in tune
with their Middle Easterncustomers?
It helps for brands to review andrevisit the way business is done
and the kind of experiences thatare relevant for the Middle East.
We are already seeing that. For
example, the end of the fasting
period of Ramadan is very festive,
and we are seeing a lot of specificcollections done for it. Probably
60 percent, 70 percent of brands
have made a cruise collection justfor that specific celebration.
We are seeing that brands aremuch more interested in doing

specific or personalised eventsand activations. I never saw somany global luxury brand-led
events that resonated with the
GCC’s audience as I did in 2021
and 2022. Brands like Chanel,
Hermès, Louis Vuitton, Cartierand Tiffany have been working
on local strategies to attract
consumers in the region throughcollaborations, dedicatedcollections and immersive eventsin iconic locations such as Al-Ula
in Saudi Arabia. However, a lot of
personalisation is needed in thisregion. Middle Eastern customers
will build up trust in big brands,
but they need [brands to provide]
points of differentiation.
How are customers in theregion different today thanpre-pandemic or during theheight of the pandemic? What
will the new consumer profile
in 2023 look like in terms of
demographics and purchasing
decisions?
[Generally], we are seeing
more assertiveness among ourconsumers. The younger the
consumer is, the more we see
it. They are still attached tobranding, but less so. They also
have more curiosity, and so are
more eager to try a new brand,even a local fashion designer,
rather than a global one. We
are also seeing customers
mixing brands and products
more and more, because of thisassertiveness in terms expressing
themselves. They don’t feel thatthey should necessarily be dressedfrom head to toe in one brand.
In terms of product categories,
there is a big surge in jewellery.
I hear that this is not just in the
Middle East, but worldwide.
Jewellery has always been
extremely important in the

Middle East, but not branded
jewellery, like now. It helps thatthe brands are becoming more
and more creative.
The customer journey is adapting
too. People often like to go into
stores in [groups], with family
and friends, so they need moreareas for seating, more space, andnot just at a counter for people ina hurry. We really need to makethose kinds of adaptations.
Unlike in other parts of theworld where e-commerce
growth is returning to prepandemic levels, e-commerce
seems to be accelerating inparts of the Middle East.
What’s fuelling that?
The story behind that is that
we are quite late compared toother regions in terms of thepercentage of sales done throughdigital channels, for various
reasons. For example, the content
might not have been relevant orthere was not enough choice. Allof this is improving: the customer
experience itself, the availabilityof products, the relevance ofcontent. Having said that, what
we have seen in 2022 is that there
is bigger growth in brick-andmortar than e-commerce.
There is another aspect ofbrick-and-mortar that I’d liketo mention. For developing
countries, real estatedevelopment is often a challenge.
When there is a surge in demand
for real estate — like we saw in2019 and again in 2021 and 2022
— you have scarcity of supply,
which not only increases prices,
and any new project will takefive to seven years to complete.
Now we are in a cycle in which
there is much more demand insome cities, such as Riyadh [Saudi
Arabia] and Doha [Qatar], thanothers. We really need to be more
dynamic and creative about how
to solve this tension, because
there is scarcity of locations, andmaybe this requires a different
way of thinking about different
consumers.
Chalhoub Group recently
announced that it isbuying a majority stake inThreads Styling, an online,
personalised, chat-based
luxury fashion and jewellery
shopping service. How does
this fit into the group’s overall
strategy to build out digital
capabilities?
We are embarking on thedigital world quite late. Before
the pandemic, e-commerce
represented around 1 percent
of our turnover; today it isapproximately 10 percent.
The group represents and runs
over 80 e-commerce websites
and apps for partners and joint
venture brands in the [Middle
East-North Africa] region.
And since 2018, we have hada joint venture partnershipwith Farfetch in the GCC andLevant [Egypt, Jordan andLebanon], which includes an
Arabic language site. But wehave a lot to learn to be closer tothe digital-native consumer …
which is what we find fantastic in
Threads Styling. It’s really aboutclienteling, taking care of ourclient, and connecting with them,and keeping the human touch,even if we have all the digital
devices.
This interview has been edited and condensed.

39

03. TWO-TRACK SPENDING

CONSUMERSHIFTSThe State of Fashion 2023

03. TWO-TRACK SPENDING
04. FLUID FASHION
05. FORMALWEAR REINVENTED

Consumers may be impacted differently by the potential
economic turbulence in 2023. Depending on factors
including disposable income levels, some will postpone
or curtail discretionary purchases; others will seek out
bargains, increasing demand for resale, rental and off-price.
Fashion executives should adapt their business models toprotect customer loyalty and avoid diluting their brands.

KEY INSIGHTS
1. Shopping behaviour will diverge across income groups. While high-income shoppers
with savings, access to credit and greater job security may continue spending on
fashion, lower-income consumers will tighten or cut discretionary spending.
2. Customers may seek out lower-priced retailers and discounts, particularly in younger
cohorts. Over 75 percent of US Gen-Z and Millennials said they are taking steps tomanage finances, compared with Gen-X’s 64 percent and Baby Boomers’ 53 percent.
3. Off-price channels will grow — forecast to account for 12 percent of fashion industry
revenues by 2025 — as will resale, which is expected to grow 11 times faster thanapparel retail by 2025.

EXECUTIVE PRIORITIES

40Develop nuanced
customer profiles

Analyse how customer groups in different demographics andlocations are shifting their behaviours and adjust strategies in
response by introducing new channels, pricing strategies or productcategories.

Turn on off-price

Selectively explore how to capture value from promotions anddiscounts with strategic off-price partners without diluting brand value.

Explore the 3 Rs

Evaluate how new models like resale, rental and repair can be
integrated into the value proposition to allow consumers to combine
responsible and affordable consumption.

41

CONSUMER SHIFTS

03. TWO-TRACK SPENDING

to cover everyday expenses, as income levels
fail to keep pace with escalating inflation, which
hit a 26-year high in Brazil and 21-year high in
Mexico in 2022.130 Many lower-income households
will likely deprioritise discretionary spending,including fashion and beauty purchases.131 In theUS, customers are “trading down.” A McKinsey
US Consumer Sentiment survey conducted in
the summer of 2022 found that 74 percent ofrespondents said they have been shopping from
more lower-priced retailers or brands than usual,seeking discounts at their “go-to” retailers or
paying for goods in instalments; 45 percent said
they recently delayed making a discretionary
purchase.132

Exhibit 9:

Consumers are expected to deprioritise apparel and footwear as
rising prices diminish disposable incomes

Non-Discretionary

US and Europe category product resiliency
Bubble size = US and Europe category value (USD MN)

Food& Drink

Beauty &Personal Care
Home &
GardenHome Care
Consumer HealthAppliances
Apparel &Footwear

Discretionary

The State of Fashion 2023

Brands and retailers that weathered
2008’s global financial crisis can be forgiven for
feeling a sense of déjà vu as a steady stream ofmacroeconomic data signals challenging times
ahead. Just like in 2008, consumer confidence has
plummeted to record lows in reaction to economic
uncertainty126 and households have reined inspending.127
Economists increasingly expect lowerincome households to bear the brunt of economic
stresses over the short to medium term,
particularly if the relatively low unemployment
levels in some regions were to change
dramatically.128 129 In regions such as Central andSouth America, consumers are already struggling

Toys & Games
Food
serviceTravelElectronics

Low resilience

High resilience

X axis: Historical resiliency based on 2008 global financial crisis performance; Brazil’s inflation crisis (2015); performance during Covid-19
Y axis: Qualitative category assessment; future spending intent, based on McKinsey consumer sentiment surveys between June and July 2022 in the US and Europe
Source: McKinsey analysis based on Euromonitor and McKinsey Europe Consumer Pulse Surveys

42

It is a different story for higher-income
households, for now. These consumers should beless impacted by economic turbulence and look
likely to continue spending on discretionary goods,
in the short term at least. In a recent survey, 26
percent of higher-income consumers in China— which is among the countries where economic
growth is slowing — said they increased theirfashion shopping budgets in the first half of 2022
compared to the same period in 2021, citing adesire to “look and feel good.” Similarly, US credit
card data from the spring of 2022 suggested that
wealthier shoppers were increasing their spending
on apparel.133
Generational differences are also
noteworthy. In the US, spending among younger
consumers is expected to suffer the most: 76
percent of Gen-Z and 79 percent of Millennials
reported that they are dipping into their savings,
taking on more credit or taking on additionaljobs to manage their finances, compared with
64 percent of Gen-X and 53 percent of Baby
Boomers.134 In China, though inflation is lessof a concern, younger generations are feelingthe burden of an economic slowdown,135 driven
by new outbreaks of Covid-19 and rising youth
unemployment. The unemployment rate among
16 to 24 year olds in the country reached nearly 20
percent in 2022 compared to the overall national
rate of 5.5 percent.136 Now, many young adults areembracing humbler lifestyles than their parents,
in a shift described as tang ping, loosely translated
as “checking out of the rat race to pursue a more
low-key life.”137
Retailers are bracing themselves for reduced
spending among younger generations: “We see[younger and less affluent] customers spending
much more cautiously on discretionary items andoften waiting for promotions before buying,” said
Richard A. Hayne, chief executive officer of retailgroup Urban Outfitters in August 2022.138
This includes turning to alternative
payment methods and short-term financing,which has seen a boom in popularity and hashelped to fuel apparel sales over the past year. In
the US, 20 percent of customers said they bought
discretionary goods in 2022 with interest-free,
short-term financing, including Buy Now, Pay Later
services.139 BNPL apps are particularly popularin the Nordic region, the UK and Germany.140
However, BNPL providers such as ClearPay andAffirm may face headwinds as lower-income
consumers pull back on spending while thelikelihood of a rise in default rates increases as
economies continue to slow. Brands should consider
BNPL where appropriate while monitoringchanging consumer behaviours — and potentially
focus more on promotions and special offers.
Flight-to-Value Behaviour
One way the fashion industry has been responding
to spending shifts is to lean more heavily on
discounting. According to global research from thesummer of 2022 by retail tracking firm Edited, there
have been year-on-year increases in discounting
in several countries following a low during thesummer of 2021. In the US, 36 percent more items
were discounted in 2022 compared to 2021.141
Off-price channels are continuing to be
attractive to bargain-hunters seeking big-namebrands at lower prices. In Europe, off-pricechannels are expected to account for 12 percent of
all fashion industry revenue by 2025, up from 11
percent in 2021.142
Many off-price players were able to leverage
the period after lockdown restrictions were lifted,
during which US consumers splurged on purchases.
In the US, sales at off-price retailers like Burlington
and Ross Stores, and off-price divisions of retailers
like Saks Off Fifth, grew more than 40 percent
year on year in 2021.143 144 In the months ahead,
off-price channels should benefit further from highinventories as brands see diminished supply chain
disruptions coincide with a softening of consumer
demand. The trend has accelerated in China too,43

where the number of fashion outlet malls has
increased by more than 35 percent since 2019.145
For brands, particularly higher-end ones,
off-price channels should be carefully managed to
avoid eroding brand perception among consumers.
For example, Ralph Lauren has reduced its relianceon off-price and aims to use the channel for
offloading merchandise misses, rather than selling
low-margin products in high volumes like so manyother luxury brands do.146
There is also some evidence of consumers
shopping for a more accessible type of luxury.
Many newer luxury brands are catering toyounger, more fashion-forward consumers thatare looking to trade up from premium brands orwish to complement their wardrobes with moreaccessible pieces than can be found in the offeringsof ultra-luxury players. This new category of brands
has seen a surge in popularity in recent years; for

03. TWO-TRACK SPENDING

example, Jacquemus is on track to double its sales
by the end of 2022.147
While higher-end luxury brands have been“premiumising” their merchandise and increasing
prices, some entry-level luxury consumers are
trading down to more affordable brands that still
have high-end brand storytelling and aesthetics.
Changing Channels
There is a role for resale here, too. Resale revenue
is expected to grow to $47 billion by 2025, from $15
billion in 2022 — 11 times faster than apparel retailoverall, albeit from a lower base.148
Online resale channels are growing in
popularity in China. A 2020 survey of Chinese
consumers from UBS found that 72 percent ofrespondents had increased their purchases on
luxury resale via online platforms, compared to 31

Saks Off Fifth in Florida. Jeff Greenberg/ Education Images/ Universal Images Group via Getty Images.

The State of Fashion 2023

CONSUMER SHIFTS

44

percent who had done so in 2018.149 For some time
now, Gen-Z consumers in China have been heading
online to platforms like Xianyu, Zhuanzhuan and
Idle Fish to buy and sell second-hand and slightly
used fashion.150 151
Regardless of age, resale shoppers sayprice points are driving this switch in shopping
behaviour. A 2022 survey from American resale
platform ThredUp found that 63 percent ofrespondents said they mainly shop resale to savemoney.152

stores like Selfridges. The market is expected toreach $2.1 billion by 2025.159 More than 40 percent
of growth is expected to come from the APAC
region.160
Meanwhile, fashion giants like H&M,161
Zalando162 and Uniqlo163 are stepping up their repair
services, providing consumers with another option
for more affordable and sustainable ways to dress.
Selfridges announced in 2022 that by 2030 nearly
half of its sales should be from resale, repair, rental
or refills.164

76 percent of Gen-Z and 79 percent
of Millennials reported that they
are dipping into their savings,
taking on more credit or taking
onadditional jobs to manage theirfinances.

Staying Attuned

The popularity of resale has not been lost on
big brands. Lululemon, Dr. Martens and Patagonia,
among others, have started offering resale in recent
years through their own service or through third
parties.153 In addition to Kering’s 2021 investment
in retail platform Vestiaire Collective,154 155 Farfetch
announced plans to acquire B2B resale-technology
platform Luxclusif to help expand the category.156
Meanwhile, Amazon has partnered with reseller
What Goes Around Comes Around to sell
pre-owned handbags from luxury brands.157
Resale also creates opportunities forintermediaries. Technology and logistics platform
Reflaunt recently partnered with Balenciaga todevelop the brand’s resale solution.158
Like resale, rental is expected to capture
the attention of more shoppers and brands after
struggling during pandemic lockdowns. As
consumers look for value for money, they may turnto rental platforms such as peer-to-peer services
like By Rotation and My Wardrobe HQ, or tobrands’ own programmes offered from department

For sure, difficult decisions lie ahead for brands
as they face their own cost pressures. Input costs
increased in 2022, including for transportation,energy and labour.165 166 If brands decide to preserve
margins by passing on cost increases to customers,
they must do so with a deep understanding of therisks, including the potential to lose customers tolower-priced rivals.
Above all, fashion leaders should be
especially attuned to the needs of their target
customers, identifying changes that can lead tospikes in purchases or curtailed spending, or rapid
shifts to different channels, categories or pricepoints. In order to avoid having to increase theirshare of discounted or off-price products, brands
must return to their core value propositions,while taking a laser-focused approach to products;
tightening merchandising strategies to focus on
bestsellers; developing more responsive methods
to react to consumer demand; and increasing speed
to market by taking steps such as nearshoring andon-demand manufacturing.

45

EXECUTIVE INTERVIEWCONSUMER SHIFTS

Tapestry: Connecting With Customers‘Is Not Just About Price’tripled to drive 30 percent of
the business today. Total grouprevenue reached $6.7 billion in
2022, up 11 percent on prepandemic levels, with the aim ofhitting $8 billion by 2025.

The State of Fashion 2023

Now the industry is facing yet
another period of uncertainty,
as global economic turbulence
will likely push customers acrossthe income spectrum to become
more discerning. For accessible
luxury brands like those in
Tapestry’s stable, the key is tofocus on creating value for thecustomer beyond pricing, said
Crevoiserat. “That value equation
is a combination of the qualityof the product, the style and theprice,” she said. “It’s not justabout price.”

Joanne Crevoiserat
Chief Executive, Tapestry

The past 12 months have seen
the industry trying to figureout what business looks like ina post-pandemic world. How
have you approached this at
Tapestry? What are the rules
for success that have shifted,
what dynamics are more orless constant compared withpre-pandemic times?

Tapestry chief executive Joanne Crevoiserat
successfully steered the US luxury groupthat owns Coach, Kate Spade and Stuart
Weitzman through the challenging pandemic
period. Now, she’s betting on strengthened
customer-centric tactics and offerings tocontinue capturing discretionary spending,even during global economic turbulence, while
keeping the company on track to hit $8 billion
in sales by 2025.

If a brand is going to succeed
in today’s retail environment,
staying close to its customers ismore crucial than ever, according
to Joanne Crevoiserat, chief
executive of Tapestry, theAmerican group that owns
accessible luxury brands
Coach and Kate Spade andfootwear label Stuart Weitzman.
Having joined Tapestry from
Abercrombie & Fitch in 2019 as
chief financial officer of the group,
the retail veteran went on tosecure the top job the following
year, just after the pandemic hit.

I think the only constant ischange. That’s the one thing
we’ve learned. As we embarked
on our transformation, which
we’ve been working on the last
couple of years, we were asking
exactly that question: What do weneed to compete in the new worldof retail? We were seeing a lotof trends in the market, and we
wanted to position the company
to win in the midst of thosetrends.

— by Tamison O’Connor

Crevoiserat steered the groupthrough the challenging period,
pivoting Tapestry’s businessmodel to adapt to a new worldorder: under her leadership,
e-commerce sales more thanThe customer is moving quickly,
both in how and where they shop,
and those buying behaviours
and preferences, and also how
and where they discover brands.
Those behaviours are changing,46

which requires companies to stayvery close to the customer so thatyou can move with the customer,
but also, [understand] what theyvalue. I’m not sure [their valuesare] changing, but their values
are coming to the surface, so theywant to align with brands whose
values reflect their own, and thissense of authenticity in a brand iscritically important.
Consumers today are moreomni-connected, so having a
digital presence and capabilities
to deliver an experience fora consumer that’s authentic
to your brand and consistentacross different channels is also
critically important.
Gen-Z is the growth engineof the luxury industry at the
moment. What are the mostcommon mistakes that brands
make when trying to engage
this cohort?
It’s a cohort that is very
discerning about what is reallytrue about a brand and what
isn’t. It is so important to really
represent your true values andunderstand where you have theright to play, because it can’t besurface level.
The other aspect for this cohortthat we’re learning [is] their
desire for self-expression.
They want to express theirindividuality. This is a place
where we’re also leaning in. As
we’ve developed and thought
about how our brands fit inwith their lifestyle, it is reallyto unlock this self-expression.
In fact, as we think about thisnext phase of growth for Coach,
we’re moving from what wasonce called “accessible luxury,”which was really about luxury at
an accessible price point, to theconcept of “expressive luxury,”

where we’re more inclusive in
our price point, but allowing
our consumer to express theirindividuality through our brands.
The accessible luxury sector
is potentially more at risk
during a downturn because,
when times are tough, wealthy
consumers tend to trade up
and aspirational consumers
tend to trade down, leaving
the middle squeezed. How
can brands safeguard growthduring times like these?
History would show that our
space, our brands and ourcategory have been incredibly
durable through downturns. I
do believe that’s related to ourpositioning and the value we
represent in the marketplace.
Over time, handbags and leather
goods, the accessories category
has proven to be more durable
through downturns. This is aspace that customers continue
to spend, because it doesn’t only
serve a functional need, it serves
an emotional need for consumers.
So, in the accessories and leather
goods and footwear categories,
customers are emotionally tied tothe category.
We saw it during the pandemic. In
July [2020], when all stores were
locked down, one of our bestselling handbags at Kate Spadewas a $348 pineapple handbag.
Nobody needed a pineapple
handbag, and we talk about it a
lot because our product strikes
that emotional connection with
consumers. It brings them thatsense of confidence, that senseof joy as an added part of theirwardrobe.
The other thing that we’re seeingis the very high end of the market,
those traditional European
47

EXECUTIVE INTERVIEWThe State of Fashion 2023

Coach’s Spring/Summer 2022 show at New York Fashion Week. Victor Virgile/Gamma-Rapho via Getty Images.

CONSUMER SHIFTS

luxury players, are taking prices
way up. So the white space for us
to deliver value that a customer
really recognises in the function
and the emotion of that bag andthe quality, gives us the room totake price and still maintain that
tremendous value that we deliverin the marketplace.
We’ve developed capabilities
and disciplines over the last
few years through our data andanalytics capabilities, better
marketing capabilities and better
management overall. We’redisciplined stewards of ourbrands, and we will not resort todriving price down through this.
When the consumer’s pressured,
we’re going to stay close andspeak to the consumer, deliver
the value that they recognise,
without relying just on pulling a48

price or a discount lever for ourbrands.
Inflation more broadly has
left companies facing costpressures. Transport and
raw material costs continue
to rise. That cost is going
to be passed down to theconsumer if a brand’s going toprotect margins. Do you see
price increases as beneficial
or alienating in a tougheconomic climate?
When you go through a downturn,customers tend to be more
selective. When they’re more
selective, they put their money
where they see the value, and thatvalue equation is a combinationof the quality of the product, thestyle and the price. It’s not justabout price.

I do think that pricing powerhelps us as a business to beable to absorb some of thosecost increases, but we’re also
very focused on managing ourbusiness better to avoid or
minimise the cost increases
that we see, whether that’s oursourcing footprint that allows us
to move production around theworld, or the work we do in termsof logistics, to try and reduce ourdependence our air freight.
How do you see the potential
for alternative businessmodels to create new revenue
streams or opportunities?
Coach is expanding its
Reloved resale programme at
the moment; how do you seethat business evolving?
We’ve always done repairs andrefinishing and refurbishing work,
so it was a natural extension of
our history to test this idea ofbringing the Reloved product into
our stores. We saw a tremendous
response, so we’ve been building
those capabilities to make it evenbigger.
To scale this opportunity, we’re
now taking back handbags at allof our retail locations in the US.
We’re having to hire more leather
craftsmen to help refurbish
and repair because the volumes
are going up. We started an
apprentice programme, to help
build and train new craftsmen inthis space.
Interestingly, it has also informed
a new business model that we’repursuing, called Coachtopia. It
is a completely circular businessmodel, and we’re building
product in Coachtopia withcircularity in mind from the
beginning.
There are new techniques interms of bringing this productto market with full circularity inmind. Regenerative agriculture;
we’re using and leveraging
sustainable materials, including
regenerative leather; but also
techniques in terms of making
a handbag with considerationfor end-of-life “unmaking” of ahandbag. As we learn about thosetechniques through Coachtopia,
we can bring them into the mainbrand and make it better andmore sustainable.
Off-price businesses canboost sales but, equally, they
have the potential to damage
brand equity and cannibalise
the full-price business.
How should companies
approach off-price amid thischallenging macroeconomic
climate?

It depends on how you manage
it. If the off-price business isjust discounting regular-priceproduct, I fully agree withyour thesis, that it could bebrand damaging. The way wethink about our outlet channel
is, frankly, less of an off-pricebusiness. In fact, we’ve spent
the last couple of years refining
and differentiating the productin each channel, and we’re very
focused on delivering value
within that outlet channel that acustomer recognises.
In many ways, it’s a different
customer. This was part ofour focus on the customer, it’sembracing the customer that is
shopping in these channels andunderstanding what they value,and bringing them the style, thequality and the functionalitythat drives the business. We haveto do that at the low end of ourbusiness all the way through thehigh end of our business, andwe want to be as proud of thatbusiness as we are at the top end.
Brands can maintain a healthy
outlet channel business if theykeep the consumer at the frontof what they do, and they’re notjust competing on price; thatthey’re delivering tremendous
value product that they can beproud of into the marketplace atthat price point. Delivering value
and differentiating that from thehigh-end product. It could bematerials, it could be silhouette,
it could be level of functionality,
level of style. Really, runningthe business as an importantbusiness in and of itself, is critical.

country’s zero-Covid policy.
How can brands navigate this?
We’ve been in China for over two
decades, and the one thing thathas been incredibly consistentover time is the resilience of theChinese consumer. What we’reseeing today is disruption causedby this macro outside force where
customers are constrained in a
way that they can’t get out andshop. But what we saw after thelast lockdown was the Chinese
customer came back muchstronger than they had evenpre-Covid. These lockdowns havebeen more inconsistent in termsof different cities at different
times, so it’s been choppier, andwe do expect that the recovery
will be more gradual this time,
but long term, our thesis on
China, we remain very confident.
It has not changed. We continue
to see growth in China.
Our brands are targeting a verylarge middle class, and thatcohort will continue to grow,and it’s a consumer who values
Western brands generally.
This interview has been edited and condensed.

China is a crucial market
for the luxury industry but
the outlook for the market
is so unclear, with ongoing
disruption due to the49

04. FLUID FASHION

Gender-fluid fashion is gaining greater traction amidchanging consumer attitudes towards gender identityand expression. For many brands and retailers, theblurring of the lines between menswear and womenswear
will require rethinking their product design, marketing,and in-store and digital shopping experiences.

The State of Fashion 2023

KEY INSIGHTS
1. Interest in gender-fluid fashion is driven by younger generations, particularly Gen-Z
consumers, who see their gender identities as less static than their elders. Around halfof Gen-Z globally have purchased fashion outside of their gender identity.
2. The shift is visible not only on high-fashion runways but also in everyday shopping, with
online searches for “genderless” and “gender neutral” fashion increasing year on year.
3. Younger consumers are more likely to shop across gender lines, and consumers inNorth America, Europe, Japan and South Korea, among other locations, are expected
to be the most receptive to gender-fluid strategies from fashion brands.

EXECUTIVE PRIORITIES

50

Know your audience

The extent to which brands lean into gender-fluid fashion will
depend on their customers’ demographics, particularly age
and the cultures of the markets in which they operate.

Think holistically

Introducing gender fluidity into strategies and productcollections requires updates to business processes and daily
operations, from product design to merchandising to marketing
to in-store design.

Avoid tokenism

Leaders should cultivate diverse workforces that canunderstand the discourse. They should also avoid tokenistic
projects that lack authenticity.

CONSUMER SHIFTS

Emboldened by the celebrities and designers
they admire, a growing number of consumers
are buying across gender-specific categories.167
Silhouettes, fabrics and colours no longer needto conform to traditional dress codes to sell tothese consumers. For brands, the shift may be at
an inflection point, prompting industry leaders
to consider how to best act on changing consumer
expectations.
Gender has long influenced fashion and,even amid the shift to casualisation, gender isembedded in today’s merchandising practices.
Introducing gender fluidity into product collections
therefore may require a practical update ofoperational systems that have been used in the
fashion industry for decades. A garment’s size, fit
and shape determine the key differences between
menswear and womenswear, but there are subtler
distinctions too. Buttons largely continue to appear
on different sides of men’s and women’s shirts, forexample, a practice thought to stretch back as far
as the Renaissance when upper-class women were
dressed by servants, but upper-class men dressed
themselves.168
The shift towards gender-fluid fashionis partly driven by evolving cultural and social
attitudes towards gender in different regions
and across generations. In recent years, many
people have developed a greater acceptance andunderstanding of sexual orientations and gender
identities, with younger generations today often
viewing gender identity as a spectrum, rather thana binary.
Examples of these attitudes are evendiscernible in many countries or regions where
gender inclusivity and sexual inclusivity are lessestablished. For instance, in Kenya, local labels
such as Vivo and Sevaria are creating collections
based around gender-inclusive designs and working
with fabrics that traditionally appear only inwomenswear, such as silks, but for menswear.169

Exploring New Categories“Gender neutral is not a trend, it’s a reality,” said
Jonathan Anderson, creative director of Loewe andfounder of label JW Anderson, in 2021. “My whole
philosophy is that you cannot tell people what towear. You’re not allowed to say: I want this to bebought by a woman or by a man.”170
According to research conducted by
fintech company Klarna, around 50 percent of
Gen-Z globally have purchased fashion outsideof their gender identity, and around 70 percentof consumers say they are interested in buying
gender-fluid fashion in the future, with younger
generations leading the way.171
Another survey found that Gen-Z
respondents under 20 years of age are more likely
to buy products that were not designed specificallyfor their gender, with 56 percent of the cohort
stating they buy clothing that is not classified bygender at all.172 This viewpoint will likely become
more prominent in the market given that Gen-Z
will soon become the largest cohort of consumers
globally. (In the US, Millennials outnumbered Baby
Boomers in 2019; Gen-Z consumers are expected tosurpass Millennials in 2036.173)
The combination of shifting attitudes
and pop culture influence has boosted consumer
demand for gender-fluid fashion. On the fashion
app Lyst, searches for terms including “genderless”
and “gender neutral” increased 33 percent in thefirst half of 2021.174 In South Korea, the number ofposts about genderless fashion more than doubled
in 2020 on search engine Naver.175 This shift isalready translating into sales, as can be witnessedin handbags, a category that traditionally caters towomen. Luxury resale site The RealReal reported
growth in interest for Birkin bags has grown
twice as fast among men than women, and resalemarketplace StockX said there is an even split ofmen and women among consumers shopping within
its handbags section.176
Luxury and designer fashion labels have5104. FLUID FASHION

Exhibit 10:

Consumers across the globe are shopping for fashion across thecategories of womenswear and menswear, with US shoppers
leading the way% of respondents

Considering buying
more gender-neutral
fashion

73

74

79

84

65

64

60

85

82

73

58

67

82

36

The State of Fashion 2023

33

31

30

29

28

26

25

23

22

22

21

Have purchasedfashion outside of
their gender identity

US

SwedenUK

Norway Finland Denmark Germany

Spain

Portugal Australia France

Italy

19

PolandSource: Klarna Insights survey in cooperation with Dynata

embraced their own versions of gender-fluid
fashion by casting androgynous models or dressing
masculine models in feminine looks — and viceversa. In fashion capitals, some labels have explored
gendered expectations in their recent casting andstyling of runway shows: Raf Simons styled malemodels in dresses and nail polish, while Maison
Margiela sent male and female models down
the Paris runway in skirts and high-cut boots.
Meanwhile in New York, emerging labels likePrivate Policy and Eckhaus Latta present genderfluid collections each season with a diverse cast ofmodels.177 The shift can also be seen in footwear:
Christian Louboutin has released a capsule52

collection featuring high-heeled boots in men’s sizes.
Embracing gender-fluid fashion canbe complex, especially when taking culturaldifferences across markets into consideration.
Fashion leaders can consider creating diverse
workforces to help strengthen their understandingof the discourse and ensure companies avoid
tokenistic projects which may be perceived aslacking sincerity or authenticity. Brands andretailers could also train store associates to help
customers shopping across gender lines findthe right fit, with an understanding of how sizes
translate across gendered items.
Aligning gender-fluid fashion with how

consumers conceive of gender is critical. In the past,some brands have responded to changing norms byintroducing a third, distinct “unisex” category, oftenwith smaller assortments of oversized, minimalist
clothing. A number of commentators have criticisedthese attempts for being “dull” or “baggy” andlacking in authenticity.178 While unisex fashion has
been around since the 1960s,179 having a unisex line
today may not be precise enough to serve younger
generations’ perspectives of a gender spectrum.180

As fashion leaders seek to meet thedemand for gender-fluid fashion
in 2023, they should consider how
they may evolve their marketing,product design, store design andmerchandising.

categories for all or parts of their collections.183 New
York-based label Phluid Project does not segment
its clothing by gender, and creates designs using acustom sizing model.184 Uniqlo designed a “MadeFor All” collection that was merchandised in withmen’s and women’s collections, both online andin stores.185 Resale platform Depop does not filter
its inventory by gender unless customers opt for
it, and recommends products based on a shopper’s
past purchases instead of gender categories.186
These strategies offer shoppers options to choose
to navigate gendered categories as they wish, andconsider more products to purchase than theymight have otherwise.

As fashion leaders seek to meet the demand
for gender-fluid fashion in 2023, they should
consider how they may evolve their marketing,product design, store design and merchandising.
One factor is fit, given that sizing conventions in
the fashion market are established along genderlines. Even brands that have embraced gender-fluid
clothing, like Gucci, still design some of those items
based on women’s or men’s sizing conventions.181
Brands that commit to offering gender-fluid fashion
can develop new sizing charts, which address awider range of customers. Retailers with brickand-mortar networks can also address challenges
around fit by offering in-store alterations or madeto-measure designs.
Modernised merchandising techniques
can help brands sell products to a wider range ofcustomers. Online luxury boutique Ssense, forexample, presents men’s pieces in its womenswear
offering based on “cut, fit, size or styling,” according
to Brigitte Chartrand, its senior director ofwomenswear buying.182
Other brands have removed gender

A look from the Ludovic de Saint Sernin Autumn/Winter 2021 collection. Ludovic de Saint Sernin.

CONSUMER SHIFTS53

Starting Small

The State of Fashion 2023

Brands that decide to make more space for genderfluid collections could start with small changes
that target their most receptive customers first.
Younger shoppers, especially those under 20 years
old, are the most likely to seek out and shop acrossgender lines. Marketing can be adapted accordingly,
through casting and campaign images. When
Uniqlo announced its 2022 collaboration with
Marni, for example, its campaign featured men
and women wearing a mix of pieces from across theoffering.187

Younger shoppers, especiallythose under 20 years old, arethe most likely to seek out andshop across gender lines.
Some geographies may have a readycustomer base, like North America, Europe,
Japan188 and South Korea,189 where perceptions
around gender identity in fashion are morenuanced.
Fashion companies can consider the many
ways in which they already interact with customers
seeking gender-fluid products and use those pointsof contact as learning opportunities. Brands thatoffer cosmetics and fragrances can also sharelearnings with their fashion teams. Gender-fluid
fragrances represented 51 percent of all fragrance
launches in 2018, up from 17 percent in 2010,190 andmore than 50 percent of men today say they use
facial cosmetics.191
Customer focus groups or employee
taskforces can help brands hone theirunderstanding of what gender-fluid products their
existing customers want to see. Collaborations
are another way to test gender-fluid products,
especially for larger brands that want to learn fromsmaller ones that have more experience catering tocustomers across gender lines. When Calvin Klein
54

IN-DEPTH

collaborated with Palace in 2022, for example, thecollection of oversized denim, sweatshirts andunderwear was not categorised by gender.192
Similarly, brands can trial different
merchandising approaches in stores and online,
removing or mixing gender categories andobserving how customers shop differently.
After building a foundation of knowledge
and product testing, companies can progressively
integrate gender-fluid products and strategies
across their businesses. From the design process
to major seasonal campaigns and store design,
brands can tap a range of strategies to modernise
their approaches and evolve ideas around gendernorms. These shifts will likely only become more
important as Gen-Z consumers mature — and theirpurchasing power grows.

How Gen-Z is Propelling
Gender-Fluid Fashion
Younger consumers have been pivotal in breaking down barriers to greater acceptance of
non-binary gender identity, including how it is embraced in fashion. For these consumers whovalue freedom to express themselves, they expect to influence and be influenced by brands thatin many respects normalise gender-subverting fashion.
by Robert Cordero

Timothée Chalamet at the 2022 Venice Film Festival. Jacopo Raule/FilmMagic via Getty Images.

CONSUMER SHIFTSWhen Timothée Chalamet wore a bright
red, halter-top, slimly cut jumpsuit at the 2022
Venice Film Festival, the 26-year-old movie star
— and his outfit designed by Haider Ackermann —turned heads. As gender-subverting couture goes,
this was yet another memorable moment. Chalamet
has essentially become the poster child for young
generations that are using fashion to assert theirfreedom of expression, often by disregarding

conventional gendered stereotypes.193
It’s a cultural shift for which Gen-Z can takemuch of the credit. Born between the mid-1990s
and the 2010s, this generation has been vocal —most often on social media — about their opposition
to being pigeonholed into a binary world of maleand female.194 “Our generation has dismantled
the idea that gender is a male and female binary,”
said 22-year-old Nate Jones, head of talent at
55

The State of Fashion 2023

CONSUMER SHIFTS
Juv Consulting, which advises companies onconnecting with Gen-Z. “I think clothing is just one
area that’s inevitably going to be touched because
it’s [essential to our every day] and [shopping] isstill mostly a gendered experience at this point.”
Even veterans of fluid fashion design are
seeing Gen-Z’s influence. “I think in the last few
years, things have changed a lot,” said designer
Alejandro Gómez Palomo, who founded genderneutral label Palomo Spain in 2015. “You can see
now a skater with nails painted in pink, wearinga crop top and a pearl necklace, and he’s [a]completely straight boy. … [A few years ago] it would
be, like, ‘only for the gays, only for that communitythat I’m part of.’”Across the fashion industry, it signals asignificant pivot. Gen-Z now holds great swayover key parts of the fashion industry. Not only is
Gen-Z the largest generation ever — at 25 percentof the global population — but it also has spending
clout: In the US alone, Gen-Z consumers havean estimated purchasing power of $360 billion,
according to BoF Insights, the research andanalysis arm of BoF.195

Gen-Z may not be seeking out
gender-neutral fashion explicitly,
but choosing to interact withbrands in a less restrictive way
than generations past.
But as brands and retailers are discovering,changing their gender-specific shopping experiences
and building a fluid-fashion offering that resonateswith this generation is far from straightforward.
In particular, Gen-Z’s relationship with genderneutrality in fashion can be nebulous at best. For
example, the generation is not necessarily seeking
out gender-neutral garments — Gen-Z prioritises
other factors such as affordability when purchasing
clothes.196 However, Gen-Z cares about inclusivity
and having the freedom to shop across fashion’s
gendered categories, showing more willingness towear garments designed for another gender.197 As
56

IN-DEPTH
such, Gen-Z may not be seeking out gender-neutral
fashion explicitly, but choosing to interact withbrands in a less restrictive way than generations past.
As Juv’s Jones put it: “When I’m making any
buying decision, first and foremost, I think about
how it looks, then I think about the quality, and I
think about the price of what I’m buying.”
Igniter of Trends
Just a generation or two ago, the world was
different. And so were attitudes about gender
fluidity. But as Gen-Z began growing up, change
was afoot. By 2016, a study from marketing
communications agency Wunderman Thompson
found that 56 percent of Gen-Z consumers shopped
for clothes across genders.198
In the same year, Jaden Smith, then 17
years old and now a Gen-Z style icon, starred in a
global campaign for Louis Vuitton wearing a skirt
from the label’s women’s collection.199 From thenon, independent brands began capturing more
attention for their gender-fluid messages, including
Hood by Air — which was ahead of its time when
Raul Lopez and Shayne Oliver launched it in 2007 —along with Palomo Spain, Ludovic de Saint Sernin
and Telfar. As a broader shift towards casualisation
took off, streetwear got in the game too. Wardrobe
essentials began to include streetwear items thatwere not assigned to a gender, including roomy
hoodies and mini cross-body shoulder bags.
Gen-Z has inspired and been inspiredby a number of role models, ranging frombeauty influencer Bretman Rock, who shot toYouTube fame as a teenager in 2015, and gender
non-conforming designer Harris Reed, who wasrecently appointed Nina Ricci’s creative director.
For the role models, wearing gender-neutral
clothing, or dressing in a gender-fluid way, is not asradical as perhaps it was for their parents. It’s justpart of how they see the world and how they want tolive in it.
Gen-Z is translating this into fashion in
unique ways. Increasingly, they see themselves as
co-creators, playing an active part in the ideationof new styles, rather than waiting for brands toshow them what the next big trends are. Steve Dool,brand director of social e-commerce company
Depop told BoF Insights: “This generation is more
likely to gain inspiration from their peers andwho they see online, versus the top-down fashion
system that has been the default trend driver forprevious generations.”
Now, trends often start on social media
platforms like Instagram, TikTok and BeReal.
“Coastal grandmother,” a look inspired by actor
Diane Keaton’s menswear-infused style — harking
back to her wardrobe in films like “Annie Hall”(1977) and “Something’s Gotta Give” (2003) —became a cultural phenomenon in 2022.200 It was
not started by a magazine or a brand campaign, but
by TikToker Lex Nicoleta.
Several hashtags on TikTok now organise
user-generated videos featuring gender fluidity
or gender neutrality, such as #femboy, which
has garnered more than 3 billion global views
as of the end of October 2022. Meanwhile,#genderneutralfashion has had over 316 million
views, #genderneutral over 223 million and#mascgirl over 66 million.
Brands Respond
For much of the past decade, brands have been
experimenting with understanding what does anddoesn’t work in fluid fashion shopping experiences
across different price points. At Palomo Spain, forexample, Gómez has been on a multi-year journey
as one of the first high-end genderless labels to
get noticed by the industry and get the label onto
shop floors. Department stores initially struggled
to figure out whether to display Palomo Spain’s
clothing in the women’s section, men’s section
or both. In the end, men’s sections prevailed for
Palomo Spain. The stores then also sought changes
to accommodate female customers. “It was reallyhard for us as well to change the patterns andthe shapes and everything because [the stores]
wanted [garments] for girls and in a smaller size,”
he recalled, adding that he did not want the label
to be pigeonholed. “I make clothes that everyone
can wear. … I like playing with masculine/feminine

all the time and that tension, of course, attracts
womenswear clients and menswear clients.”
With wholesale channels, the brand has had
to find a gender-specific middle ground, catering
to male and female customers differently. With
more men than women shopping on its website,
Gómez started organising pop-ups and opened thePalomo Spain studio in Madrid for women, having
found that the vast majority of the brand’s female
customers prefer trying on garments.
Another fashion brand that has confronted
the practical issues of fluid fashion is Eytys.
Founded by Jonathan Hirschfeld and Max
Schiller in 2013, the Stockholm-based brandstarted by selling thick-soled unisex sneakers
before branching out into clothing, online andin three stores — two in Stockholm and one in
London.201 “Unisex has always been a given for
Eytys’ products. It felt natural for us. We see it asa service, the customer chooses,” Schiller said. “Asour collections grew it made sense to continue witha unisex philosophy for all products to not limit ourcustomers.”
The company now merchandises collectionsin its physical stores based on looks, not on gender.
On the Eytys website, its products, which areoften available in extended size runs and comewith detailed size charts for all body types, arephotographed both on male and female models who
reflect the racial diversity and various identities of
its customers.
Schiller conceded that the company’sbusiness model may have been easier to executewith separate menswear and womenswear
categories because of the challenges posed in
production, merchandising and marketing. But,
“we can now see that the efforts and the costs
associated with the complexity are starting to
pay off,” he said. For example, he noted that thebrand’s Benz jeans, Eytys’ take on the 1990s baggy
jean, is bought equally by customers who identify
as male and female, while boots and dress shoesthat were primarily bought by female customers
are attracting male customers too. Its Gaia boots,
which come with high heels in EU sizes 43 to 45, are“always out of stock,” he added.
57

05. FORMALWEAR REINVENTED

CONSUMER SHIFTSThe State of Fashion 2023

YouTuber Bretman Rock. Gotham/GC Images via Getty Images.

Formal attire is taking on new definitions as shoppers
rethink how they dress for work, weddings and otherspecial occasions. While offices and events will likely
become more casual, special occasions may be
dominated by statement-making outfits that consumers
rent or buy to stand out when they do decide to dress up.

This fluid-fashion trajectory is not lost on
retailers either. UK department store Selfridges, forexample, has been buying extended-size runs frombrands if they are available, which accommodate
male, female and non-binary body shapes.
The retailer also places both male and female
mannequins in each department. “Our approachis to make the shopping experience as natural as
possible,” said Sebastian Manes, merchandisingand buying director at Selfridges.
Mixing and Matching
The industry is also approaching marketing
differently, often putting greater emphasis on
inclusivity generally than on gender neutrality.
Craig Brommers, chief marketing officer of popular
Gen-Z brand American Eagle Outfitters, explainedon a recent webinar that the brand intentionallykeeps briefs for photo shoots “loose” so that58

creatives have the leeway to mix genders and styles
as they see fit.
Brommers added that AEO has decided not
to explicitly market itself as a gender-neutral brand.
“Right or wrong, we are not out there pounding
our chests about this because we feel that this is anindividual choice, and this is naturally happening,”
he said. “I think there are other brands that are
talking this up more … [but] what we are saying: you
be you and we’re happy for you to be you.”
In many respects, Gen-Z sees gender-fluid
fashion as being about more than just products.
“We’re thinking about the brand or company we’rebuying from, the team it’s coming from, the faces
behind and in front of the camera, and all that goes
into getting that product out the door,” said Juv’sJones. “Our buying power is only growing, andwe’re only ageing into the market. And so I think it’s
important to meet [us] where we are.”

KEY INSIGHTS
1. After two years of decline, the formalwear category rebounded in 2021 and 2022. That
momentum will continue into 2023 but could slow amid a tough economic climate.
2. Formalwear for special occasions is expected to be the most promising part of thecategory: 39 percent of fashion executives expect sales of occasion wear to be among
the top three growth categories in 2023.
3. Rental will present a unique opportunity: consumers are more likely to rent men’s andwomen’s formalwear than any other apparel or accessories category.

EXECUTIVE PRIORITIESUnderstand use cases

Gather insights on post-pandemic consumer habits to identify
how formalwear fits into their new routines and requirements.

Focus assortments

For brands catering to office wear and evening wear, offer“power casual” or “smartorial” hybrid styles and separates
that bridge different use cases. For brands catering to special
occasions, emphasise statement pieces.

Break boundaries

Encourage creative teams to reimagine the formalwear
category with as much diversity in terms of colours, shapes,
products or materials as any other category.

59

The State of Fashion 2023

CONSUMER SHIFTSNot so long ago, people segmented theirwardrobes for leisure activities, business eventsand family celebrations. But now, the lines between
the dress codes for many of these occasions haveblurred, leaving fewer events that require what wastraditionally considered formalwear, such as suitsand long dresses.202
As a result, differences in preferences forthe clothes people wear at offices and evening
events as opposed to upscale, special occasions, arebecoming even more pronounced. For day-to-day
wear, “smart” or “power casual” are the dominant
styles, characterised by versatile clothing that canbe dressed up or down.203 And when customers dodress formally, many are embracing more creative
styles, choosing unconventional fabrics, boldcolours and statement pieces that stand out intheir wardrobes and on their social media feeds.
Though these dress code shifts are playing out
across gender categories, the evolution may be more
visible in men’s assortments and merchandising, as
the relevance of traditional suiting declines.
As these dress codes crystallize, brands
across the market may have a unique opportunity
to guide customers towards new products,
materials and shapes that reflect modern lifestyles.
On the ReboundWhile the size of the formalwear market is difficult
to measure due to the breadth of the category, thespace can be divided into three groups: office wear,
including business suits and smart footwear thatare worn in workplaces; evening wear, or smart
casual and cocktail attire, like dresses, heels andblazers; and occasion wear, such as the tuxedos andgowns worn at special ceremonies or celebrations.
Formalwear is showing signs of a reboundafter pandemic-induced disruptions. In Europe andthe US, retail sales of shirts and blouses, non-denim
trousers and skirts are projected to grow at a faster rate
between 2022 and 2026 than they had in the 10 years
before the pandemic, according to Euromonitor.204
60

05. FORMALWEAR REINVENTED

But concerns of economic gloom that may
be on the horizon may hold the market back in
2023.205 For office and evening wear, this may mean
consumers start repurposing garments for multiple
occasions. In contrast, occasion wear at the mostformal end of the category is expected to be more
resilient, reflecting some of the patterns apparent
during previous recessionary periods, like that of
the early 1980s, when American department stores
reported that high-end evening clothes were among
the only categories that remained in relatively highdemand.206
According to the BoF-McKinsey Stateof Fashion 2023 Survey, 39 percent of fashion
executives expect sales of occasion wear to beamong the top three growth categories in 2023.
Meanwhile, fewer executives see opportunities
for office wear, with 27 percent stating they expect
business attire to be among the top three categories
set to grow next year.

Exhibit 11:

The number of occasion dresses available to buy in the US hasboomed over the past year as consumers return to dressing up
Number of products available by category in the US,
January 2021–October 2022
Activewear pants, sweatpants and joggers

Formal dresses & gowns

Cocktail & party dresses

Lifestyle sneakers

Athletic sneakers

160,000+80%

140,000+21%

120,000+178%

100,000
80,000+31%

60,000Putting Fashion to Work40,000Even before the pandemic and the hybrid-working
paradigm of today, office attire was relaxing.
Hoodies, jeans and sneakers became increasingly
acceptable in many offices. Even banks andprofessional services firms — with entrenched suitand-tie cultures — have acknowledged that officedress codes need modernising.207 In 2019, Goldman
Sachs announced a firm-wide flexible dress code,
encouraging employees to use their judgment when
deciding whether they should, or should not, ditch
their suits for a more casual look.208
In women’s wardrobes, where dresses havelong ruled both office and evening wear, a new takeon the pant suit emerged in 2022. Labels such as
J.Crew and The Frankie Shop showcased oversized
suits and trousers in soft materials for customers
looking for polished, fashionable but comfortablestyles. Workwear label M.M. LaFleur has honed
its “power casual” category of structured knit
tops and washable twill trousers. The brand said

20,000+27%

0
Jan 21

Apr 21

Jul 21

Oct 21

Jan 22

Apr 22

Jul 22

Oct 22

Source: StyleSage

in early 2022 that its power casual styles weregenerating triple the sales of dresses that used todrive about a third of the company’s sales prior to
the pandemic.209 210
In the men’s market, brands thattraditionally focused on formalwear for work andevening are rethinking old approaches to keep up
with changing consumer tastes. Italian luxury
label Zegna produced a relaxed take on daily attire
in its Autumn/Winter 2021 campaign, which it
calls “luxury leisurewear,” offering versions of
its signature tailoring in jersey knits and othersoft fabrics.211 Similarly, labels like Kiton andBrioni have effectively shifted their focus fromtraditional work wear and suits towards hybrid
pieces that can function well across activities — astyle some are calling “smartorial.”212 Consumers
are updating their wardrobes to reflect theseblurred lines between leisure wear and work wear,with worldwide Google searches for “smartorial”
doubling between January and September 2022.213
Apparel with hybrid details that bridge
formal and casual attire — such as formal cutsin comfortable materials that often incorporate
performance fabrics, like sweat wicking or stretch— are also in high demand. For example, cashmere
61

CONSUMER SHIFTSRetail sales of shirts and blouses,
non-denim trousers and skirts
are projected to grow at a fasterrate between 2022 and 2026
than they had in the 10 years
before the pandemic.

The State of Fashion 2023

Wherefore the Black Suit
Where does the shift in workwear leave suits? The
popularity of suits was already declining before thepandemic, especially in the US, Western Europe
and Latin America. In the UK, spending on men’ssuits dropped from £377 million (about $425 million)
in 2019 to about £240 million in 2021. In March 2022,
the UK’s Office for National Statistics removed
men’s suits from its basket of goods to calculate thecost of living for the first time since 1947.215
Suit makers Hugo Boss and Brooks Brothers
have relaunched their brands with a focus on
athleisure and upscale streetwear.216 Other suitmakers are pivoting from black and grey to suitsin bold colours. On London’s Savile Row, the likesof Anderson & Sheppard and Edward Sexton havereported an increase in sales of colourful suits andthose in lighter fabrics. Black suits represented 25.8
percent of suits for sale online between September
2018 and September 2019, compared with 19.3
percent between September 2021 and September
2022, according to retail tracking firm Edited.217
Pink, green and orange are among the more popular
new hues.
The dress code shift also translates tocustomers buying separates rather than two- or
three-piece suits. “We have noticed that thecustomers who always bought a suit from Zegna
and Tom Ford are now buying separates from the62same brands,” said Dean Cook, head of menswear
buying at British department store Browns. “Thebrands are also aware of this and have diversified
their [offerings], appealing to a customer who ismaybe working from home with the necessity forsomething smart but with a different aesthetic.”218
With this, suit prices are declining. In the UK,
the average price for a suit fell 75 percent year on year
in July 2020 to approximately £200 on average,
according to trend forecasting company WGSN.219
To be sure, a traditional, structured suit
still has a place in modern wardrobes, but in many
parts of the world, its use is confined to a smaller
selection of formal occasions. In the Middle East,
black suits remain popular in day-to-day dressing,as well as in Asia: in China, suits have recently
become symbols of job security for some.220 But inmany cases, traditional suits can no longer meritthe entire focus of a fashion business.

compared to the same period in 2021, according tomarket intelligence platform StyleSage.223 Searches
for platform heels have spiked 75 percent between
2021 and 2022.224 At luxury retailer MyTheresa,
growth in shoe sales has been driven by parties andother occasions,225 with popular brands including
Amina Muaddi, whose sought-after avant-garde
square-heeled shoes have helped the company growinto a $55 million brand.226
Meanwhile, dresses have also garneredattention at more accessibly priced retailers. Asos
reported sales of 100,000 party dresses in 2021.227
Abercrombie & Fitch added a “best dressed guest”
category to its website in 2021, helping it to sellmore dresses than ever before in the brand’s
history.228
For occasion wear, many customers will rent
special pieces they do not anticipate wearing more

Making a Statement
Unlike for office and evening wear, when customers
dress up for the most formal occasions versatility
and comfort are expected to become less of a factor
in purchase decisions. Instead, shoppers may look
for statement-making and unique items that will
stand out, making occasion wear a ripe space forhigher-end, specialised brands that can meet thedesire for playful indulgence. For example, Elie
Saab is among the brands now offering made-tomeasure or couture suits for men to capitalise on
a growing business for creative and personalised
attire.221 Meanwhile, UK-based department store
chain Flannels has opened a tailoring hub thatallows shoppers to buy pieces made to order, as
menswear silhouettes move beyond streetwear to amore tailored look.222
The shift is visible in women’s apparel andfootwear, too. The number of cocktail and party
dresses as well as formal dresses and gowns forsale in the US between January and October 2022
increased by 80 percent and 178 percent respectively

A Zegna Autumn/Winter 2022 look. Zegna.

joggers from Burberry and Loro Piana or linen andcrochet shirts from Jil Sander and Jigsaw can be
dressed up or down depending on the occasion.214

05. FORMALWEAR REINVENTED

than a few times, or turn to resale platforms tosource luxury items. The rental market is projected
to be worth $2.1 billion by 2025, with growth driven
in part by demand for elegant outfits.229 According
to a 2022 Kantar survey, shoppers were more likely
to rent men’s and women’s formalwear than any
other apparel or accessories category.230
Two Diverging Markets
As brands navigate dress codes and expectations
around formal attire, they may need to rethinktheir assortments to address two markets:versatile, polished but casual everyday appareland statement-making special occasion attire.
Brands can take into account how use cases drive
shoppers to make purchases; consumer surveys andfocus groups should be essential to understanding
changing preferences and reflecting those desires
in design and merchandising strategies.
Brands that want to cater to office andevening wear should consider how, across the market,
shoppers will increasingly turn towards multipurpose wardrobe staples that balance an upscale
appearance with comfort and ease. These types ofseparates will likely be easily mixed into a varietyof dress codes, offering a range of casual to relaxedformal combinations. Merchants and marketers
should message multi-purpose pieces carefully, so
shoppers understand their range and versatility.
Designers that seek to serve special occasion
wear, however, can deprioritise versatility andinvest in differentiating their collections to excite
customers when they are ready to swap their soft
separates and athletic apparel to buy — or rent –something more memorable.

63

EXECUTIVE INTERVIEWCONSUMER SHIFTSThe State of Fashion 2023

Hugo Boss: Reclaiming theFormalwear Space

office, or to coffee and yoga.
Boss rolled out a revamped visual
identity, updated its marketingmessage and started mixing in
tailored pieces with a streetwearinfused casual offer that sought
to recontextualise work attire
as an opportunity for individual
empowerment rather thanpromoting a neutral business
uniform. “Be your own Boss” hasbeen the slogan on ads with a new
cast of celebrity spokespeople,
including Kendall Jenner, Khaby
Lame and Matteo Berrettini.
In 2022’s second quarter, salesat Hugo Boss rose 29 percent
above 2019’s pre-pandemic levels
as the company targets doubling
annual revenue to over €4 billion(approximately $4 billion) by 2025.

Daniel Grieder
Chief Executive, Hugo Boss

The decline of the office and the casualisationof wardrobes made for tough going during
the pandemic for office wear and formalwear
players. But Hugo Boss CEO Daniel Grieder
sees a bright future for the category as tailoringsales rebound.
— by Robert Williams

64

When Daniel Grieder was named
chief executive of German
apparel maker Hugo Boss AG in
June 2020, the outlook for thebrand’s core suiting and officewear was shrouded in uncertainty— the appointment came during
the height of the pandemic, when
the return to in-person work andevents looked extremely far-off.
But by the time he officially took
the reins of the company a year
later, signs of hope had started tospring up as demand for occasion
wear came roaring back with thelifting of Covid-19 restrictions
around the world. Clients’flexible lifestyles sparked demandfor comfortable, contemporary
tailoring — with some customers
seeking blazers and trousers cosy
enough to wear at home, to theCasualisation and the declineof the office have led to somereally challenging years forformalwear. A lot of people
who used to have two separate
wardrobes now only needone. Has that meant clientsare spending less, or simply
shifting the spend to different
categories and price points?
Before Covid, tailoring [already]became a bit more smart-casual.
It became more comfortable,
fewer ties, more relaxed but stilla blazer and pants. That was thetrend. Then Covid came andeverybody said, ‘Suiting, tailoringis out; nobody is going to wear it
at home.’ In the beginning, thatwas clearly the case.
However, when we slowly cameout of the pandemic and events
started to resume, we were
impressed by how fast the swing
back to suits actually happened.
With what kinds of suiting is
Boss seeing that momentum?
It doesn’t feel like people justwent back to dressing how
they were before.
The suiting for occasion wear
continues to be more traditional,
wearing a suit nearly [always] witha tie like before the pandemic.
And the demand for that is muchbigger than we expected.
Then for [everyday] suiting, we
needed to continue [to be focusedon that]; at Boss it’s in our brandDNA. We had to try to develop
the suit of the future, a suit that isprobably more comfortable, thatis maybe a bit more technical.
We call it “dressletic.” We werelooking at how so many people
when they take a plane wear an
Adidas tracksuit. We thought[tracksuits] is not our DNA, butthat comfort, if we can bring that
into a suit, it would be incredible.
It sounds like that would
respond to people wanting
more options for day-to-nightdressing: a suit you could wear,
say, on a day when you’re going
to pop into the office for ameeting, but also go for drinks.
People want to dress up after the
pandemic. It’s a clear trend thatthey want to dress up in a smartcasual way, but they don’t want
to wear something that is not
comfortable anymore.
So we put a lot of effort into thisperformance suiting — that’s
stretch, it’s water resistant,
you can go on a plane in it , it’swrinkle-free, it’s light, it’s [wornin] sunshine or rain. People don’t
just go to the office [in it]; it’s
so comfortable that you nearly
do not want to wear anythingelse. It’s more comfortable thanjeans, it’s more comfortable thananything.
This performance suiting that we
now offer in our stores is sold out

every day. It’s the supply chainthat is our biggest issue, to evenbe able to deliver on that demand.
Do you see demand varying
among age groups? During
fashion weeks [in 2022], we’veseen a lot of the very young
influencers and TikTokers
wearing suits who just a few
seasons ago would have all
been in hoodies and sneakers.
It’s true that with Gen-Z, we areselling suits again but in a very
modern way, that could even haveside pockets on the pant or thejacket is shorter. It’s maybe even abomber jacket you wear with thepants.
With Millennials, it’s a bit
more casual. That hoodie[from our campaign] was thebest-selling item we ever had.
It’s sophistication, but stillsomething more casual or smartcasual that is well received.
Older consumers are dressing
more traditionally and probably
these are the ones that lovethe occasion dressing most.
However, they are open to more
comfortable materials.
How has the return to moreformal dressing impacted
footwear? Are most people
excited to pick up a fresh pairof brown shoes or high heels
again or is the momentum still
focused on sneakers?
Sneakers are definitely the big
trend. It’s an endless boom.
To be honest, brown shoes arestill going down, except foroccasion dressing, and even there,
if you mix in something new, it’s
probably a more casual shoe.
One priority you’ve set for
Boss is to boost its shareof womenswear, and you
65

EXECUTIVE INTERVIEWFASHIONSYSTEM
Khaby Lame for Hugo Boss. Hugo Boss.

The State of Fashion 2023

06. DTC RECKONING

recently tapped some major
womenswear stars like
Kendall Jenner and Hailey
Bieber as spokespeople. Whatsort of impact is that having?
We wanted to reintroduce Boss
as a new name [separate from
“Hugo”], saying, ‘Everybody canbe a boss, as long as you standfor something; as long as you dosomething, as long as you be yourown boss.’ It doesn’t matter if it isa man or a woman. Suddenly Bosswas relevant in the womenswear
business again, as well as foryoung consumers.
Currently women do want towear a dress, they want to wear asuit, but it has to be comfortable.
66

It has to be maybe an oversized
suit, maybe also in more colours.
Where is the price sensitivity
headed for tailoring? People,
especially men, used to bewilling to pay so much forsuits because they would wear
them almost every day to theoffice. If tailoring is being
framed as more of a fashionand lifestyle piece, will thatchange how much people
spend?
It depends on the target group.
The demand is here for both
[luxury and accessible luxury].
Where I think it’s under pressureis the mass market. When you buy
a suit, you want to have a suit that

07. TACKLING GREENWASHING
08. FUTURE-PROOFING MANUFACTURING
09. DIGITAL MARKETING RELOADED
10. ORGANISATION OVERHAUL

is from a brand that is known as asuit brand. And if you are a brand,
that also shows the consumer
you think about sustainability,
they’re willing to spend more. We
are upgrading more often than
downgrading in terms of pricing,but it means we put more quality
or sustainability into the product.
I think we are in a sweet spot,
being an accessible luxury brand.
If the world is going well, people
are willing to buy more expensive
pieces, but when it gets a bit more
tough, they still want to have agood brand, a good product with agood price value.
This interview has been edited and condensed.

6706. DTC RECKONING

Though brands across price segments and categories
have embraced digital direct-to-consumer channels,
mounting digital marketing costs and e-commerce
readjustments have put the viability of the DTC model
into question. To grow, brands will likely need to diversify
their channel mix, including wholesale and third-party
marketplaces, alongside DTC.
KEY INSIGHTSThe State of Fashion 2023

1. Unprecedented e-commerce growth rates are normalising. E-commerce sales are
expected to grow at a CAGR of 10 percent in the US and 11 percent in Europe between
2022 and 2025, far slower than the 30 percent growth seen from 2019 to 2020, andmore in line with the pre-pandemic rates of 15 percent and 14 percent from 2016 to 2019.
2. Profitability in the online DTC channel is suffering, as digital marketing costs growalongside online return rates — costing brands between $21 and $46 per returned
product on average.
3. Brands are doubling down on physical touchpoints, from monobrand stores toconcessions at multi-brand retailers. In 2022, physical store openings in the US
outpaced closures for the first time in over three years.

EXECUTIVE PRIORITIES

68

Make it multichannel

For most brands, DTC channels should be reserved for the mostloyal, high-value customers and combined with other multibrand retail and marketplace channels to drive growth.

Rethink the physicalfootprint

Map out which physical stores continue to deliver ROI, leveraging
physical touchpoints as opportunities to bring the brand to life forcustomers and build an emotional connection.

Leverage retailpartnerships fordiscovery

Reach new customers and experiment with a physical retailstrategy without intensive investment in monobrand storesthrough selective collaborations with retail partners andactivities like pop-ups.

FASHION SYSTEM

E-commerce grew at an unprecedented rateduring the pandemic, but the days of heady growth
now appear short-lived. After online purchases
surged 30 percent year on year in 2020 in the US
and Europe, a new reality is settling in. Between
2022 and 2025, e-commerce is expected to growat a compound annual rate of 10 percent in the
US and 11 percent in Europe231 — much closer topre-pandemic levels seen between 2016 and 2019,
where e-commerce grew 14 percent in the US and
15 percent in Europe. In China, online retail sales
have grown less than 10 percent since the end of2021, after having risen more than 16 percent year
on year in 2019.232
Regardless of the extent to which fashion
brands have built their businesses around selling
direct to consumers online, the decelerationof e-commerce growth requires a carefulrecalibration of channel strategies. Pure-play DTC
brands themselves may offer lessons for others
about how to manage the change ahead.
DTC Darlings
When a new generation of DTC labels arrived
online over the last decade, the fashion industry
was ripe for innovation. These DTC start-ups,
backed by millions of dollars of venture capital,
captivated consumers with an alluring premise.
By avoiding third-party retailers, they posited thatthey could break free of traditional merchandising
constraints to offer more innovative products,
wider assortments and higher levels of customer
service than other brands. To get the word out
about their products and services, they benefited
from earlier waves of low-cost, highly accurate
targeting in digital marketing.233“DTC” soon became the buzzy acronymin the industry, as digital-first brands across
categories scaled fast. Canadian jeweller Mejuri,
Brazilian brand Farm Rio, French contemporary
label Sézane and Chinese beauty brand Perfect
Diary are among the companies that soared in

popularity with consumers.234 235
The DTC model was further validated
when the pandemic hit and most physicalretailers were forced to shut, either temporarilyor permanently.236 Department stores that werealready under financial pressure, like Debenhams
in the UK, filed for bankruptcy.237
Meanwhile, established global brands, suchas Prada and a number of sportswear players,238 hadbeen shifting their focus towards DTC channels, ina strategic move to gain first-party customer dataamid increased e-commerce adoption and ongoingchallenges to wholesale channels.
But in 2022, cracks appeared in the digitalpure-play model. As DTC brands began going
public, their stock prices began to suffer.239 The
share prices of 10 apparel DTC brands fell byaround 70 percent in the first three quarters of2022, compared with the MSCI World Consumer
Discretionary Goods Index’s decline of 32 percent
over the same period.240
For many digitally focused brands,
profitability has proved elusive. A structural
challenge that many of these brands face is theirnarrow assortments: Brands like Warby Parker andAllbirds have been looking for ways to expand theirofferings in a bid to generate repeat purchases forlimited assortments.241
Another major, and growing, challenge isthe rising costs of digital marketing as social media
platforms become more crowded and competitive
and new privacy regulations restrict customer
targeting across digital channels. (See DigitalMarketing Reloaded on page 98.)
E-commerce brands are also contending
with high, margin-eroding return rates. Retailers
are paying between $21 and $46 per returned
product on average when taking shipping,processing and other costs into account.242 In
the US, return rates across all sales channels
increased to 16.6 percent in 2021 from 10.6 percent
the year before, with the average return rate foronline orders even higher at 20.8 percent.243 US
69

06. DTC RECKONING

The State of Fashion 2023

A Glossier store at pop-up village The Current. Glossier.

FASHION SYSTEM

Menswear brand Drake’s has benefitted from suchterms at its New York location, so that if the brandperforms well, it pays more to the landlord in rent.258
At the same time, the role of brick-andmortar is evolving. To generate higher revenue,
stores should be digitally enabled and fit seamlessly
into the overall physical-digital multichannel
strategy. Strategies like integrating mobile apps
to optimise in-store experiences for customers
can drive greater sales in each store, while RadioFrequency Identification (RFID) product tags allow
brands to track and maintain appropriate inventory
levels.259 With one store already in Los Angeles,
Amazon Fashion opened its second physical store
Exhibit 12:

DTC fashion stocks have underperformed others in 2022
DTC apparel stocks and MSCI global consumer indexes, 2022 (Index=100)% change
Average DTC Apparel and Fashion Brands1

multi-brand online retailer Revolve reported a 54
percent return rate in the first quarter of 2022, while
Boohoo’s UK return rate hit 33.7 percent in April,up nearly 10 percentage points from the prior year.244
The Evolving Role of Physical RetailThough brick-and-mortar chains were pushed toreduce their footprints or shutter completely as
much of the fashion’s industry investment went
online in recent years, the contraction in physicalretail looks to be stabilising.245 In 2022, US store
openings outpaced closures for the first time inat least three years.246 Though retail foot traffic
remains between 10 percent to 20 percent lower
than in 2019,247 the productivity of stores has risen:in the US, sales per square foot increased 13 percent
year on year in 2021.248
A range of digital-first brands haveinvested in opening their own physical stores,
finding it difficult to generate a profit through70

online DTC channels alone.249 Everlane opened
its first permanent physical store in 2017250 andnow operates 10 stores across the US,251 despite its
founder famously claiming in 2012 he would “shutthe company down” before opening a physicalstore.252 Allbirds operates 54 stores globally as of
September 2022,253 while Warby Parker has announcedplans to expand its footprint to 900 stores.254
Brands exploring brick-and-mortar may
find that rents are more favourable in many key
urban markets than they were before the pandemic.
Leases in shopping centres and high streets in
the UK have declined between 20 percent and30 percent compared to 2019 levels.255 In the US,
store vacancy rates in 2022 exceeded 2019 levels.256
Landlords have become more favourable retailpartners by offering special terms such as rent
escalation,257 in which the brand pays a low rate at
the start of its lease followed by increases over timein accordance with performance, thereby sharing
the risk of opening a new store with the landlord.

in Colombus, Ohio, in October 2022 with a range oftechnologies, including enabling customers to scan
QR codes with the company’s shopping app and add
products to a fitting room.260
Stores also provide marketing value,
enabling brands to bring their aesthetics to life,
like Balenciaga’s fake fur-lined pop-up for thelaunch of its Le Cagole bag in central London, or
Uniqlo’s flagship store — also in the UK capital —that showcases the restored art-deco design of a
1920s barber shop that previously occupied thespace.261 Others offer spaces exclusively to top-tiercustomers, such as Chanel’s plan to open boutiquesthat will only be available to top-spending clients,

MSCI World Index

MSCI World Consumer Discretionary Goods
100

80

-25%
-32%

60

40
-73%

20

0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

1 Selection of publicly listed DTC apparel and fashion brands
Source: Yahoo Finance and CNBC

71

FASHION SYSTEMThe State of Fashion 2023

The Benefits of Partners
Much in the same way that brands (and theirlandlords) are rethinking physical stores,
department stores are shifting their approach
to partnerships with the brands. This can create
opportunities for brands even if department storesare continuing to face their own challenges aroundinventory and foot traffic, and have historicallyrequired that the brands they carry agree to lessadvantageous terms around delivery schedules anddiscounting.
“Before, the retailers were dictating terms;
now, it’s a collaboration, a partnership between
brands and retailers,” said Domi Szabó, groupwholesale director at European fashion holding
company Vanguards.264
Carefully selected partnerships with highquality wholesalers and multi-brand retailers cangenerate value for brands. DTC unicorn Glossier,for example, announced its first wholesale deal forits makeup and skin care with Sephora in 2022,
significantly expanding the brand’s distribution.265
In 2022, analysts credited sportswear brandPuma’s 20 percent sales increase in the first quarterof 2022 to a newly expanded wholesale strategy.266
Increasingly, department stores andboutiques are willing partners on special retailinstallations, which can benefit both retailer
and brand. Such tie-ups can help multi-brandstores attract new customers and allow brands
to understand where and how to open their own
physical stores. French designer label Jacquemus,
for example, opened high-concept, surrealist
72

pop-ups at UK department store Selfridges inspring 2022 before experimenting with its own
temporary sites in other cities in the months that
followed.267
Multichannel Playbook
Even as e-commerce is losing its pandemic-era
allure, brands are exploring ways to reach newcustomers online outside of social media and theirown websites. In China, where platforms like
Tmall, Taobao and JD.com are well established,
third-party marketplaces account for as muchas 80 percent of luxury e-commerce spending.268
Beyond China, many brands are considering new
or expanded partnerships with marketplaces like
Zalando and Farfetch, which offer access to large
customer groups and can allow brands to control
their own shipping and logistics. In the US, brickand-mortar retailers such as Macy’s and Walmart
have launched their own marketplaces to compete
online.
At this juncture, only a handful ofcompanies with the highest levels of brand loyalty— such as Chanel or Nike — or sheer scale— like
Zara, H&M and Uniqlo — have shown that they candrive growth through a DTC-first model.
With this, the playbook for physical storesand wholesale has evolved. Today’s customers
expect brands and retailers to interweave digitalconveniences with physical services, like the ability
to pick up or return online orders in stores.269 As
such, a physical presence is increasingly critical for
scaling, and innovative store formats are essential.
To be sure, direct digital channels willremain a fundamental part of a multichannel mix
in the years to come — especially for brands’ repeat
customers. But direct sales can be complemented by adiverse channel strategy that attracts new customers
and provides a strong foundation for growth.

An Allbirds store. Shutterstock.

starting in key cities in Asia.262“The retail store is the last point where you
actually can solidify the connection that you havealready built through wholesale and through DTC[online],” said Andrea Baldo, chief executive ofGanni, which has expanded from digital channels
and wholesale partnerships to mono-brandstores.263

73

73

EXECUTIVE INTERVIEWFASHION SYSTEM

Allbirds: Conquering the New
Multi-Channel Landscapefor young companies to reachnew customers — especially as
online advertising has grown
exorbitantly expensive in recent
years. Embracing these channels
will be critical to navigating the
new era of retail.
Allbirds co-founder and co-CEO
Tim Brown identifies what’s
driving the DTC evolution anddissects the exponential value ofstores and wholesale partners.

The State of Fashion 2023

Some say the direct-toconsumer model has become
outdated. How have you
observed the channel’s
evolution from its heyday inthe 2010s?

Tim Brown
Co-Founder and Co-Chief Executive,
Allbirds
Today, running an online business requires
more than just a Shopify storefront and ads onsocial media. Allbirds co-founder and co-CEO
Tim Brown unpacks the new rules of the directto-consumer playbook, which has evolved
alongside a maturing e-commerce market.
— by Cathaleen Chen

When online shopping erupted
at the height of the Covid-19
pandemic, many predicted
it would be the last straw
for physical retail. For somestruggling businesses, it
undeniably was. But to theindustry’s surprise, stores havereturned with a vengeance. At theforefront of today’s brick-andmortar boom are digitally native
newcomers that see stores asmarketing opportunities rather
than just a means of generating
sales.
Among them, footwear
brand Allbirds now has over
50 locations, and that’s notcounting its growing presence
in department stores too.
Together, retail and wholesale
represents new opportunities

74

Terms and labels go in and out
of fashion, and the DTC one
certainly feels like it’s becomea negative interpretation of abusiness model that was heavily
reliant on cheap, Facebook, social
media-based advertising. Then,
when that changed, when that
became more expensive, thebusiness model no longer worked.
But when I think about directto-consumer, what I think ofis really the growth of people’s
comfortability with buying things
online and the rise of new brands,
infused with purpose.

playbook, what elements havegone out of style and what
remains?

costs have skyrocketed, what
are new avenues of marketingthat Allbirds is exploring?

What has gone away is the ideathat it’s as simple as cutting out
the middleman, the wholesaler,creating a brand without too
much thought, and plugging it
online, and then taking advantageof really cheap customer
acquisition. I think that story has
not played out really well, andI think it’s become incredibly
crowded. Some brands capitalised
on a moment in time when there
was a certain economic situationthat made the ability to build
brands quite quickly online.
Others are inherently anchoredto long-term visions and purpose,and they’re broader than thechannel strategy, and I’d like tothink that’s absolutely us.

One of the big things that’s
really been attached to our retailstore growth is the idea of ourcommunity. We call it Allgood
Collective. It’s a series of localised
ambassadors, many of whom areconnected to our retail stores,that we use in a range of different
ways to test products. They tend
to be very powerful, local voices,on a range of topics, and thiscommunity manifests itself in theform of running clubs in somecases. It’s a cohort of 200 people,
and it’s something that we’rereally, really excited about.

The social commercelandscape looks quite
different today than it did five
years ago. How has the role ofsocial media ads evolved for
Allbirds, and would you say
it’s in line with the approachof other e-commerce brands?

So, at its best, I think there aresome principles that are notgoing anywhere. In our particularcase, the unfair advantage we
had as a business was control ofthe digital ecosystem, incredible
amounts of data and a direct
relationship with our customerthat allowed us to iterate andprove our products really, reallyquickly. I think at its root at least
for Allbirds, that model for us was
about innovation and consumer
centricity.

I can’t speak to my peers. I would
sort of say it’s always been areally relatively small part of ourbusiness, and our approach. Like
everyone else has seen, it’s gotten
more expensive, but we have our
retail stores, a powerful word-ofmouth awareness that has driven
our brand from the beginningand a really loyal community ofcustomers. Ads are a small part ofthe story and not something thatwe spend a lot of time worrying
about. We adapt and adjust likeeveryone else to rising costs, andin every aspect of the business,there are ups and downs at any
given time.

From that original DTC

As performance marketing

Allbirds has opened dozens ofstores in recent years. Whatrole does physical retail servefor digitally native brands?
Let’s start with the consumer
experience. Everyone’s got achildhood memory of going toa shoe store, getting fitted witha metal sizing device that noone can remember the name of,and a store clerk disappearing
to a … basement only to return
without your size. So the biggest
opportunity we saw really was
to remake that experience, andcreate a seamless interplay
between online and offline.
Then I think, in our particularcase, we’ve worked on natural
materials innovation andsustainability, and the ability tofeel and touch our products is an
inherent advantage, and it’s best
done in person.
What we see is when we put astore in — we’ve got 54 of them
now — we see an uptick in digitaltraffic around those stores, andwe’re able to use it as a customer
acquisition vehicle for the best
customers that we have within75

07. TACKLING GREENWASHINGEXECUTIVE INTERVIEWThe State of Fashion 2023

our ecosystem. Then on top of
that, and this is the best bit about
it, the level of knowledge among
those frontline retail store staff
of what’s working, and what isn’t,
is phenomenal. We still haveour very first store, it was rightunder our office, 30 yards awayfrom where I’m sitting [at thecompany’s headquarters in San
Francisco], and I’m in there justabout every day, because if welaunch something, I want to know
what’s going on. That’s where wefind out very quickly.
Allbirds entered into awholesale agreement withNordstrom in May. Wholesale
is another channel that’s
been traditionally neglectedby DTC players. What is thevalue of these partnerships
for a brand like Allbirds,
and what are the potential
challenges or risks?
Wholesale has never beensomething that we were nevergoing to do. It was always a matterof timing for us. Previously we’ve
worked with Nordstrom before
with shop-in-shops, and they’vebeen wildly successful.
For us it’s always about, whereis our consumer, how do webest meet them, and how do we
optimise for the brand experience.
That really is the thing that we
focus on the most. Nordstrom,
we’ve been talking with for a longtime, and it made sense, six-anda-half years in, to open up a moreformal channel. Similarly with
Selfridges in the UK. What a great
partner for us to both meet new
people and establish ourselves ina new market.
Similarly, we work with [USoutdoor apparel and equipment
retailer] REI, and one or twoothers. It’s been really selective.
76

In many cases, we’ve beenchatting with these folks for
multiple years. It’s the righttime, and it allows us to meetcustomers that don’t know us.
We’re still very, very early, andhave, relatively speaking, lowbrand awareness for the size ofthe market. In some cases, withwholesale, we’re able to meetfolks where we don’t have stores,
we don’t have a physical presence,and probably don’t plan to in theforeseeable future.
In times of economic
uncertainty, investors want
to see even healthier bottomlines. [Allbirds reported net
revenue of $140.9 million
for the first six months of2022, up from $117.5 million
year on year, and adjusted
EBITDA loss of $21.4 million,
compared to a loss of $5.8
million.] What is Allbirds’
path for profitability?
We have a really clear path toprofitability. There have been
obviously some short-term
challenges the last few years with
Covid. We’re a young business too.
We’re also balancing the need toinvest in the infrastructure to be
an iconic, global brand, and takeadvantage of the opportunitythat we believe exists in a large
way and capitalise on thisemerging consumer shift awayfrom synthetic plastic products
towards natural, sustainable
ones. Like anything else, we’rebalancing that investment,
and we face some short-termpressures around that. The pathto profitability is clear for us
and it’s just going to take a little
bit longer than we planned, but
we’ve got a very clear line of sighton that.
E-commerce growth ingeneral slowed in 2021.
How do you define thepost-pandemic consumer?
Has there been new buying
patterns that emerged?
I think we’re still working that
out. Part of our consumer base isbuying our product because it’s
extremely comfortable, versatile,and they’re wearing it into theoffice, and they’re dressing it
up, and they’re dressing it down.
One of the big things that we’reseeing is people are out and about,they’re travelling more, they’reback out in the world, and I thinkthat’s really benefited us. So we
see a lot of positive tailwinds
albeit in a tenuous economic
environment that we currently
sit in.
This interview has been edited and condensed.

As the industry continues to grapple with its damaging
environmental and social impact, consumers, regulatorsand other stakeholders may increasingly scrutinise how
brands communicate about their sustainability credentials.
If brands are to avoid “greenwashing,” they must showthat they are making meaningful and credible change
while abiding by emerging regulatory requirements.
KEY INSIGHTS
1. Policymakers are highlighting thorny questions looming over the industry: what issustainable fashion and which brands — if any — can claim to sell it?
2. A quarter of consumers in the UK said their purchase decisions were driven bysustainability, reflecting a broader pattern across geographies, and elevating theimportance of sustainability marketing for brands.
3. Caution is needed to avoid misleading or confusing consumers if communication
is not clear, consistent and accurate. Missteps for brands can lead to not only
reputational damage but also regulatory or legal action and fines.

EXECUTIVE PRIORITIESLay the groundwork

Invest in research and data intelligence to gather robust,
verified evidence to substantiate and credibly support sustainability
claims — and share findings with stakeholders transparently.

Connect functions

Build bridges between the company’s sustainability, marketingand legal teams so that that external, and internal, well-informed
sustainability communications capture the complexities of
responsible business practices.

Be precise

Avoid broad, vague terms like “green” or “eco-friendly,” which canhave multiple interpretations and give a false impression about
impact. Instead, provide important caveats or context, along withconcrete and factual information.

77

The State of Fashion 2023

FASHION SYSTEMThe European Commission is homing inon the word “green.” When its policymakers in thespring of 2022 laid out a plan to make textiles more
durable and recyclable by 2030, they addressed
not only waste reduction and circularity, but also
how the fashion industry communicates with its
customers. The strategic roadmap aims to crack
down on “greenwashing,” stating that terms like“eco-friendly” and “good for the environment”
will be “allowed only if underpinned by recognised
excellence in environmental performance.”270
While the EU plan is not enforceable
legislation, its policymakers — like those in otherparts of the world — highlight thorny questions
looming over the fashion industry in 2023: what
is sustainable fashion and which brands — if any— can claim to sell it? While brands have grappledwith their own answers for years, governments
and regulatory bodies are signalling that existing
definitions may be insufficient and, in many cases,
misleading.
Consumer watchdogs in Norway and
The Netherlands have ruled a number of highprofile marketing campaigns by big brands
were misleading. In the UK, the Competition
and Markets Authority launched a review ofsustainability claims in the fashion retail sector
in 2022, taking aim at fashion as one of theworst-offending industries when it comes togreenwashing. The review scrutinised fast-fashion
brands that it believed may be using misleading
language or cherry-picking information they sharewith consumers in a bid to appear more sustainable
than they actually might be.271 As a result, somecompanies are overhauling how they present
sustainability claims.272 Meanwhile in France,
legislation expected in 2023 will require brands to
add “carbon labels” to clothing and textiles, which
will display an environmental “score” from A to E
to help consumers make more informed purchasedecisions.273
This increased scrutiny and regulation
come as a growing number of consumers place78

07. TACKLING GREENWASHING

importance on the environmental or social impactof the fashion they buy.274 275 276 277 A quarter of
respondents to a 2021 survey by McKinsey in the
UK said their purchase decisions were driven bysustainability,278 while 80 percent of consumers in
a US survey said sustainability was an importantfactor when selecting a fashion brand to shop
from.279 In another 2021 survey in India, 94 percentof consumers said they were willing to pay highprices for “ethical” products.280 Younger consumers
are especially motivated by sustainability concerns:
half of Gen-Z shoppers in China said they aimed
to buy less fast fashion in a recent survey aboutsustainable consumption.281
Fashion companies have been responding tothis growing interest in sustainability. Many have
stepped up public disclosures of sustainabilityfocused initiatives in recent years, though evidenceof progress from such initiatives is limited, the BoF
Sustainability Index’s 2022 edition found.282
In parallel, brands should be aware thateven sustainability-focused consumers are
struggling to make sense of the information theyencounter while shopping.283 In a University of
Melbourne survey of Australian consumers in
2019, most respondents were “overwhelmed” whentrying to understand how garments are madeand “deeply skeptical” of brands’ own claims.284
Similarly, American respondents in a 2021 survey
conducted by biotech firm Genomatica echoedthese views: 42 percent of the teenagers and adults
polled said they were unsure what makes clothingsustainable, while 88 percent said they did not trust
brands’ claims.285 286
What’s In a Definition?
The complexity of sustainable business practices
requires a holistic approach to tackle an array ofenvironmental and social factors, from carbon
emissions to garment workers’ rights. Within this,the industry does not always align on a sharedvision for change, which can add to confusion

among consumers. For example, while the leather
supply chain is often associated with animal cruelty
and “unsustainable” farming, many “sustainable”
vegan alternatives are criticised for containing
harmful amounts of plastic.287
Any brand wanting to operate more
responsibly faces tension when attempting todeliver on the promise of sustainability, leadingsome to even avoid using the term “sustainable”
altogether. US outdoor clothing retailer Patagonia— despite its efforts to pioneer responsible businesspractices288 — does not refer to its business or
products as “sustainable” as part of its company
policy, explaining that “we recognise we are part ofthe problem.”289 Similarly, Ganni took to Instagramin 2021 to explain “why we’re not a sustainable
brand,” instead highlighting its focus on beingtransparent and honest.290 The Danish fashionlabel, which worked with the United Nations
Development Programme to create a zero-impact
collection, clarified that criticisms about its
progress “would most likely be justified.”Any brand wanting to operate
more responsibly faces tension
when attempting to deliver on thepromise of sustainability.
“With no standardised language or
regulated frameworks, deciphering what companies
are actually doing is extremely challenging,” said
Kenneth P. Pucker, former chief operating officer of
US outdoor footwear brand Timberland and now anadvisory partner at Berkshire Partners, in 2022.291
While third-party certification systems andimpact assessment tools have emerged to guidebrands and consumers, these have also stirred
debate. In 2022, one of fashion’s most adopted
rating systems, the Higg Index, faced a range ofcriticism, from the quality and accuracy of thedata it provides to the potential for big brands toinfluence it. After ruling that the index’s consumerfacing effort can be misleading, Norway’s consumer
authority banned use of the Higg Materials
Sustainability Index data in marketing materials inJune 2022.292 293 The Sustainable Apparel Coalition,
the group behind the index, put the programme on
pause and commissioned an independent review of
its data and methodology.294
Aligning Behind a Common Cause
The need for common frameworks is clear. In 2021
at the request of G20 leaders, the International
Financial Reporting Standards body launched
the International Financial Reporting Standards
Board to provide a disclosure baseline to help
capital markets participants track climate impact.
“Rarely do governments, policymakers and theprivate sector align behind a common cause,” said
Emmanuel Faber, chair of the ISSB. “However, allagree on the importance of high-quality, globallycomparable sustainability information for thecapital markets.”295
The ISSB issued its first draft for thebaseline in early 2022. The reporting system, if
adopted widely, could allow investors as well as
consumers to compare brands across industries.
However, it might not be specific enough tohighlight the fashion industry’s particularchallenges.296 297
At the same time, cross-player initiatives
that seek to provide a framework for brands toassess and communicate their impact continue toemerge ahead of incoming regulation. In February2022, 50 beauty companies, including The
Estée Lauder Companies as well as professional
associations, formed a consortium in partnershipwith independent bodies to develop an “eco beauty
score” for cosmetics companies to assess theirenvironmental impact.298 There is, however, a great
deal of criticism facing industry-backed initiatives
in general. As such, brands should ensure they workwith independent third parties and conform to79

07. TACKLING GREENWASHING

ongoing regulatory efforts to reduce concerns about
their efficacy.
Before brands can accurately talk about
their credentials, they should dig deep into theirown operations and supply chains to gather
data that they can benchmark effectively.299 For
example, Swedish fashion brand Asket has invested
in tracing its full supply chain and gathering datato communicate the origin, impact and cost of eachgarment to consumers.300 As regulators increase therequirements to back up any sustainability claims,
investment in tools to gather and manage supply
chain data is likely to become more widespread.

Stronger bridges should be built between
companies’ technical sustainability andmarketing teams to review how information canbe communicated in a responsible and effective
manner, ensuring that marketing messages are
not created in isolation. With incoming regulation,vague marketing around sustainability is no longer
just a reputational risk — it could lead to fines oreven legal action.
Language that could mislead consumers —such as broad terms like “green” or “eco-friendly”— should be avoided as it could give the impressionthat products have positive environmental

The State of Fashion 2023

Exhibit 13:

Fashion executives believe a lack of standardised tools andmetrics is the greatest hurdle to improving how consumers
perceive their sustainability efforts
Biggest challenges to improving sustainability credentials in the eyes of consumers,% of respondents

79
68

39

35
28
22

22
9

Lack of standards
to assesssustainability
performance

Cost ofsustainable
materials

Compliance

Source: BoF–McKinsey State of Fashion 2023 Survey

80

Quality ofsustainable
materials

Reduction ofenvironmental
impact linked
with supply
chains

Effective
marketing / PRcommunication

Insufficient
Hiring talent withbudget to invest
sustainability
in sustainability
expertise

attributes. Instead, important caveats or context
should be made accessible to consumers, suchas specific supply chain data brands can gather
to show a reduction in impact against a definedbaseline. For example, France-based luxury
company Kering has produced internal guidelines
on sustainability communications for its staff tohelp avoid greenwashing-related legal issues anda consumer backlash; the guidelines advise thebrands under its ownership to avoid broad, genericterms like “environmentally friendly” and instead
focus on clear, unambiguous statements on metrics
such as emissions reduction.301
To be sure, brands will still be able toidentify and talk about the sustainability issues
that matter most to their consumer base amid
increased scrutiny, but in doing so they must ensure
their claims are backed up by robust work. Whenultra-fast-fashion giant Shein launched a resale
platform for American consumers in October 2022
as part of a series of efforts to combat criticism,302
it was called out for greenwashing; research has
found that resale platforms to date typically do not
help to decrease production levels, particularly forfast-fashion brands.303 While staying abreast of
upcoming regulation, fashion leaders should seek
customer feedback by, for example, monitoring net
promoter scores to understand their business’s
perceived sustainability progress, areas of
improvement, and preferences for how and whencommunication is delivered. Technology anddigital tools will play a critical role to ensure
better traceability along the value chain, from data
platforms to facilitate information gathering acrossall production stages to rigorous data standards totrack sustainability metrics.
In 2023, new communication strategies
about sustainability will be required. To movethe needle, brands will also need to become moreforthright about their progress and shortcomings,
whether it be through public reporting or productlabels. If brands do not find a responsible andeffective way to talk about their sustainability

Garments disposed of at end of life. Shutterstock.

FASHION SYSTEM

journey, they may risk damaging consumers’
trust or may face compliance repercussions, thus
requiring brands’ legal teams to work closely with
communication colleagues.
Fashion leaders have an opportunity in
2023 to forge new rules of engagement when it
comes to sustainability, from aligning companywide marketing as well as regulatory and otherdisclosures to working with policymakers, industry
bodies and other brands to address pain points.
Communication should reflect a brand’s long-term
commitment to sustainability, articulating
realistic, timebound targets and progress being
made towards them. Yet ultimately, brands that are
best equipped to make meaningful and credible
change will be those that ensure every part of theiroperations is doubling down on sustainability, notjust talking about it.

81

IN-DEPTHFASHION SYSTEM
Exhibit 14:

A New Approach to Scaling
Innovative Materials
The materials upon which the fashion industry is dependent are part and parcelof the industry’s move to improve its environmental impact and meet thesustainability expectations of customers and regulators alike. In the year ahead,fashion leaders should see this as an opportunity to tap into the expanding
ecosystem of new, sustainability-focused materials, while addressing a key
challenge: how to help this ecosystem scale.

Material production creates the greatest climate impact across the
fashion lifecycle
Relative climate impact across the major steps of the fashion lifecycle
Material
production1

Yarn and fabricpreparation, wetprocesses

Garment
manufacturing

Retail /consumption2

End-of-use3

35%

30%

5%

25%

5%

by Nic Cornbleet, Steve Hoffman, Jonatan Janmark and Karl-Hendrik Magnus
1 Final output of the material production process is
textile fibre

2 Impact of microplastics is not considered in this
impact sizing

3 This does not include energy use in the recycling
process

The State of Fashion 2023

Source: McKinsey and Global Fashion Agenda, Fashion on Climate

Fashion is among the most unsustainableindustries on the planet, responsible for around 3
percent to 5 percent of global carbon emissions.304
Oil-based polyester accounts for about 50 percent
of fibre production, and cotton, which is reliant onlarge volumes of water, land, fertiliser and pesticides,
contributes another 25 percent.305 Moreover, theindustry remains steadfastly linear — billions ofpieces of clothing are simply discarded when unsold
or at the end of their useful lives, ending up in
landfill or incinerators.
Despite some progress, the industry is
struggling to adopt sustainable innovations at scale,due to multiple factors including limited processes
for collection, sorting and pre-processing; costs; andoutput quality.306 The collection rate of discarded
textiles from households is, for instance, only
30 percent to 35 percent on average.307 However,material production contributes between 25 percent
and 40 percent of the industry’s CO2 emissions.308
This arguably presents a powerful incentive to
redouble efforts to scale the production of moresustainable alternatives. Materials are the tangible
essence of fashion — physical fibres that consumers
can see and feel. Brands can use this immediacy82

to create differentiated offerings and help enableconsumers to make more sustainable choices.
The industry may be approaching a tipping
point. Consumers increasingly demand sustainablechoices, and younger cohorts in particular are willingto pay more for items that reflect their sustainability
values.309 In addition, significant R&D investment
mean several technologies and new materials arelikely on the verge of application at scale.310
There are many facets to the fashionindustry’s sustainability journey, from reducing
consumption to extending product lifespansthrough design. Materials recycling and innovative
fibres warrant more fashion industry attention.
Progress in these two areas could enable the fashionindustry to significantly improve its sustainability,
thanks to the emergence of cost-competitive solutions
and the potential to tangibly connect with customers.
The Long Road to Scalable Impact
The fashion industry is accelerating investment inmaterial alternatives that are more sustainable than
traditional ones, both through textile innovation
and recycling. Many innovations are being tested in

the market, including bio-based and compostablematerials such as hemp, leather alternative Piñatex
and vegan Mylo leather. New waste-based materials
include Spinnova, which is made from cellulosic
fibre, and Agraloop, which converts agricultural
crops into textile-grade products. Meanwhile,
companies such as Newlight Technologies andFairbrics are spearheading the production ofregenerative materials from greenhouse gases.
Besides certified cotton and man-madecellulosic fibres, the only material alternative thathas achieved meaningful scale is recycled polyester
from PET bottles.311 But rPET carries certain scaling
challenges for the fashion industry, not least because
it is also in high demand in other industries, many ofwhich — including consumer goods — are able to use
feedstock in closed-loop systems more sustainably.
Once used in textiles, such polyester will probably
not be recycled again. This is a key area of waste thatthe industry could likely start to tackle by recycling
it into new materials.
Beyond Recycled Polyester
The only other scaled material alternative iscellulose-based Lyocell, a form of rayon invented
in the 1980s that accounts for less than 2 percent of
global textile volume.312 This is not a rate of adoptionthat will make a significant difference to meeting
industry-wide or company sustainability targets. A
likely solution for improving adoption could be foundin two areas: textile-to-textile recycling and newmaterials that are more sustainable than virgin ones.
Textile-to-textile recycling recovers
materials from pre- and post-consumer textile
waste to produce yarns for new fabrics.313 This sortof closed-loop recycling could be applied to between
18 percent and 26 percent of gross textile waste inEurope by 2030.314 Renewcell, Ambercycle, Circ,
Gr3n and Worn Again Technologies are among therelatively high-profile companies specialising intextile-to-textile recycling.
The technology has piqued investor interest,
fuelling expectations that its ability to scale isimminent. For example, in 2022 mechanicalcotton recycler Recover raised $100 million,
led by Goldman Sachs Asset Management, tofund the next stage of its expansion. Worn Again
raised £27.6 million ($31.7 million) from strategic
investors such as H&M in October 2022 to help
83

The State of Fashion 2023

FASHION SYSTEM
fund a new textile-recycling demonstration
plant in Switzerland, bringing the start-up’s total
fundraising to £42.9 million.315
With hundreds of materials patents being
issued every year, the industry is seeing increasing
momentum, albeit at a small scale. Companies
involved in this space include Bolt Threads, which
manufactures bio-based Mylo, and Natural Fiber
Welding, which produces USDA-certified 100
percent bio-based and fully recyclable Mirum.316
Cellular agriculture specialist Galy has created aform of in-vitro cotton which it says uses 78 percent
less water and 81 percent less land than traditional
cotton.317
Both textile-to-textile recycling andscaled innovative materials could be prioritisedin parallel since they are mutually reinforcing:while recycling and feedstock collection rates
grow, innovative materials can alleviate volume
pressure on virgin materials such as natural cotton.
In doing so, innovative materials also could enable
a greater number of producers of these virginmaterials to switch to more sustainable practices,such as organic, regenerative farming or certified
sustainable foresting.
Demand for scaling is being driven by
several factors, including increasing regulatory
attention and growing consumer expectations thatthe fashion industry will soon find solutions to its
sustainability problems.318
In the past, consumers said that while they
supported sustainability in fashion, they were notwilling to pay more for sustainable products. But a
recent survey of Americans aged between 18 and 24
said they are willing to pay a premium of nearly 15
percent for clothes made with recycled materials.319
Meanwhile, 54 percent of consumers anticipate
buying more recycled clothes and 92 percent would
take part in a brand-sponsored recycling programme.
Meanwhile, about half of European
purchasing officers expect more than 30 percent of
their products to contain recycled fibres by 2025.320
Various guidelines and advisories are beingrolled out. The EU Strategy for Sustainable andCircular Textiles decrees that textile products
should be long-lived and recyclable by 2030.
Brands and material producers are responsible for84

IN-DEPTH
making that happen, according to the regulators.
Meanwhile, the EU’s Article 11(1) in the Waste
Framework Directive outlines that member
states are required to have separate textile-waste
collections by 2025, though expanding collection
rates significantly will be challenging.
From a commercial perspective, recycledfibres such as polyester, polyamide or man-madecellulosic fibre can in many instances be produced
at price parity or at a lower cost than virgin fibres
when the full value chain is scaled.321 And in any
event, the input material costs need not be asignificant hurdle to progress. In a scenario wherea 25 percent “green premium” is added to the costof fibre, the increase in the retail price would only
be about 3 percent, our analysis shows. And scale
begets efficiency — creating a virtuous circle ofinnovation, investment and further scaling.

Exhibit 15:

If a brand were to pass on a green fibre premium of 25% to customers,
it would lead to a 0.5% to 3% increase in retail prices
Example analysis of implications of green fibre premium prices on the final retail price
Garment typeT-shirtT-shirtSweatshirt

JacketDress

Retail price

€19

€23

€103

€56

€19

100% Organic
Cotton50% Organic
Cotton, 50%
Modal

50% Lyocell,
50% Organic
Cotton

71% Polyester,
29% Lyocell

100% Polyester

Weight

200g

200g

350g

275g

300g

Increase in retail pricewith 25% fibre premium

~3%

~1%

~0.5%

~0.5%

~1.5%

Fibre composition

Source: McKinsey & Company

Potential Next Steps for Material Innovators
Other industries can offer fashion companies
lessons on how to overcome barriers to scaling
and adoption. “Green tech” ventures in steel andenergy, for example, show that excellent execution
can be a catalyst to significant scaling that leapfrogs
the usual transition process. Forward-looking
companies often concentrate their efforts on six areas:
Game-changing ambition: Sustainability
leaders super-size their scaling targets. Think interms of 150 times current volumes, or reaching
5 million to 10 million tonnes of sustainable fibre
production by 2035. One reference case is battery
developer Northvolt, which aims to move from 16
gigawatt-hours (GWh) to 180 GWh by 2026 and to
250 GWh by 2030, having raised $8 billion in equity
and debt since 2017 to fund this ambition.322
Model cost and capex: Materials
innovators can calculate the scaling break point
for costs compared to incumbents and focus onachieving this. To support this, fashion companies
may be willing to offer short-term price premiums.
One example of the dynamic appears in thehydrogen industry. Green-hydrogen costs areprojected to fall by 60 percent by 2030, and thebreak point between grey and green hydrogen will
be about 65 GW of scaled electrolyser capacity.

Captive demand before scaling: Offtakeagreements as well as direct investment bycustomers can reduce commercial risks. As an
example of a surety that can support innovation,
fashion company Inditex entered into a deal to buy
recycled fibre from Infinited Fiber Company in thenext three years.323
Parallel scaling for speed: Leading
companies develop a replicable standard for
production based on the first business deployment.
This can initiate new growth waves before the firstis completed.
New business ecosystems: Innovation
leaders can create business ecosystems to help scale
recycled materials. This may require new textile
collection and sorting infrastructure to deliver
sufficient feedstock. A precondition is value chain
collaboration and partnerships with equipment
providers to grow capacity. US fabrics manufacturer
Milliken & Company said it will participate in
textile-to-textile recycling trials and develop a rapid
prototyping centre as part of its commitment to the
Accelerating Circularity initiative.
Sustainable operations: Successful green
businesses set ambitious targets, innovating andforming partnerships across their end-to-end
operations. Austrian fibre producer Lenzing in

2022 completed work on a Lyocell plant in Thailandthat is entirely powered by biomass. The plant
will produce Tencel and Veocel “eco-responsible”
fibres, which are described by the company as moreresource-efficient than virgin fibres, including lower
usage of water and chemicals.324 325
The wave of innovation and disruption
sweeping the fashion industry reflect a recalibrationof C-suite agendas and suggest fashion businesses
will eventually overcome their sustainability
challenges. The most powerful agents of change
will be companies that have exceptionally highambition, foster collaboration throughout their
supply chains and are willing to jettison well-wornorthodoxies. These businesses can set a benchmark
for peers, and even for other sectors. Indeed, as theworld moves towards a greener economic model,
ambitious brands can leverage the industry’s weak
performance to catalyse materials transformationand establish themselves as sustainability leaders.
Nic Cornbleet is an associate partner in McKinsey’s London office. Steve
Hoffman is a partner in McKinsey’s Chicago office and leads McKinsey’s global
Retail Sustainability practice. Jonatan Janmark is a partner in McKinsey’s
Stockholm office and leads McKinsey’s sustainability work in fashion.
Karl-Hendrik Magnus is a senior partner and leader of McKinsey’s Apparel,
Fashion & Luxury Group in Germany.
The authors would like to thank Nikolai Langguth, Laerke Wolf and Sarah
André for their contribution to this article.

85

EXECUTIVE INTERVIEWFASHION SYSTEM

Puma: Moving Sustainability
Beyond Marketing

finding and explaining solutions,rather than quick marketing wins,
says Puma’s chief sourcing officer
Anne-Laure Descours.

The State of Fashion 2023

Yeung Chi Kin

Nobody’s sustainable today. We
are all trying to become moresustainable. So what can you
communicate? You have to berealistic as to what you are really
doing.
We should be very careful not tosay, “We are the best,” because
nobody is the best and nobody
is good at that game today. We
are all learning, and we are alldeveloping, and we are all trying.

Anne-Laure Descours
Chief Sourcing Officer, Puma

The German sportswear brand’s chief sourcing
officer, Anne-Laure Descours, is on thefront line of Puma’s efforts to operate more
responsibly. As scrutiny of fashion’s “green”
claims mounts, she says brands must focus on
walking the talk on sustainability.
— by Sarah Kent

Bold eco-friendly claims andethical sourcing promises havebecome staples of fashion’s
marketing strategies alongside
growing consumer interest in
sustainably branded products.
It’s also an area that’s attracting
mounting regulatory scrutiny,
with a broad crackdown on“greenwashing” pushing brands
to back up any sustainability
claims and rethink how they
communicate about targets andprogress.
Puma has focused onsustainability disclosure
longer than most, introducing
and publishing metrics on its
environmental impact a decadeago. With time running short tomeet global goals to curb climatechange, brands need to focus on

86

It is becoming increasingly
important for companies to
speak to consumers and otherstakeholders, like investors,
about what they are doing tooperate more sustainably. But
what companies say is also
becoming more scrutinised.
How do you navigate that?

It’s a constant improvement
process. So how you communicate
has to remain extremely humble.
It’s a lot about being very humble
and being very transparent.
Having said that, the complexity
at the back is so big that at times,
you might make a mistake incommunication, not because
you want to mislead anybody but
because you don’t know what
you don’t know. There is a lot, alot of learning at the moment,collectively.
It’s a journey, and I think being
honest on where we are in thejourney, being transparent, andrecognising that we are not where
we would like to be, … and weneed to do more collaboration,
and we need to bring morelearning. I think this is the onlyway.

Do you worry that companies
could pull back from what
they’re doing because it’s
becoming more regulated,because there are tighter
requirements around what
you need to demonstrate inorder to make claims?
I find it personally interesting,and helping us in a way, when theregulators start to frame what weare doing, because then … we need
to upgrade the way we do things.
We need to upgrade not just us,
but also our partners to makesure that what we do and what we
communicate are really reality.
So there might be frombrands or from the industry,a moment where there willbe less communications onsustainability. But I think it’s
about time that we structure
the industry. … I think that’s
the objective here: that the way
everybody will communicate
is the same, based on the same
rules.
An area that both regulatorsand industry advocates are
scrutinising closely is the way
the industry calculates anddiscloses its environmental
footprint. There’s been
particular criticism of the
Higg Index, a tool commonlyused to measure impact. How
do you navigate the current
landscape, when a tool that’s
widely accepted within theindustry is being questioned?
For sure, there will be a need withthe regulators to set up a standard
and a system to calculate, which
is manageable. If everybody
comes with their own tools, all theobjective to bring transparency
will fail. We need to make surethere is one tool for everybody, so
we can compare everybody.

I think everybody has beenbuilding quite a robust
programme at the back, especiallywhen you are engaged withinyour supply chain on this. So thedata access, I won’t say it’s 100
percent there, but we are getting
there. It’s how you’re going toreport, and you need to have thesame set of reporting tools foreverybody, so it becomes reliable
for the consumer, and reliable forthe regulators.

“That’s the objective
here: that the way
everybody willcommunicate is thesame, based on thesame rules.”From a strategic standpoint,
obviously there’s regulatorychanges that are setting a
direction, but from a brandpositioning point of view, do
you see this as something thatis just going to be necessary tomeet consumer expectations?
If you don’t believe this is theright thing to do, and you’re being
forced to do it, you can’t make it
happen. You really have to believe
in it.
When I started in this business
35 years ago, as a buyer and thenmoving to sourcing, making a
T-shirt was very simple. It was
about getting the fabric to afactory, cut the fabric, sew thegarment and ship it. That was it.
[Now] it’s definitely much more
complex and wider, and the levelof knowledge I need to have tomanage a business is much bigger
than it used to be. ... I train myself
every day. I read a lot. … We
have all these groups within the87

08. FUTURE-PROOFING MANUFACTURING

FASHION SYSTEM
industry where we speak to eachother. My suppliers, I can tellyou, are educating me big time.

Continued disruptions in supply chains are a catalyst
for a reconfiguration of global production. Textile
manufacturers can create new supply chain models basedaround vertical integration, nearshoring and small-batch
production, enabled by enhanced digitisation.

This is a complex topic, but
consumers want a simple
answer and they also want it
to be 100 percent accurate.
It’s very difficult if you’retrying to simplify something
very complex. How do you
square that circle?

KEY INSIGHTS

A Puma sneaker. Unsplash.

The State of Fashion 2023

[That goes] for everybody. …
The entire organisation has tohave basic knowledge. … We
spend a large amount of timeat the moment, trust me, toengage with the sales guys, thefinance guys, the IT guys, soeverybody has the same level ofunderstanding [of ] where we aregoing, and what needs to happen.
It’s a lot of education.

There is a need to make itdigestible to the consumer, sothey don’t have to work.
The other day we looked up
how many data [points] you
have to have for one tee, or for
one product. It’s over 1,000 data
[points] to be compliant. So
the amount of information, theamount of process you have tohave at the back is just becoming
bigger and bigger.
It’s not about marketing; it’s
about explaining. … We need
to work on simplifying it andmaking sure people can be partof the conversation. With theyounger generation, they don’t
have the [knowledge] base, so
how do we engage, or how do
we bring their expectations andhow do we connect with them insimple ways? It’s complicated,
not easy.
I think to me just as a first idea
is getting some of the younger
generation willing to go on the88

journey with us, so they can
become, not the ambassador, but
the voice of explaining in a simple
manner what we’re talking about.

accelerating, is that awarenessthat we need to do it together…
Nobody can do it alone. It’s far too
complex and it’s far too big.

At the end of the day, I think wedefinitely need to tell the story
much better, but in a transparent
and realistic way.

The way you build your supply
chain has to become very engaged
with your partners. From atransactional way of doing
business, you have to go into areal collaboration way of doing
business.

Are you optimistic that theindustry will be able to deliver
on real change within the timeframe left?
It’s a race. We know it’s a race, andwe know we need to act fast andI think I spend at the moment
more than half of my time onsustainability topics, at least.
[But] it’s not a one-brandconversation.
The biggest change I’m seeing
right now, and it’s truly

I can tell you when I speak to myfriends and competitors, there isa lot of positive energy between
us, and there is a lot of common
ambition or common desire, andpassion to fix it.
This interview has been edited and condensed.

1. Macroeconomic pressures continue to weigh on fashion’s global supply chains. Morethan half of fashion executives believe supply chain disruptions will be one of the top
factors impacting growth of the global economy in 2023.
2. In an attempt to avoid transport bottlenecks and political or social instability,
65 percent of fashion executives are considering nearshoring, creating new
manufacturing hubs dedicated to serving US and European demand.
3. Navigating supply chain disruptions will require brands to work closely with their
manufacturers: about 60 percent of fashion executives are considering forming
strategic partnerships with their suppliers.

EXECUTIVE PRIORITIESDial up speed andflexibility

Strategies like vertical integration, nearshoring and small-batch
production enable brands to better respond to shifting market
and customer demands while reducing inventory costs.

Invest in digitisation

Significant cost advantages can be gained across the
production process by investing in tools such as automationand digital end-to-end integration of data.

Collaborate
strategicallyBrands and manufacturers should establish strategic
partnerships to make investments required to future-proof theiroperations, achieving greater agility and visibility and reducing
environmental impact.

89

The State of Fashion 2023

FASHION SYSTEM

The fashion industry operates on an
outdated manufacturing system that is ripe fordisruption. With many practices remaining unchanged
for more than 50 years, fashion’s supply chains areneither responsive nor sustainable enough. With
brands hunting for the lowest prices,manufacturing practices have become fragmented
as brands outsource more and more of theirproduction to sprawling networks of suppliers
in developing countries. The number of factories
has mushroomed, along with unauthorised
subcontracting.
At the same time, logistics gridlocks andmacroeconomic pressures continue to weighon global supply. The war in Ukraine forced there-routing of trade and triggered an energy crisis,
while ageing port systems across the globe are
creating transport bottlenecks. Global inflation
has pushed up input costs — cotton and cashmere
prices have increased 45 percent and 30 percent
year on year in 2021 respectively326 — and extreme
weather is hitting developing economies like
Pakistan where, alongside the tragic loss of human
life, as much as 45 percent of the country’s cotton
crops were wiped out by floods in August 2022.327
As such, more than half of fashion executives in
the BoF-McKinsey State of Fashion 2023 Survey
identified supply chain disruptions as one of the top
risks hampering the growth of the global economy
in 2023.328
Meanwhile, the softening of consumer
demand is causing many brands to reduce theirorder volumes, squeezing manufacturers’ revenues.
In a 2021 McKinsey survey of apparel chiefpurchasing officers, 66 percent said they anticipatedincreased volatility in consumer demand.329 If
these and other pressures continue, margins acrossapparel manufacturing are expected to shrink 10
percentage points by 2030.330
Amid the diverse sources of pressure on
fashion’s supply chains, the system is beginningto show signs of change. To future-proof theirorganisations, manufacturers are adapting to
90

08. FUTURE-PROOFING MANUFACTURING

the needs of fashion brands seeking increased
flexibility and shorter lead times so that they canaccommodate swift changes in consumer demand
and unpredictable logistical disruptions. Enabled
by enhanced digitisation, they will lean into
new supply chain models based around vertical
integration, nearshoring and on-demand systems.
From Suppliers to Partners
To mitigate risks and increase control along supply
chains, some manufacturers are joining forces withproducers from different specialities. For example,
US textile manufacturer Mount Vernon Mills
acquired a yarn spinning and weaving facility from
Wade Manufacturing Company, also US-based, ina bid to gain more flexibility over its production.331
In Asia, Sri Lanka-based manufacturer MAS
Holdings in August 2022 acquired the assets of Bam
Knitting, one of the country’s fabric producing andfinishing operations.332
Vertical integration can help cut costs,
improve margins and prevent delays acrossproduction. Similarly, consolidation of players
across the supply chain has added to the dealmaking. In Italy, Gruppo Florence was formed in2020 to create a production network comprisingmore than a dozen small and medium-sized luxury
specialists, from hat makers to jersey makers.333
Such deals are expected to continue in 2023.
Investments and partnerships can also
foster industry innovation by connecting brands
and manufacturers with innovative fabric andyarn suppliers to help bring new textiles to market.
For example, athleticwear brand Lululemon’santi-odour Silverescent fabric is the result ofa partnership with materials company Noble
Biomaterials.334 This can also enable new materials
to scale. Fashion group Inditex announced in May
2022 that it had agreed to buy 30 percent of Infinited
Fiber Company’s production of its textile waste
fibre each year for three years, facilitating Infinited’splans to set up its first large-capacity factory.335

Several brands have prioritisedsustainability-related innovation, using partnerships
with fibre producers to bring recycled or circularmaterials to market. H&M partnered with anotherSwedish company — textile recycling innovator
Renewcell — in 2020 to incorporate more recycledfibres into its products.336 Similarly, US brand The
North Face works with Finnish sustainable textile
material company Spinnova to source its circular
fibre made from wood and waste.337 To scale thesematerials, manufacturers will need to modernise
their operations in tandem and in partnership withbrands.
In the luxury segment, where labour canbe more skills-based than in other segments,
brands have secured access to craftmanshipthrough manufacturer acquisitions. For example,
Italian sneaker brand Golden Goose announcedin October 2022 that it would acquire its main
supplier of seven years, Italian Fashion Team,338
and LVMH-owned Fendi said it has taken amajority stake in Italian knitwear maker Maglificio
Matisse.339 Since 2015, Chanel has acquired
eight manufacturers, including Italian knitwear
supplier Paima. While providing the French luxury
label with greater certainty in terms of supplyof materials, the acquisition strategy also grants
Chanel greater access to innovation.340
Closer to Home
Another shifting dynamic in fashion’s supply
chains involves nearshoring. By moving
manufacturing closer to consumer markets, brands
can increase their speed to market while reducing
the cost of transport and duties and mitigating
various risks, including those related to inventory.
In 2020, MAS Holdings opened amanufacturing facility in Kenya so that thebusiness could take advantage of the preferential
trade agreements (AGOA) in place with the key
consumer markets of the brands it serves;341 thefacility manufactures apparel for PVH Corp., whichowns brands such as Tommy Hilfiger and Calvin
Klein.342 Meanwhile, South Korea’s Sae-A Grouphas opened two spinning mills in Costa Rica, themost recent in 2022, citing the political and social
stability of the region as its appeal.343
Many fashion players are expected tocontinue to produce garments in historically
low-labour cost manufacturing countries such as
Bangladesh and Pakistan, but nearshoring willremain on executive radars. In the BoF-McKinsey
State of Fashion 2023 Survey, 65 percent of fashion
executives said they were considering nearshoring
to address supply chain challenges.344
These shifts are creating new manufacturinghubs dedicated to serving US and European demand.
In McKinsey’s annual survey of chief purchasing
officers, over 75 percent of North American
respondents said they expected to increase theshare of sourcing from Central America, whilemore than 35 percent expected to increase theshare from Mexico.345 In Europe, Turkey is
emerging as the preferred closer-to-home hub,with 85 percent of Western European respondents
expecting to increase their supply from the country,
followed by Eastern Europe and Northern Africa.346
Spanish brand Mango has said it will movesome production in China and Vietnam to Turkey,
Morocco and Portugal,347 while US footwear brand
Steve Madden moved half of its production from
Vietnam to Brazil and Mexico in 2021.348 In Brazil,
footwear exports jumped 32 percent year on year in
2021.349 Similarly, the value of denim imports to the
US from Mexico increased 50.58 percent in the firsteight months of 2021, compared to the same period
the prior year.350
Sourcing from closer-to-home locations cancreate environmental benefits, too, for instanceby reducing greenhouse gas emissions and energyuse, as well as unlocking access to more sustainable
materials and improving water stewardship.351
352
With more than 70 percent of the industry’s
greenhouse gas emissions generated from upstream
activities, some manufacturers are aiming to91

The State of Fashion 2023

FASHION SYSTEM

decarbonise manufacturing and leverage theirimproved sustainability credentials to differentiatethemselves from the competition.353
Nearshoring can be challenging to getright, however. Because raw materials suppliers
are located close to traditional production regions,moving production nearer to home for many
Western brands can make it difficult to source
materials. For speciality manufacturers, like dyers
and fabric makers, a location’s lack of technicalskills can also be a concern. Manufacturers
will need to rethink their processes to makenearshoring successful; simply moving operations
will not be effective.
While rare, some fashion brands areinvesting in moving some production to theirdomestic markets. Boston-based sportswear label
New Balance opened its fifth manufacturing facility
in the US in 2022 and has promoted “Made in USA”
collections.354
The uncertain economic environment may
prompt brands and manufacturers to postpone
or downsize nearshoring strategies in the shortterm, given that manufacturing hubs in Asia are
expected to remain significantly cheaper than otherlocations. It should be noted that nearshoring canalso threaten economic prosperity and job creationin traditional manufacturing hubs, which would be
negatively impacted if their manufacturing activity
were to diminish. Brands should understandthe full scale of its decisions and work with
manufacturers to pursue nearshoring with good
governance and ethics top of mind.
Building ResponsivenessRegardless of how suppliers diversify production
capabilities or global footprints, increased
digitisation will enable them to support thechanging needs of brands. In a 2021 McKinsey
survey, apparel chief purchasing officers cited
capacity planning, virtual sampling and supply
chain transparency among the key areas for digital
92

08. FUTURE-PROOFING MANUFACTURING

investments in the next five years.355
In pre-production, digital platforms are
helping brands source fabrics and create digital
samples, saving time and money and reducing
waste. In post-production, digital looks are
facilitating quality control and improving the flowof information between suppliers and brands.
While these innovations are modernising
discrete parts of the value chain, linking them
together in a digitally integrated journeyremains a challenge. However, new platforms are
emerging that digitally connect key parts of the
production process. In China, Alibaba manages amanufacturing platform that connects shopping
demand on sites Taobao and TMall with production
information. Consumer insights are gleaned
from its website, where AI algorithms and cloudtechnologies provide real-time analytics that
manufacturers can use to streamline production
and optimise inventories.356 Similarly, fast-fashion
player Shein designs and manufactures products
in small batches using a trend-prediction modeland monitors performance in real time to adjust
production up or down accordingly.357

While these innovations aremodernising discrete parts of thevalue chain, linking them together
in a digitally integrated journeyremains a challenge.
Some fashion brands are looking for
suppliers that can accommodate small-batch
production. The requires manufacturers to invest
in capabilities like 3D sampling, automated sewing
and knitting, 3D and digital printing, direct-tofabric and direct-to-garment printing, as well as
automated post-production logistics to finaliseorders.
In terms of the adoption of automation,
the fashion industry lags other sectors, such as

electronics and auto-making. However, suppliers
that make a case for investing in automation will beable to differentiate themselves from competitors
by facilitating faster and smaller-batch production.
More than 50 percent of chief purchasing officers
said they expect automation to become a major
driver for sourcing decisions by 2025.358
In the year ahead, both brands and suppliers
should prepare to work more collaboratively
than they have in the past, moving away fromtransactional relationships to deeper partnershipsthat enable both parties to benefit from innovations
and mitigate risks. About 60 percent of fashion
executives in the BoF-McKinsey survey said they

considered forming strategic partnerships with
suppliers to mitigate supply chain disruptions.
Collaboration can come in many forms, fromco-financing and capability sharing to rewards andother incentive systems.
While manufacturers are likely to becost-conscious in 2023, developing capabilities fornearshoring, small-batch production and digitalproduction processes will help them establish acompetitive advantage and will make them lessreliant on price as a bargaining chip in building
relationships with brands.

Exhibit 16:

Executives are considering nearshoring and strategic supplierpartnerships to address supply chain challenges
Strategies being considered to achieve greater supply chain security,% of respondents

65

61

39
33

20

18

17
11

Nearshoring

Forming strategic
partnerships with
suppliers

On-demand
manufacturing

Greater relianceon air freight vs.
cargo

Verticalintegration

Forming strategic
partnerships withother brands

Onshoring

Offshoring

Source: BoF-McKinsey State of Fashion 2023 Survey

93

EXECUTIVE INTERVIEWFASHION SYSTEMThe State of Fashion 2023

MAS Holdings: Deconstructing Supply
Chain Risks, and Rewards

Suren Fernando
Group Chief Executive, MAS Holdings

As its global apparel manufacturing footprint
expands, Sri Lanka-based MAS Holdings
is homing in on supply chain risks to help its
brand partners weather oncoming economic
turbulence. Building resilience together is morecritical than ever, says group chief executive
Suren Fernando.
— by Janet Kersnar

94

Being the head of South Asia’s
largest apparel manufacturer
arguably gives Suren Fernando aunique vantage point from which
to observe the recent ups anddowns of global supply chains,
having spent the past two yearsof his lengthy career at MAS
Holdings as chief executive. The
textile and apparel manufacturer
and exporter was founded morethan 30 years ago in Sri Lanka,
a country that has suffered
extreme economic hardship in2022,359 with inflation runningas high as 70 percent and chronic
shortages in everything fromfuel to food, triggering politicalturmoil. It’s likely no surprisethen that global risk mitigation is
top of mind for the executive ofthe design-to-delivery company
whose operations stretch across

53 manufacturing facilities in 17
countries, with approximately
115,000 employees.
Fernando believes that one of
the keys to the success of thefamily-owned, business-tobusiness company, which heexpects to record revenue of $2.4
billion in 2022, is its long-lasting
partnerships with a range ofglobal brands, from Victoria’s
Secret to Nike. Another key is its
ability to embrace the evolutionof supply chain models over time,from the traditional singularfocus on cost optimisation totoday’s emphasis on building
strength and resilience, be it
through vertical integration,nearshoring or pushing theboundaries of on-demand
manufacturing. Ultimately,
Fernando said, not least because“as a manufacturer, you’re only as
strong as your supply chain.”
Since the pandemic, thefashion industry has felt
the acute challenges of what
happens when supply chains
break down. What has thismeant for best-in-class supply
chains?
Historically, supply chains— at least in our industry —were organised mostly forcost optimisation, looking at
where you can source different
components, at the lowest
possible price and identifying
the country that’s going toassemble products at the lowest
manufacturing cost. That model
worked very well for many years.
It did put manufacturers likeus under pressure to be costcompetitive, but the model
fundamentally worked.
Over the last two years, withthis level of churn that we seein the external environment,

the dynamics have changed
significantly, and certain things
that we took for granted havebeen questioned or even broken
down. At the same time, you aredealing with new challenges, andnew opportunities. Now the key
theme that comes out of all of thisis: how do you manage yourself
more effectively for risk? And,
therefore, agility and resilienceplay such a pivotal role in thisregard.
At a practical level, what does
managing risk — and building
more agility and resilience— mean for MAS and yourcustomers?
A few years ago, MAS was
predominantly supplying
everything out of Sri Lanka.
Today, we have a muchbroader manufacturing andsourcing footprint. Our largest
manufacturing base is still in Sri
Lanka, but we have a significant
presence now in Indonesia,
Vietnam, Bangladesh, India,
Jordan, Kenya and Haiti, as well
as a value-added service and a
trading operation over in North
Carolina in the US.
Our geographic expansion
generally starts by working with
one or two “anchor” customers,
to understand what they wantstrategically, what they mightsee in a particular region. For
example, if it’s Indonesia, it
might be to take advantage of theavailability of labour, and it has
become an attractive sourcing
destination if you are supplying
to countries such as Japan orAustralia, where they havepreferential duty agreements. So
it could be driven by duty, speed
or proximity to market, or as
before, cost advantages.
Where will nearshoring

fit into this? As many
fashion executives alreadyunderstand, it’s one thing
to want to adjust theircompanies’ global footprints
and bring supply chains closer
to their key markets; it’sanother to actually be able to
do it.
Nearshoring is certainly on theradar of our customers, but now
for slightly different reasons
than before, and it carries its own
risks. When nearshoring initiallybecame a big topic six or sevenyears ago — even if it was justconversations happening at a very
strategic level — the value unlock
was clear to [MAS] customers,
for two reasons: speed — forexample, because it brought themcloser to markets — and costs— because, for example, it may
have brought certain preferential
trade agreements. In these postpandemic times, customers havealso realised the importance ofnearshoring as a form of risk
mitigation.
But companies [looking to movesupply chains closer to keymarkets] often underestimate thedifferences between [markets];
what is in one location [cannot
be easily] replicated in another —things like compliance standards,
be it environmental or social;education; technical skills, orservice levels are not the same,and so on. So like I said, over the
past few years, we’ve been able tonavigate most of these challenges
to organise ourselves differently.
When we [at MAS] embarked
on a nearshoring strategy,
we realised that there werecertain limitations in executing
it — specifically the sourcing of
raw materials, the right talentand the technical skills to set
95

FASHION SYSTEMThe State of Fashion 2023

up manufacturing operations
weren’t always available. Over thelast couple of years, we’ve beenable to address these challenges
to a certain degree [by building
on-the-ground capabilities].
We now have a much better
understanding of the sourcing
capabilities available in certain
regions, and local challenges.
When we set up initially, wealways have a fairly large coreteam or a tag team that will goout from Sri Lanka to set up thefactory, we send certain people
who have technical expertiseand knowledge about quality,
manufacturing techniques andso on. Our strategy has been to
over-resource from Sri Lanka at
the start to make sure that we set
it up right, and then over a periodof time, phase out the Sri Lankans
and take on more local talent.
Depending on the country, it
might take longer. For example, in
Haiti [where MAS has been since2017], we still had to manage
with a fairly large amount of Sri
Lankans because the technicalknowledge and experience that’s
available in the country are quite
limited.
But like I said, when you addressa certain challenge or a risk
element [when nearshoring],
it also exposes you to certain
other challenges that you haveto manage. Having said that, ourexperience in the Americas has
been good thus far.
Another big topic in postpandemic fashion is ondemand manufacturing,which promises a way forward
in terms of tighter inventory
management. How has thisplayed out for manufacturers
like MAS?
On-demand takes two forms,
96

EXECUTIVE INTERVIEW
which have different dynamics.
For certain customers, we havewhat we call “speed models” or“read and react models,” where
the customer — generally a larger
one — might put out a limited
range with certain colours orstyles, and depending on [howit] performs in the market, thecustomer will place a follow-up
purchase order and they would
want it at much shorter leadtimes.
Then you have the more
personalised or customised
product that we make on demand.
We have experimented withseveral versions of this, evenmaking products customised fora particular consumer. We have
had some level of success, but I
wouldn’t say it’s really taken off.
What we are looking at now
is on-demand, for example,
with a T-shirt, where we would
send the “blanks” from Sri
Lanka and then have a printing
facility onshore to make that
customisation or personalisationand supply the customer fromthat location. We have a lot ofexperience in dealing with ourcore business in on-demand,but on the personalisation andcustomisation part of it, we havethe models in place, but it’s beenslow for customers to adopt.
MAS is all about vertical
integration. How do you think
the definition of vertical
integration will evolve in 2023?
For MAS, vertical integration, orverticality as we call it now, has
always been important, We were
the pioneers in developing that
supply chain capability [in Sri
Lanka]. Verticality is all about
mitigating risk and offering speed,
agility and cost advantages to thecustomer.

Currently, in Sri Lanka, we source
50 percent to 60 percent of raw
materials from within the island.
We are able to source our own
lace, our own bra cups, our own
elastics, and so on, and even someof the accessories that go into
making garments. It’s always been
an important piece for us, because
as manufacturers, you’re as strongas your supply chain.
Having the supply chain locatedvery close to you and probably
having a greater deal of influence
over it certainly help us toread and react and respond to
customer requests that much
faster.
Sustainability has a role toplay in supply chains today
too. How do you prioritise
discussions at MAS aroundsustainability?
We launched what we call our“Plan for Change” … and have set
ourselves 12 key targets to makesure that we achieve our ESG
goals in the next three years. For
example, if you look at product …
we strive to generate 50 percent
of our revenue through productsthat have some sustainability
element by 2025. We are probably
close to 20 percent today, so wehave a very aggressive target
to go for. Being a business-tobusiness manufacturer, we haveto do it in close partnership withour customers. This has beenon our agenda for many years,
but sometimes really pushing
the agenda with customers canbe challenging because while
you have conversations onsustainable products, you also
have conversations on cost.
But especially over the last two
years, we have seen almost all
our strategic customers makesustainability a priority and that’s
really helped us to gain a lot oftraction. So it’s in their interestand in our interest to make surethat we are achieve these goals
jointly.
We are also mindful that in thevery near future and maybe assoon as next year, there will be
more regulation coming intoplay. Customers are pre-empting
this and working closely with us
to make good progress before
it becomes mandatory andenforced.
Trust between manufacturers
and brands eroded during
the pandemic. What will be
critical factors in 2023 to
make sure that even as times
get tough, trust remains on
both sides?
One position of strength that
we at MAS have is 20- or even
30-year relationships with mostof our larger customers, so there
is a level of trust that has become
mutually rewarding.
We have not been as close to thecustomers as we were previously,
due to the pandemic and thelimitations of travel.

You’ve just finished two years
as CEO of the entire company— having been CEO of a big
MAS division before that.
As you start your third year,
what’s keeping you awake atnight?
One [challenge] primarily has
to do with the softening market
conditions, with volume looking
poor because of inventory
situations [due to companies withlarge amounts of stock on theirhands] and consumers are facing
certain pressures on pricing. We
see this continuing maybe forquarter one, quarter two of next
year.
Another is attracting, developing
and retaining talent. … It’s aglobal phenomenon with talent.
People move jobs and some even
don’t want to continue the waythat they worked before thepandemic. So really managing
talent becomes a critical piece forme and the senior team.
This interview has been edited and condensed.

As a supplier, we’ve always lived
by our values, extremely highstandards of compliance andgovernance and the right mindset
to work with these customers
with clear lines of accountability.
Accountability goes way beyond
ensuring that the products
are made right and made well,especially in terms of the highstandards of compliance andethical standards that we practicein the business, and we’ve madethem very transparent to ourcustomers. Our door is always
open for any customer to comeand see the standards and thepractices that we have internallyin our business.
9709. DIGITAL MARKETING RELOADEDRecent data rules are spurring a new chapter for digitalmarketing as customer targeting becomes less effective
and more costly. Brands will embrace creative campaigns
and new channels such as retail media networks and themetaverse to achieve greater ROI on marketing spend andgather valuable first-party data that can be leveraged todeepen customer relationships.
KEY INSIGHTSThe State of Fashion 2023

1. Privacy regulations and technological changes have reduced the effectiveness anddriven up the cost of paid digital marketing, meaning brands spent more than threetimes the amount to acquire each customer in 2022 than in 2013.
2. Brands are bolstering creative capabilities and adapting channel strategies. Marketingbudgets are shifting to alternative channels, such as retail media networks. Spending on
RMNs is expected to reach $100 billion by 2026.
3. Valuable customer data is still up for grabs. Over half of customers said they are more likely
to share data if they receive something in exchange, like personalised recommendations;brands that innovate the customer experience will have a significant advantage.

EXECUTIVE PRIORITIES

98

Bolster creative
capabilities

To support the demand for higher volumes of fresh content indiverse formats, brands need to hire for, or outsource, creative
production capabilities.

Revisit channel
strategies

Offset the reduced ROI of existing paid digital marketing
channels with alternative approaches like content marketing,influencer collaborations and retail media networks.

Prioritise first-party
data

Gather customer data through transparent, direct communications
adhering to regulatory guidelines such as GDPR, and offer
customers something of value in return, such as loyalty
discounts or exclusive access, then strive to create communities.

FASHION SYSTEM

Digital marketing playbooks have been
turned upside down by recent data privacychanges, mandating an existential shift for fashion
brands that once relied on customer targeting
tools offered at scale by Silicon Valley’s tech
giants. Third-party ad targeting, social media
growth hacking techniques and early iterationsof loyalty programmes and personalisation had
been important contributors to the rise of digitalmarketing and e-commerce brands.
But a new era has arrived, requiring brands
to rethink how they reach new consumers andengage with existing ones. Instead of pushingcontent to pre-selected groups, as was so effective
over the last decade, the key now is to pull incustomers with a fast-paced stream of creative
campaigns. Once brands have access to valuable
first-party data, they can prioritise channels thatdeliver a strong return on investment and enable
them to build deep, long-lasting relationships andfoster communities among customers.
The disruption of the digital marketing
playbook is a culmination of several years of
regulatory and technical shifts that targeted
online privacy and security risks. The EU’s General
Data Protection Regulation and the California
Consumer Privacy Act — landmark laws rolled out
in 2016 and 2020, respectively360 — have given users
more agency over their data. Meanwhile, Apple’s
iOS 14 software update in 2020 allowed users to
opt out of tracking across apps and websites.361 And
as part of its privacy initiatives in 2022, Google
plans to discontinue third-party cookie tracking
in Chrome, which commands 65 percent of global
web browser market share.362 When given a choice,many consumers are declining tracking: a McKinsey
survey found 41 percent of users said they opted outof cookies.363
As a result of the tracking limitations,customer acquisition costs have spiked, rising on
average 70 percent on TikTok and 39 percent on
Meta platforms.364 In 2022, advertisers spent about$29 to acquire each customer, compared with $9

in 2013.365 All together, these changes signal a new
reality: the era of third-party digital targeting isover. Brands will need to find different ways todifferentiate their marketing strategies, broadening
their social platform use beyond bottom of funnel
ads, and focus on creativity and quality of thecustomer experience.
Reaching Customers: Content is King
Winners in the year ahead will embrace creativity
and experimentation to stand out in the glut of
online content. The updated approach will mirror
some of the strategies from the golden age ofadvertising running from the 1960s to the late1980s,366 when campaigns competed on creativity
and quality to capture audiences. However, theinternet requires both a faster pace and a wider
range of mediums, particularly video used in
multiple ways. The lifecycle of a digital campaign
can be as short as two to three weeks before theimpact dissipates due to repeated views by users.
To meet escalating digital content demands,
brands are looking outside their organisations forcreative development and dissemination. As such,influencers are already key partners for many
fashion advertisers, with brands tapping theircontent-creation skills and accessing their loyal
audiences. But competition for top influencers canbe stiff, as well as expensive. Spending on influencer
marketing skyrocketed from $1.7 billion in 2016
to $13.8 billion in 2021.367 There are also risks
involved, particularly if relationships sour or if theinfluencer is involved in a scandal or controversy.
For many brands, though, the rewards outweigh therisks.
In some cases, fashion companies haveelevated influencers to brand-defining roles
that were once the sole domain of Hollywood
stars and supermodels. Hugo Boss, for example,
signed a multi-year agreement with TikTokpersonality Khaby Lame as a global brandspokesperson in 2022.368 Similarly, YouTube
99

The State of Fashion 2023

star Emma Chamberlain has appeared in
television advertisements, brand campaigns andcollaboration for Levi’s since 2021.369
Publications also have a new role to play inthe content market, extending beyond traditional
display and print advertising or old-school
advertorials. Their customised features, videoseries or affiliate marketing links can validate
brands and direct readers to e-commerce sites.
Brands can also tap the publishing house’s creative
teams to produce sponsored projects. Digitalstreetwear and luxury publication Highsnobiety,for example, has a partnership with Gucci tied to its
collaboration with The North Face.370 A video fromthe project, released at the start of 2022, featured
TikTok star Francis Bourgeois.371 When Zalando
acquired a majority stake in Highsnobiety in June
2022, the e-commerce retailer said the publisher
would act as a “strategic and creative consultant” toextend its storytelling capabilities.372
In recent years, many fashion companies
capitalised on television streaming by partneringwith productions for increased exposure. For
example, Gucci provided access to its archives andallowed shooting in its Rome flagship for “House of
Gucci,” a film directed by Ridley Scott and starring
Lady Gaga and Adam Driver, which generated
25,000 posts across news and social media in themonths ahead of the film’s release in 2021.373
Follow the Audience
Fashion brands will need to scrutinise theirmarketing strategies at the channel level to offset
the declining returns of paid social and searchchannels. The greatest return on investment
will come from channels that reach customers
further down the marketing funnel where they
have high purchase intent, as well as those thatprovide opportunities for brands to create direct,
first-party relationships with customers.
Multi-brand retailers over the past few
years have increased advertising opportunities on
100

09. DIGITAL MARKETING RELOADED

Vans’ collaboration with Roblox. Roblox.

FASHION SYSTEM

their websites, apps, emails and social channels
as well as in-store aisles and displays. Following
Amazon’s ad strategy, players like Target and Ulta
Beauty have deployed “retail media networks” in
the US, which help brands benefit from proximity to
the end of the purchasing funnel. RMNs also enable
brands to gain access to retailers’ first-party datafor closed-loop reporting. This enables brands torun reports on the effectiveness of ads throughout
a customer journey, from displaying the ad topurchasing a product.
Exhibit 17:

Performance marketing costs
have increased significantly on
major ad platforms in 2022
Year-on-year increase in cost-per-mile (cpm),
%
70

39

11

12

AmazonGoogleMeta

TikTokSource: Business Insider

For many fashion companies, advertisingwith retailers is more efficient than other formsof performance marketing. Among apparel andfootwear executives responding to a recent survey,
about 80 percent reported somewhat better orsignificantly better performance of advertisingon RMNs than on other marketing channels.374
Spending on these networks, including on Amazon,is expected to reach $100 billion by 2026.375
Another rising marketing channel is thevirtual worlds of the metaverse, ranging fromgaming to immersive social environments.
While the space is less developed than RMNs, thepotential audience is growing and highly engaged —and allows brands to form first-party relationships
with customers. As of August 2022, online gaming
platform Roblox drew nearly 60 million daily active
users, an increase of 24 percent year on year,376
leading brands like Vans to launch virtual worlds on

the platform.377 Brands that opt to pursue projects
in the space will need to be disciplined to ensure
their activations are more than one-off projects.
Meanwhile, blockchain-based web3
technologies such as non-fungible tokens can be
deployed to build communities. Several brands
have experimented with NFT collections, like
Adidas’ “Into the Metaverse” NFTs378 and Prada’s“Timecapsule” NFTs.379 Brands will find the mosteffective web3 and metaverse projects offer users
value or utility, such as rewarding them with
exclusive access to gated products or experiences,which in turn create a stronger affinity for the brand.
101

FASHION SYSTEM

Once a customer makes a purchase, brands need
to focus on relationship-building, including
examining how best to leverage customer data.
While a privacy-first world creates near-term
challenges, brands that build transparent, mutually
beneficial relationships with customers are
well-placed to realise huge benefits in the long term.
Even as the data-sharing environment
becomes more restrictive, not all customers
are opposed to giving brands access to personal
information. According to a recent poll, over 50
percent of customers said they are more likely toshare data if they receive something in exchange,such as discounts, sizing advice or personalised
product recommendations.380

The reward for brands that build
trust-based, mutually beneficial
relationships with customers
are the communities that growaround them.
Brands can both protect customers’ privacy
while incentivising them with value and services,such as personalisation. Using data to enhance acustomer’s experience can help brands to address
rising online return rates by offering accurate
sizing recommendations, for example. This isparticularly critical for the fashion industry at atime when as much as 15 percent of returned online
purchases is attributed to “bracketing,” the practiceof consumers ordering the same items in multiple
sizes and colours.381 Bolstering loyalty programmes
can also drive meaningful benefits: nearly
two-thirds of US consumers who are satisfied withloyalty programmes say they are more likely toincrease the frequency of purchases.382
Customer data can inform product102

How Web3 Is Shaking Up
Digital Marketingdevelopment, too. When a skin care brandpartnered with a retailer’s RMN, it discovered
through analysis of the RMN’s data that consumers
were interested in Korean skin care routines,
and thus launched a line of products to tap that
customer interest.383
The reward for brands that build trustbased, mutually beneficial relationships withcustomers are the communities that grow aroundthem. For example, loyal customers can influenceothers by creating user-generated content, as seen
with Gymshark’s community of fitness enthusiasts
who post large volumes of user-generated content
showcasing the UK sports-apparel brand’s
products on social media. Gymshark nurtures thiscommunity with a dedicated “In Real Life” teamthat meets up with members at offline events.384

Proponents of web3 say the technology offers a new way forward for digital marketers looking
to engage shoppers and build communities. A growing number of brands in 2023 will be
experimenting with nascent web3 technologies like NFTs — and learning that careful nurturing
is needed to thrive.
by Marc Bain

New Ways of Working
To win in world of fast-paced, customer-focusedmarketing, agile ways of working will become anecessity. By bringing together cross-functional
teams that comprise marketing, product, brand,sales, analytics and insights, brands can rapidly
iterate on effective creatives, channels andcustomer experiences.385
To ensure this new approach succeeds,
brands need to invest in technology. Investments
may include data systems, such as customer
relationship management software, or digitalasset management software that maximises thevalue of existing content by allowing brands to edit
and re-cut existing material from their content
libraries into new forms. Investing in centralised
dashboards that monitor the impact of campaigns
will help brands make quick, informed decisions tocontinuously improve their customer experience.386

The team behind Adidas’ “Into the Metaverse” NFT collection. Adidas.

The State of Fashion 2023

Innovating Customer Relationships andCommunities

IN-DEPTH

Over the past year, non-fungible tokens,
or NFTs, emerged as a promising new avenue forfashion brands to draw in shoppers and build
membership communities, letting them interact
in ways that are arguably deeper and moremeaningful than simply having an email address.
A brand can engage customers who holdtheir NFTs — whether purchased or claimed free
after buying a physical product — by rewarding

them with free items or exclusive access togated products or experiences, using the crypto
wallet containing their digital tokens as a unique
identifier. NFTs linked to real-world goods can also
serve to authenticate products and act as a gateway
to related services, such as repairs.
NFTs are part of the world of web3, thenascent internet based on blockchain technology.
Web3 proponents say they offer a way forward for103

FASHION SYSTEM“Marketers are going to have to learn thisnew playbook, where attention is more earned thanbought,” said Brian Trunzo, the metaverse lead for
the Polygon blockchain. “In web3, there’s a morepure way of speaking to a customer by incentivisingthem — by providing digital assets and benefits tothem through NFTs.”

membership model,” said Erika Wykes-Sneyd,co-founder of Adidas’ web3 studio. (Adidas also
shared the revenue from the NFT sales with its
partners in the project.)
The brand has given its NFT holders
exclusive physical products such as a tracksuit andbeanie and recently allowed them to vote on thecolour of an upcoming release (orange and brightpink were the choices). Most of the community
activity happens in a server on the chat platform
Discord dedicated to the project with about 60,000
members. Wykes-Sneyd said they plan to involve
NFT holders more in the coming months as
collaborators and co-creators, not just customers.

Community Building With NFTs
Adidas was an early leader in fashion to embrace
NFTs, partnering with influential web3 names
Bored Ape Yacht Club, Gmoney and Punks Comic torelease a collection of 30,000 “Into the Metaverse”
tokens in December 2021. Each cost .2 ETH (Ether),or about $800, at the time. Generating revenue
wasn’t the main point though for the German
sportswear brand.
“It was to launch a new community, a new

Members of the crypto
community tend to be thebiggest audience engaging withthese NFT projects, but they’re
not the only ones.

Prada’s “November” NFT. Prada.

The State of Fashion 2023

fashion’s digital marketers, who are contending
with a number of challenges in reaching new
audiences, including stricter data-privacy rules,
rising customer acquisition costs and social media’s
rapid content cycle, to name but a few. (See DigitalMarketing Reloaded on page 98.)
NFT technology is still young, so the web3
user experience can be clunky, and NFT buyers,
who are a niche in the broader market for now,
often judge tokens by whether they can be flipped
for a profit.387 It’s also still to be seen how useful
NFTs can be for introducing a brand or its products
to audiences it isn’t already connected with — a toppriority for digital marketers — and even if brands
can build a community, it may require careful
nurturing to thrive.
But some argue the days of cheaply buying
attention online are over, and it’s time brands beginbuilding an approach in line with this new reality.388

IN-DEPTH

104

Adidas’ relationship with this community
is different than the usual brand-shopper dynamic,
largely because members are financially invested.
“These are truly stakeholders at this point,”
Wykes-Sneyd said. “They’re rooting for us, trying tosupport the success of this project, and they want to
see its success. And if they don’t, they’re going to let
us know by selling and showing us the floor prices
going down.” (Floor price refers to the lowest cost
for an NFT on the secondary market.)
So far the project has been successful in herview, and prices for Adidas’ NFTs on the secondary
market suggest customers are still interested.
As of October 2022, they were selling for around$700 on the marketplace OpenSea, which is below
their initial dollar-equivalent cost but qualifies as
fairly stable given the year’s market turmoil thathas sent cryptocurrency and NFT values plunging.
Wykes-Sneyd emphasised, however, that Adidas isfocused on long-term goals for its project and thecommunity involved, not fluctuations of the market.
Prada has also used NFTs to build deeper
relationships with customers, though it’s taken adifferent approach to distributing them. The Italianbrand allows shoppers to claim them for free when
they purchase physical pieces from its limitededition Timecapsule collections, which release
online for a short period each month. All of the
NFT-linked drops so far have sold out.
The NFT holders congregate in a Prada
Discord server with roughly 5,600 members. In
September 2022, one Timecapsule NFT owner
won a trip to Milan that included an invitation
to Prada’s Spring/Summer 2023 show, a tour of
Fondazione Prada (the company’s contemporary
art and cultural institute) and other perks. Later inthe year, NFT holders could attend the next “Prada
Extends” event, a celebration of local culture andmusic, this time taking place in Miami.
The NFTs give Prada a “higher level of
intimacy” with its community base, Lorenzo
Bertelli, Prada Group marketing director and headof corporate social responsibility, wrote in an email.
“Web3 presents a unique opportunity toenrich our existing customer relationships andalso to engage new and diverse communities,”
Bertelli wrote. “We envisage our NFT programme
as forming an increasingly important component ofour customer relations and community engagement
strategies.”
Members of the crypto community tend
to be the biggest audience engaging with these
NFT projects, but they’re not the only ones.
Prada’s NFT holders range from “much cherishedlong-time Prada devotees, to curious newcomers, toweb3-native participants,” according to Bertelli.
As for Adidas, it made sure to bring a
number of its established customers in, setting
aside 8,000 of its NFTs in the initial sale for users of
its Confirmed app, where it releases hyped products
to its most engaged fans. Many of them were new tothe crypto world, Wykes-Sneyd said.
Great Web3 Expectations
Managing a community and its expectations isn’t
easy. Bertelli said Prada has put “considerable
effort” into expanding its capabilities in web3 andplans to continue investing to support more NFT
105

10. ORGANISATION OVERHAULThe State of Fashion 2023

FASHION SYSTEM

and community engagement projects.
Other NFT projects have encountered
backlashes when they have failed to meet
expectations. RTFKT, a maker of virtual fashion
and NFTs, publicly apologised to its community
members when one of its hyped product drops
encountered technical glitches that left customers
waiting for hours trying to claim the items. Holders
of Adidas’ NFTs have become restless when thebrand hasn’t provided regular updates on what
they can expect, airing their complaints directly to
Adidas in Discord.
“We have a full-time moderation team ofseven managing this community,” Wykes-Sneydsaid. “That for us is unfiltered, front-row accessto what people are feeling and thinking, whether
that’s the good, the bad or the indifferent.”
Of course, brands can use NFTs without
having to build an explicit membership group. They
could just treat them as a way to push incentives
and rewards to the crypto wallets of holders tooccasionally grab their attention and build loyalty.
One challenge all NFT creators face,
though, is making sure customers have a reason
to care about their NFTs in the first place. Ideally
the tokens should have some reason to exist inthemselves, according to Pierre-Nicolas Hurstel,co-founder and chief executive of Arianee, an NFT
platform for luxury and fashion brands.
“The utility of an NFT should be native. It’sa proof of something, so the question is: do you havea good reason to distribute a proof of something
to someone? A proof of attendance, participation,
ownership,” Hurstel said.
Part of Prada’s aim with its project is tooffer a point of view only it can provide. Just as withthe physical products they offer and their brandidentities, brands need to distinguish themselvesand give consumers a reason to want to associatethemselves. As Polygon’s Trunzo put it, “The closera brand is to a commodity, the more difficult it will
be to use web3 tools to capture the attention ofwould-be customers and then maintain them as fans.”
But if brands are able to entice shoppers
to want their NFTs, it arguably provides the106

foundation for a deeper relationship than justcollecting an email during checkout or the shopper
following the brand on Instagram. Hurstel
described NFTs as “zero-party data,” as opposedto the third-party data gathered and sold by otherplatforms or first-party data a brand collects itself.
It represents a relationship the customer has
purposefully opted into, which also has the benefitof precluding data-privacy concerns, Hurstel noted.
He and others in web3 imagine a time in the
future when a customer’s crypto wallet becomes
their public profile, with the NFTs they’ve collectedfrom purchases and attending events becomes theway a brand identifies their interests. To reach thispoint will take time and much wider adoption of
crypto wallets, however.
“This conversation around blockchain,solving for identity and empowering consumers
to take control of their identity [where] they can
opt in, it sounds ideal,” said Trevor Testwuideco-founder and chief executive of Measured, adigital marketing analytics platform. “Deployingthat right at scale, there’s a lot of work to do to getthere.”
Brands like Adidas and Prada are among
those that see enough potential to start now.

Successful execution of strategies in 2023 will in parthinge on a company’s alignment around key functions.
Fashion executives need a new vision for what theorganisation of the future will require, focusing on
attracting and retaining top talent, as well as elevatingteams and critical C-suite roles to execute on priorities
like sustainability and digital acceleration.

KEY INSIGHTS
1. Though 97 percent of executives expect salaries and other SG&A costs to rise in the year
ahead, they should resist the temptation to put talent and organisational projects on ice.
2. The Great Resignation continues to weigh heavily on the industry. 55 percent of executives
cited the talent crunch as one of the top factors impacting their business in 2022.
3. Education and training typically generate a return on investment that is between
two-and-a-half and three times higher than recruiting, boosting the business case forinvesting in skills gaps found in key areas like sustainability, IT and supply chain.

EXECUTIVE PRIORITIESReimagine theorganisation of the
futureNew organisational structures are needed to adapt to industry
changes. In tandem, certain roles should be elevated to ensure
razor-sharp decision making and strategy execution.

Reinvigorate theC-suiteHaving a diverse range of expertise and experience in senior
ranks deepens the boardroom bench strength and signals
clearly to stakeholders what the company is prioritising.

Elevate people teams

Human resource teams must be part and parcel of initiatives
that foster not only upskilling and reskilling, but also crossfunctional collaboration and a full range of retention
programmes.

107

The State of Fashion 2023

FASHION SYSTEM

10. ORGANISATION OVERHAULIn 2023, fashion leaders have an
opportunity to review their talent rosters andteam structures. Despite the many challenges
on the horizon, as inflation dampens consumer
sentiments and costs spike for many companies,
fashion leaders cannot put off the difficult work ofreinventing their organisations.
As fashion companies chase growth in theunpredictable year ahead, talent and organisational
structures will become a key differentiator in
performance. This follows on the heels of theindustry encountering unprecedented challenges —ranging from pandemic-enforced remote working
patterns to supply chain turmoil — and forcing
entrenched processes to evolve. Challenges will
likely persist in 2023 — 84 percent of fashion
executives in the BoF-McKinsey State of Fashion
2023 Survey expect the industry to worsen
next year. This will have repercussions for theirbusinesses; 97 percent expect their costs of goods
sold as well as selling, general and administrative
expenses to rise.

strategic themes that will drive growth.
For some companies, the moment may callfor elevating existing roles around critical areas likesustainability, even creating new C-suite positions
that fill gaps in expertise within senior leadership.
For other brands, the greater need will
be to build out existing functions, such as those
supporting omnichannel strategies, and toempower them with expanded leadership roles thathave increased decision-making responsibility andaccountability. Human resource teams in chargeof a company’s talent may be included in role
expansions and elevations. When Chanel appointed
Unilever’s chief human resources officer Leena
Nair as its new chief executive in 2021, the fashionlabel signalled to people teams across the industry
that they are strategic operators. “HR is no longera backroom department,” said Nair in an interview
before her appointment. “It’s a vital part of running
any successful business.”389

and 63 percent of retail managers reporting they
are considering leaving their jobs.395 Many people
are quitting because they are seeking better
opportunities for career advancement, greater
work-life flexibility or higher pay.396 Companies will
feel more pressure to offer clear advancement paths
along with prioritising culture, employee wellness
and flexibility to attract top talent, whatever therole or seniority.
Meanwhile, the industry still needs toaddress diversity, equity and inclusion, including
in top management positions. DE&I expertssuggest that the industry’s work has only just begun
when it comes to racial and ethnic diversity.397
Male candidates made up 76.9 percent of all CEO
appointments in the fashion industry in 2021,
according to retail merchandising company
Nextail.398 Less than one-third of board positions
are held by women at UK-listed fashion retailers,
according to an annual survey from Drapers.399

A Rippling Effect

The New C-Suite

As fashion companies chasegrowth in the unpredictable year
ahead, talent and organisational
structures will become a key
differentiator in performance.

The talent market is ripe for a reset. The sharp
increase in voluntary attrition since the beginningof the Great Resignation of 2021 surfaced a deep
fissure between companies and their employees —in the US, for example, it has led to 25 percent
higher voluntary resignation rates than pre-pandemic
levels.390 According to a recent McKinsey survey,
76 percent of people who left consumer retail jobs
since the start of the pandemic entered anothersector, the highest exit rate of any industry.391
Half of fashion professionals believe theindustry has lost the appeal it once had392 as othersectors like technology eclipse it, in terms of career
growth opportunities and pay.393 The exodus canalso be observed in C-suites as top executives
depart for roles outside of the fashion industry.394
The employee exodus is unlikely to reverse
completely as economic conditions worsen in theyear ahead. Retail workers remain difficult toretain, with 50 percent of US frontline workers

As fashion companies prepare for the challenges
ahead, some are rethinking the structures of
their senior teams, taking the opportunity tointroduce new or adapted C-suite roles that focus
on increasingly critical areas such as diversity,
sustainability or logistics.400 Among other benefits,these appointments send a signal to the rest of thecompany, shareholders and customers about where
the leadership is focused for both the short and longterm.
One C-suite role gaining traction in
the industry aims to help address companies’
sustainability practices.401 The C-suite teams
at almost all of Europe’s 25 biggest fashioncompanies can count at least one executive
with environmental, social and governanceexperience.402 These leaders design and executea range of sustainability strategies, from cutting
carbon footprints to reducing waste to improving
labour relations. Chief sustainability officers are

It will be tempting to put investments intalent and operational improvements on hold tofocus on navigating an economic slowdown. But
the most successful leaders will balance short-termcrises with long-term needs by prioritising newhires and elevating existing roles to position theircompanies for growth. In our survey, 55 percent
of executives cited the talent crunch as one of
the top three areas having the greatest impact
on their businesses in the year ahead. Executives
should work to align their organisations, from top
management to frontline staff, around the key
108

most successful when they are integrated into
the rest of the business. Rather than creating anentirely new role, some companies are introducing
a sustainability component to an existing one.
UK-based fast fashion retailer Primark,for example, put Michelle McEttrick, who is thecompany’s first chief customer officer, in charge ofleading its sustainability strategy.403 These roles
can also open the door to the top C-suite job. At
Swedish fast-fashion company H&M, for example,
Helena Helmersson was appointed chief executive
in 2020 after serving as the company’s head ofsustainability.404
Supply chain roles are also gaining more
prominence in the C-suite, largely due to theincreasingly complex nature of manufacturing
today. Chief supply chain officers are the strategic
bridge connecting manufacturing, procurement
and sales, and operations and planning, whileserving as a conduit for robust risk management
and mitigation. Their work requires a wide view
across departments to respond to crises, enable
their companies to innovate production strategies
and recruit specialised logistics talents.405 406
Another C-level bridge-building positionis the chief omnichannel officer, a role that
consolidates offline and online channels under
one operational umbrella as brands re-evaluate
brick-and-mortar strategies alongside e-commerceand other channels. For instance, Parisian label
Isabel Marant appointed a new chief omnichannel
officer in September.407 408 Meanwhile, new chief
experience officers, chief brand officers and chief
technology officers are charged with overseeing andunifying customer experiences across distribution
channels at companies like Under Armour, Moncler
and New Look.409 410 411
Even outside the C-suite, many fashioncompanies are investing in digital and dataexpertise with a view to becoming omnichannelfirst organisations and achieving enterprise-wide
digitisation. At consumer companies appearing in aranking of top places to work, half of executives in a
109

The State of Fashion 2023

FASHION SYSTEM

survey said their businesses integrate digital teams
across functions and geographies. In contrast, only
26 percent of respondents at companies further
down the ranking could say the same.412 The
companies that ranked highly were also 1.4 times
more likely than their low-ranking counterparts
to maintain digital teams in-house rather thanoutsourcing.413
Meanwhile, fashion executives have an
opportunity to bolster teams responsible forcommunication strategies at a time when theircompanies may be expected to take a stand on
sensitive topics impacting society at large, such as
the war in Ukraine. Institutional communications
and liaison roles will require specialist knowledge
around areas like climate change, trade policy anddata privacy. These roles will be critical in ensuring
brands are able to make meaningful contributions
to not only trade organisations, but also crossindustry forums and policy-making bodies.414
LVMH, for example is an official partnerof the World Economic Forum in Davos, while
Kering’s chief sustainability officer is also head ofinternational institutional affairs.415
As the fashion industry intersects withgovernment regulations that have a high potentialof impacting business operations, communications
and public relations teams will have a larger role toplay.
For consumer-facing communications
on complex social issues, these teams will needto understand the shifting concerns of diverse
audiences and collaborate with other internalteams — such as diversity and inclusion executives,
marketing strategists and sustainability specialists— to craft campaigns and messaging.
Preparing for Change
Even amid these times of tighter cost management,
fashion companies will need to prioritise
investment in new skills and collaborative
structures. A successful talent strategy will110

10. ORGANISATION OVERHAUL

require hiring and reskilling, pushing humanresource teams to identify current and future skills
shortages and set a strategy to address them.
Nearly 90 percent of executives foresaw askills shortage in their organisations, according
to a 2021 survey, yet only one-third said hiring
plans were robust enough to address talent
challenges. In 2022, fashion executives cited
supplier management, artificial intelligence andautomation, and omnichannel customer experienceas the top capability gaps in their organisations.416
Competition will be stiff across the industry
for the most in-demand roles. These include
specialists in ESG compliance, including lawyers
who are focused on international law and canhelp companies navigate evolving ESG-related
regulations. Supply chain and operations leaders
are also sought after, as are support roles likemerchandising assortment planners as well as
specialists in logistics and pricing.
There is plenty of scope for upskilling
and reskilling, with the twin benefits of serving
as a retention tool and improving a company’scompetitiveness. The business case even in
economically uncertain times is sound: educationand training typically generate return on
investment that is between two-and-a-half andthree times higher than recruiting, according to
McKinsey research.417
This has not been lost on big companies
that are already investing heavily to educate
employees.418 419 Amazon, as part of its “Upskilling2025” initiative, is investing $1.2 billion to train
more than 300,000 employees for higher-skilledjobs as automation eliminates many existingroles.420 At big box retailer Walmart, training
support ranges from workshops on basic retail andemotional skills for frontline staff to subsidies fortenured employees to study retail management atuniversity.421
Enabling organisation-wide agility will be
critical to building the resilience needed in 2023
and beyond. Speed will be essential, underpinned

Exhibit 18:

Capabilities in supplier management, artificial intelligence andomnichannel customer experience are the areas in which fashion
executives see the greatest skills gaps
Top five capability gaps,% of respondents

19

Supplier management

18

Artificial intelligence / automation
Omnichannel customer experience

17

Incremental innovation (i.e. improving existing products)

17

Environmental, social and governance16

Local brand building

16

Breakthrough innovation (i.e. moonshots)

15

E-marketplace management

15

Advanced analytics

15

Continuous margin improvement

15

Source: McKinsey & Company Voice of Consumer Organisations Survey 2022

by cross-functional teamwork that eschews siloes,
enabling fashion executives to allocate their talent
to the strategic topics they believe will unlock
growth. Top management must be prepared
to change. Leadership teams must comprise
executives with a diverse range of skills that reflect
strategic priorities.
Above all, fashion leaders will need toprioritise talent and reconsider organisational
evolution as the competitive advantage it has
become. Human resource leaders will need tocontinue reconsidering how employees work
together to ensure balance and efficiency aroundremote or flexible work policies that keep people
engaged. Companies defined by strong diversity
and inclusion leaders and focused on transparency
will help attract top talent and enable a business toevolve and become even more resilient in the years
ahead.

111

The State of Fashion 2023

MCKINSEY GLOBAL FASHION INDEXMCKINSEYGLOBALFASHIONINDEX

Global Pressures Disrupt
Widespread ReboundPent-up demand and a return to social settings began driving a strong
recovery in 2022, raising expectations across the industry that the yearsof slowing growth and squeezed margins were coming to an end. But
macroeconomic and other external factors could reverse the course ofchange yet again.
Key Insights• The industry delivered strong top- and bottom-line growth in 2021, but the
post-pandemic recovery is muted in a broader context.
• Value creators outnumbered value destroyers for the first time since 2014.
More than 50 percent of MGFI companies contributed to the industry’s
positive economic profit, compared to 32 percent in 2020.
• Investors are becoming more cautious about how they value future earnings
growth as the global slowdown is expected to diminish much of the growth
momentum experienced in early 2022.
• The companies on this year’s “Super Winners” list represented 85 percent of
total industry EP in 2021, coming in well below the long-term average of 113
percent observed between 2010 and 2018.
Each year, the McKinsey Global Fashion
Index (MGFI) charts the fashion industry’s
overall progress with an informative and holistic
benchmark of sector performance. The analysis
employs financial data from nearly 400 publiccompanies to evaluate the sector’s most important
price segments, product categories and markets.
The index primarily assesses economic profit(EP), a measure of value creation calculated as
the difference between a company’s currencyadjusted operating profit minus taxes and cost ofcapital. The metric also assesses value created overtime, allowing the index to reflect how much eachcompany invests to generate its results.
Since the onset of the Covid-19 pandemic
in 2020, the MGFI has expanded its approach to112

address the extreme fluctuations created by thehealth crisis. In this seventh edition, a similar
approach was taken, evaluating the average EP overthree years, from 2019 to 2021, while also looking
at 2021 in isolation to make a distinction between
pandemic recovery and incremental growth.
The exploration begins with the results ofthe 2019-2021 EP composition, showing how recent
global turmoil has disrupted recoveries in different
segments. The analysis also provides a review ofthe latest ranking of “Super Winners” — that is, thecompanies that led EP creation in the industry. By
evaluating the performance of leading companies
in the industry, the research identifies the drivers
behind their success and explains how these forces
have evolved. Finally, stock market valuations and113

MCKINSEY GLOBAL FASHION INDEX

their implications for a company’s success in theyear ahead are examined.

The State of Fashion 2023

Looking Back at 2021
After years of slowing growth followed by 2020’s
Covid-19 disruption, the fashion industry cameroaring back in 2021.422 EP grew significantly,
reaching an MGFI level of 212 (with 2010 as thebase year of 100), compared with negative 79 in
2020 and positive 80 in 2019.
Shoppers embraced opportunities to releasepent-up demand, rushing online and to stores
to compensate for months of curtailed shopping
during the pandemic and to prepare for the returnof pre-pandemic socialising. This burst of spending
drove up revenue 21 percent year on year for the
global sample.423
Profit grew even faster than revenue. The
industry’s average gross profit margin rose 2.1
percentage points to 52.8 percent, while EBITA
margin increased 6 percentage points to 12.3
percent. Bottom-line growth was driven by avariety of factors. The boom in consumer demand
was coupled with limited product supply — due tosupply chain disruptions — which led to a higher
share of full-price sales. In tandem, companies
focused on controlling or cutting costs whilepursuing operational discipline to avoid waste.
Many also pulled back on store openings and othercostly initiatives;424 invested capital was flat year on
year and down 6 percent compared to 2019.425
However, the year-on-year comparisons
only tell part of the story, particularly given 2020’s
pandemic-induced declines. When evaluatedagainst pre-pandemic levels, the industry’s
trajectory in 2021 suggested a rebound, but it still
fell short of past performance levels. Revenue forthis global sample in 2021 was 3 percent higher
than in 2018, lower than the average 5 percent
annual growth rate that the industry experienced
between 2010 and 2018. In contrast, revenue for theentire fashion industry grew around 3 percent lessthan in 2021 compared to 2018, reflecting how our114

MCKINSEY GLOBAL FASHION INDEX

sample of listed companies outperform the market.
The industry’s EP provides a similar
narrative, with average EP between 2019 and 2021
coming in 18 percent lower than the long-term
average between 2010 and 2018.
Overall figures from the past three years
mask the stark differences in performance across
categories. For example, luxury has been showing
little sign of the stresses and strains evident inother parts of the industry and, in fact, produced
record high results in some cases. Results at LVMH,
Kering, Hermès and Richemont all suggested that
there were more factors giving them a boost beyond
the pent-up demand from the initial lockdown
periods.426 Between 2019 and 2021, luxury’s EP was
80 percent higher than it was between 2010 and2018. LVMH delivered a particularly impressive
performance: its EP grew by a factor of 13 times
between 2020 and 2021.
Activewear companies — led by Nike,
Adidas, Anta and Lululemon — also helped drive
industry growth in 2021. The category’s EP indexed
to 2010 was 121 percent higher between 2019 and2021 when compared to between 2010 and 2018.
Other categories suffered, however.
Affordable luxury saw EP plummet 177 percent.
Premium and mid-market companies also declined,
while value and discount companies remained
stable.
Starting Out Strong
The fashion industry entered 2022 in a position ofstrength, buoyed by continued high demand andstable profitability through the first half of theyear. Top-line growth in the first half of 2022 fornon-luxury fashion was 11 percent compared tothe same period in 2021 and 14 percent comparedto the same period in 2019.427 Luxury companies
outperformed the rest of the industry once again.
The category’s revenue grew 27 percent in the firsthalf of 2022, compared to the same period in 2021,
and 43 percent compared to the same period in
2019.428 Revenue growth at traditional department

stores and malls was also higher than the industry
average, as was the case for a number of luggage,formalwear and footwear brands.429
But conditions became more challenging
mid-way through the year; replicating the firsthalf’s strong performance would be tough given theeffects of global geopolitical tensions, relentlessly
high inflation and slumping consumer sentiment.
Our McKinsey Fashion Growth Forecasts expect
revenue in the second half of 2022 to be 5 percent
to 7 percent lower for non-luxury fashion and 1
percent to 3 percent higher for luxury than in thesecond half of 2021.
While the fashion industry overall
is expected to generate positive EP in 2022,
companies should secure more capital if theywant to sustain the first half’s momentum. But
fashion executives anticipate a need to reduce
costs, with 37 percent saying they will prioritise
cost improvement over growth in 2023, the highest
percentage ever recorded since the The State ofFashion report began.430

Economic profit (EP)A measure of value creation defined as
currency adjusted operating profit lessadjusted taxes and capital charge

Currency adjustments
All MGFI data is adjusted to be analysedand expressed in USD current prices,
based on the exchange rate of the latest
available fiscal year (or other relevanttime period, e.g. latest month for market
capitalisations). For this year’s edition,
the average exchange rate of 2021 is
used

Value creator
A company generating positive
economic profit

Value Creation on the RiseIn recent years, the fashion industry’s performancehas followed more or less the same narrative:
the most successful companies generate thevast majority of the industry’s positive EP, whilevalue destruction at the other end of the industry
increased. The pattern reversed in 2021. In thisyear’s analysis, companies appearing lower down
the EP ranking — no longer weighed down by
the extreme underperformers, which exited theindustry during the pandemic — had a meaningful
positive role to play in value creation. Value createdby companies outside of the top 20 players in 2021
grew fourfold from 2020 and doubled compared tothe average over 2010 to 2018.
While the EP created by the top 20 players
increased 143 percent year on year in 2021, therelative contribution of the Super Winners to EP
generation declined relative to previous years.
Super Winners represented 85 percent of total

Value destroyer
A company generating negative
economic profit

Super Winners
The top 20 companies ranked byeconomic profit over a given period; thisyear’s list of Super Winners is based on
years 2019 to 2021

industry EP in 2021, coming in well below thelong-term average of 113 percent observed between
2010 and 2018.
The shift is due to a weeding out of value
destroyers through bankruptcies, acquisitions
or mergers — over each of the past three years
115

MCKINSEY GLOBAL FASHION INDEXExhibit 19:

The industry’s economic profit swings dramatically fromnegative to positive
What’s behind the sharp rise in economic profit in 2021?

Total economic profit (EP), index (2010=100)
YoY economic
profit change, %

+1

+4

-7

-13

-15

-24

+41

+17

-12

-199

Much of the success in 2021 was contingent on the declines in 2020, witheconomic profit in 2021 “compensating” for 2020’s decline into negative
territory. The strong rebound is explained by a number of factors:

+368

212

100

101

105

98

85

72

77

55

90

• Pandemic recovery: easing lockdowns and pandemic-related
restrictions in most of the world, with a tourism rebound in Europe andthe US, led to increased consumption and discretionary purchases,
bolstering the industry’s top line.

80• Macroeconomic forces: continued government stimuli launchedduring the pandemic, such as payouts to households, led to increased
spending power and demand. Improved market conditions and restored
investor confidence, shown in record-high spikes of stock indices, also
contributed to driving the industry’s top line.

The State of Fashion 2023

-79
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

EBITA
margin, %

11.5

11.5

11.4

11.2

11.0

10.7

10.3

10.4

10.7

10.3

6.3

12.3

N

316

336

345

354

357

361

368

373

382

381

364

349

2022E

• Cost and asset conservatism: fashion companies made investments
cautiously, if at all, and focused on operational efficiency — the resulting
streamlined asset base and margin improvements benefitted economic
profit.

Source: McKinsey Global Fashion Index (MGFI)• Survival bias of sample: given that the MGFI index comprises publicly
listed companies only, the higher number of bankruptcies in 2020
compared to historic levels led to several underperforming companies
captured in previous years to exit the sample for 2021. The removalof these underperformers therefore created a “healthier” sample
for calculating economic profit. An analysis of a “steady sample” ofcompanies that have been operating and reporting economic profit
during the MGFI’s complete timeline (2010-2021) shows the same results.

Exhibit 20:

Luxury and discount increased economic profit over the past
three years, while segments in the middle have struggled
Average economic profit, 2010-2018 and 2019-2021, index (2010=100)
Industry overall

Luxury &affordable
luxury

87
71

+37%

-18%

Mid-market*

2010–201870

2010–201833

2019–2021

39

2019–2021

77

134

2010–20182010–2018

Premium/
bridge184

2019–2021-44%

Value &
discount

97-57%

2019–2021
98+1%

2010–20182019–2021

Source: McKinsey Global Fashion Index (MGFI)* The mid-market segment performance is driven by Inditex, comprising ~80 percent of 2019-2021 average EP. Excluding Inditex, the segment’s average EP would be down
81 percent instead of 44 percent between 2010-2018 and 2019-2021.

116• Consumer behaviour: pent-up demand for discretionary goods was
associated with consumers returning to social events, offices and travel
as consumer confidence rose and shoppers splurged after two years ofrestrictions.

between 2 percent and 7 percent of companies
left the sample, compared to nearly none in the
pre-pandemic years, leaving a stronger set ofcompanies. More than 50 percent of the MGFI
companies contributed to the industry’s value
creation, compared to 32 percent in 2020, marking
the highest level since 2013.
But these shifts may be temporary as thechallenges in the second half of 2022 are likely topersist and disrupt the market in 2023, leading only
the highest performers to contribute to industry
EP, as in previous times.

Drivers of Value Creation in 2021
Along with the number of value creators outpacing
value destroyers in 2021, the mid-market pricesegment, typically with a more challenging market
position and margin profile, has benefitted from astrong industry rebound and spending recovery,
creating value as a whole (in contrast to 2020)and being the category with the largest numberof companies driving EP in 2021. A large share ofvalue creation in the mid-market price segment isdriven by Inditex, however, as it contributed close
117

MCKINSEY GLOBAL FASHION INDEXExhibit 21:

The number of value creators in the industry rose in 2021, with
the industry doubling 2010 EP levels
Total economic profit by top 20 players, value creators and value destroyers, index (2010=100)
EP created by top 20 companies
EP created by value creators, excl. EP from top 20

212

EP created by value destroyers

Total EP =

90

80

118

125

36

44

36

-63

-72

-81

100

101

105

98

85

72

55

74

82

96

98

95

94

90

104

46
-20

50
-31

48

47

43

38

-39

33

-48

-53

-61

-69

77

180
-79
74
19

90
-58

-172

The State of Fashion 2023

Share ofcompaniesthat are value
destroyers, %

2010

2011

2012

2013

2014

2015

2016

2017

31

29

36

40

48

51

54

53

2018

2019

2020

2021

54

59

68

44

Source: McKinsey Global Fashion Index (MGFI)

Exhibit 22:

Margins have improved for all segments
compared to before the pandemic
EBITA margin by value segment,1 %2021 Margin

2019–2021 Average margin

2010–2018 Average margin

Industry overall

9.6

11.0

2010–2021 Margin range

12.3

Luxury &affordable
luxury17.5 18.3

9.1 10.2 11.0

Premium/
bridge7.2

Mid-market

Value &
discount

10.0 10.1

8.1 9.0 10.3

0

2

4

6

8

10

1 Segments adjusted for outliers that are structurally unprofitable due to business model
Source: McKinsey Global Fashion Index (MGFI)

118

22.0

12

14

16

18

20

22

to 80 percent of the segment’s average EP during
2019-2021. Without Inditex, the mid-market
segment performed similarly to the premium
segment. Looking at profit and margin over the
decade and in the last three years from our sample,
however, the luxury segment is showing resilienceand a growth trajectory.
Luxury in 2021 was propelled both by the
spending of wealthy individuals who were relatively
unaffected financially by the pandemic and who
reallocated spending on travel and entertainment
to fashion and accessories, as well as mid-income
consumers who had increased their savings during
the pandemic and wanted to indulge themselves.
Luxury’s EP has grown by a factor of 6 times to 7
times since 2020, and doubled since 2019. At 24
percent, its EBITA outpaced the rest of the fashion
sector’s 11 percent.
Though macroeconomic conditions in 2022
may undermine luxury’s momentum, the categoryshows signs of resilience. LVMH reported 31
percent revenue growth in its fashion and leather
goods division in the first nine months of 2022,
while Hermès reported 24 percent year-on-year
growth in the third quarter of 2022.431 432
Sportswear’s strong performance in 2021
is reflected in its EP, which grew nearly 60 percent
year on year. Yet its relative contribution to value
creation compared to other categories decreased,suggesting that sportswear’s growth trajectory may
be affected by the benefits of the pandemic boost
that are fading and worsened economic conditions.
In 2022, Adidas and others revised their outlooks
downwards due to slowing demand and excess
inventories.433
Value and discount companies also drovestrong results in 2021, registering healthy revenue
increases of 11 percent since 2018. Growth was
driven by consumers seeking bargains amid
economic uncertainty. The margins of both value
and discount companies have not improved since
before the pandemic, however, due to pressured
cost bases and consumer pricing sensitivities.

Super Winners
In previous editions of the MGFI, the index
highlighted a winner-takes-all environment led
by a consistent group of Super Winners. This
continued even as we adjusted our methodology totake into account the pandemic and calculated theaverage EP each company contributed over morethan one year. The new approach helped to smooth
distortions created by market disruptions over thetwo years, 2019 to 2020. This year, the methodology
includes a 36-month period, evaluating combined
EP for 2019, 2020 as well as 2021.
The latest group is a continuation of what
was seen in recent years: despite large fluctuations
in EP over the period in review, a similar group of
top performers maintained their leading positions
and proved their resilience. The five leading Super
Winners, based on average EP over 2019, 2020 and
2021, in order of performance were Nike, LVMH,
Inditex, Kering and Hermès. Nike maintained its
top position despite setbacks in the later part of its
fiscal year ended May 31, 2020 as the pandemic set
in, while LVMH showed an impressive recovery
and would have ranked highest if the index only
evaluated 2021.
Dillard’s and M&S were among
the companies that delivered outstanding
performances in 2021, demonstrating the strong
recovery of department stores and general retailers,
but failed to rank among the Super Winners
for the three-year average period. In jewellery,
Signet Jewelers was similarly successful in 2021.
Richemont, the luxury brand that generates
around 75 percent of its revenue from watches andjewellery, had a stellar 2021 after several years ofnegative EP, indicating strong market performancefor jewellery companies. It jumped 281 positions toenter the Super Winners list and when evaluated byjust 2021 alone, the company ranks as the eighthhighest EP generator.
Other new entrants to the Super Winners
list include sporting goods retailers Dick’s andLi Ning. VF Corporation, which also is in the119MCKINSEY GLOBAL FASHION INDEXExhibit 23:

Nike retains its top Super Winner spot, while newcomers joinfrom sports and luxury
Top 20 players based on financial years 2019-2021,
economic profit, USD MN

3,767

Nike

3,258

LVMH

2,463

Inditexvs. 2018

vs. 2019/20

Unchanged

Unchanged

+1

+2

-1

-1

Kering

1,867

+1

-1

Hermès1,754+1Unchanged

-2

+4

1,228

TJX Companies

The State of Fashion 2023

Super Winner ranking change

Adidas

977

+1

-1

Fast Retailing

962

-1

-1

Anta Sports

928

+4

-1

Ross

902

-1

+1

Lululemon

576

+7

+1

Dick’s Sporting Goods

549

+229

+9

Next

484

+1

+1

Pandora

476

-3

-1

JD Sports

379

+16

+5

Hanes Brands

334

+3

-1

Richemont

331

-5

+281

Li Ning

316

+53

+4

Deckers Outdoor

314

+13

-3

VF Corporation

309

-10

+3

2022 Super Winners
New entrants
Market cap grew above market average (>2x)
Market cap grew above market average (1.1 to 2.0x)
Market cap grew with market average (0.9 to 1.0x)
Market cap grew below market average (<0.9x)
Source: McKinsey Global Fashion Index (MGFI)120

Market cap changeDec. 2019 – Sep. 2022
compared to industry
averagesportswear space, jumped three spots to reappear
on the Super Winners list for the first time since 2018.
Prior Super Winners that dropped off thelist in this edition include fast fashion brands H&M
and HLA, as well as luxury brands Moncler and
Burberry.
Looking Ahead — Potential Considerationsin 2023To examine what the future might hold, the
MGFI ranked the top 20 companies by market
capitalisation, as of September 2022, to identify
where investors see value in the future of the sector.
Jewellery and accessories players stoodout: global eyewear-lenses company Essilor
Luxottica, based in France, ranked sixth in termsof market capitalisation while Titan, an Indian
jeweller, and China’s Chow Tai Fook Jewellery
more than doubled their market capitalisations
from before the pandemic as of September 2022.
Swiss timepiece group Swatch also ranked among
the top 20 companies, likely boosted by the luxury
positioning of some of its brands, among otherfactors.
As in 2021, domestic Chinese companies
excelled as consumers embraced local brands andtravel remained restricted. They delivered some ofthe highest market capitalisation gains in the top
20 list. Sportswear companies Anta and Li Ning
were among the standouts.
While some trends from the market
capitalisation ranking remain the same in 2022
as in previous years, others have reversed. Online
retailers like Zalando and retailers with a strong
online presence like Next are no longer part of
the top 20 ranking. The drop-off likely reflects
an investor reaction to the struggles e-commerce
players faced with profitability challenges while
physical retailers rebounded in 2022. The market
capitalisation of internet retailers — having risen
sharply during their pandemic-induced heyday —plummeted in the second half of 2021. By the firstquarter of 2022, they were valued well below therest of the industry and have since suffered while
the index otherwise stabilised.
However, it is important to note that the
research does not include privately held ultra-fast
fashion and online player Shein, which is said tohave been valued at $100 billion in a recent funding
round.434
Investors ascribe 57 percent of enterprisevalue to reported earnings projections discounted
to perpetuity in 2022 and 43 percent to future
earnings growth. The trend observed in 2018-2020
in which investors increasingly ascribed morevalue to future earnings has reversed, reflecting
the heightened uncertainty, high interest rates andtightened economic conditions.
As the growth momentum of 2021 and thefirst half of 2022 wanes, the fashion industry isfacing new and deepening challenges. Demand isslowing, interest rates are rising and economic
policies are tightening. Top-line growth is expected
to slow in the short term. Based on our McKinsey
Fashion Growth Forecasts, the non-luxury fashion
trajectory for the full year of 2023 could come inbetween negative 2 percent to positive 3 percent,compared to 2022. Luxury should fare better than
the rest of the industry with growth expected
between 5 percent to 10 percent year on year, but
at a regional level should also feel the impact of theeconomic slowdown, notably in Europe and the US.
The industry is switching its focus tobecoming more resilient; 84 percent of fashion
executives expect conditions of the industry
to worsen or stay the same in 2023.435 Fashioncompanies will feel pressure to keep up the
momentum without sacrificing their long-termgoals. And unlike in 2020, when many governments
rolled out stimuli packages to alleviate themacroeconomic impact, many retailers will need tofind other sources of support. The industry should
expect further shakeouts as the challenges become
too much for some to bear.

121

The State of Fashion 2023

IN-DEPTH

THE STATEOF LUXURY
2023

Luxury’s Next Digital Chapter
The luxury segment has ridden a wave of growth and prosperity, supported
by a revolution in digital distribution. However, as economic conditions get
tougher, luxury brands urgently need to consider the best way to move
forward. Meanwhile, luxury e-tailers are under rising pressure to shape theirbusiness models to the new economic reality.
by Achim Berg, Anita Balchandani, Dale Kim, Andrea De Santis, Sarah André and Meera Singh

The performance of the luxury segment overrecent times has been outstanding, with one season
after another characterised by soaring demand andimpressive bottom-line outcomes. Brands forgeddeep connections with their core constituencies
and ignited their creativity. This, in turn, has
spurred certain consumers to trade up and seekout ever-higher levels of indulgence. Meanwhile,the continuing expansion of digital engagement
and e-commerce has created a turbocharged effect— fuelling demand, unlocking new insights andpromoting competition.
However, as the global economic cycle turns,
luxury brands are set to see rising pressure on theirbusiness models and channel strategies. Retailers,meanwhile, are already feeling the pinch, both inphysical and online spaces. In response, luxury
brands are searching for new engagement models,
while e-tailers are exploring how to productively
work with brands to engage with consumers,
facilitate market access, and add value as thetechnology landscape evolves.
In tough times, a laser-sharp focus on
122

distribution can make the difference between
success and failure — and even more so in a market
increasingly led by e-commerce. One distribution
model that has caught the attention of almost
every brand is direct-to-consumer, but luxury
brands in particular see a chance to capture wider
margins by taking out the middleman, as well
as realise benefits across economics, customer
engagement and operations. With their strong
brand equity and ultra-exclusivity, select luxury
players, such as Hermès, have focused mainly on
DTC distribution,436 which provides them withfull control of brand positioning and storytelling.
DTC has also allowed them to reinforce an evenstronger sense of exclusivity: customers must cometo the brand intentionally rather than coming
across it randomly. And mastery over data hasenabled brands to unlock personalised experiences— critical to stand out in a crowded e-commercelandscape — and forge deeper customer
relationships.437 438
Given its many potential benefits, a numberof luxury brands see moving to 100 percent DTC
123

THE STATE OF LUXURY 2023

as an aspiration, both in terms of their physicaloutlets and digital channels. However, the pure
DTC club remains highly exclusive. For now, only
brands that command market-leading customer
attention, and have deep pockets to maintain DTC
customer relationships across channels, are readyto fully engage with the opportunity.439 (See DTC
Reckoning on page 68.)

The State of Fashion 2023

For many brands,
wholesale partners arevital enablers of access to
new customer segments.
Without the resources of an industry
superstar, the majority of luxury brands are being
realistic and opting for a gradualist and hybrid
approach. For these companies, DTC remains
an aspiration that for now should be consideredalongside continuing engagement with multi-brandretailers. One reason is that multi-brand platforms
bring a lot of value. Multi-brand retailers, forexample, are virtuoso facilitators of customer
engagement, and often bring their own powerfulbrand equity to the mix. Indeed, for many brands,
wholesale partners are vital enablers of accessto new customer segments. They also play aninvaluable role in extending brand reach to nicheareas of demand, as well as accelerating full-pricesales when the opportunity allows and clearing
inventory during slower periods.
Many brands plan to switch to more or all
DTC are stymied by their e-commerce and digitalmarketing capabilities that have yet to scale.
Furthermore, in the recent tough supply chain
environment, most have suffered from delivery
bottlenecks. And as economic headwinds become
stronger, they face potential medium-term declines
in volumes, which naturally in turn creates an auraof caution across go-it-alone plans, particularly as
customer acquisition costs rise.
Depending on their market positioning andstrategic orientation, individual luxury brands are
124

IN-DEPTH

likely to identify with different aspects of thesechallenges and realities. However, the task for
many, as they consider the impacts of rising interest
rates and new customer behaviours, will be toalign with the needs of their core markets as wellas identify effective channel strategies to pursue
growth and create efficiencies through the value chain.
Current State of Online Luxury Distribution
Individual e-tailer approaches often must sit
within the parameters of specific business models.
First-party retailers such as Net-A-Porter, Matches
Fashion and SSense have typically focused moreon online wholesale business models, thoughmodels are evolving.440 441 They have continued toapply their expertise to match brand inventory tocustomer demand, carefully managing curation,and optimising pricing and merchandising. By
focusing on these core strengths, they have beenable to continue to create significant upsides forbrands, including cementing consumer trust in
the retailer as a curator. This, in turn, has enabled
them to drive conversion as well as augment brandpositioning — supported by dedicated content andmarketing.442
In a first-party environment, brands canface less inventory risk while seeing the positive
impact of significant individual order volumes oncash flows and ongoing operations. On the other
hand, brands are wary of the risks associated withretailers’ oversight of variables such as inventory
and markdowns. Mismanagement can lead to
unpleasant impacts on brand equity. As a result, thetotal share of online first-party retailers is under
threat from new distribution models and the abilityof digital to let brands control their own operations.
The second dominant approach to luxury
distribution is that offered by third-party online
retailers, such as Farfetch, which also enables
platform solutions for small and medium-sized
retailers. Rather than taking ownership of
products, these digital players provide brands withsignificant electronic real estate and large volumesof customer traffic as well as valuable logisticalsupport.443 In the most common approach, a brandretains inventory risk and controls consumerfacing variables such as assortment and pricing.
This enables full control over key performancelevers, including pricing, assortments andinventories, among other benefits.444
The ability to keep a hand on the tiller canlead to elevated price perception and shield against
potential threats to brand equity. In addition, it
can allow brands to more closely manage seasonal
calendars and develop a perception of scarcity,a critical differentiator in the luxury space.
Meanwhile, a higher level of control over curation,
merchandising and content, means brands canmanage and apply data more effectively — anincreasingly valuable advantage in a world ofartificial intelligence and machine learning — aswell as leverage deep data mining to refine andenhance marketing campaigns.
The share of third-party models is likely
to rise, reflecting the potential benefits to brands
and retailers alike. Indeed, amid increased desire
among brands for scarcity and exclusivity, they
are conspicuously making efforts to reduce their
exposure to first-party models. “We are stopping all
online wholesale for our brands,” said Kering chief
executive François-Henri Pinault, citing issues
with discounting on the first-party channel.445
Prada is also among the brands reducing wholesale
exposure, with co-chief executive Patrizio
Bertelli saying, “We are still rationalising further[wholesale] … and we think that this rationalisation
will make the e-commerce activity and sales in our[directly operated stores] even more efficient.”446
As luxury brands renew their online
distribution strategies, many first-party retailers
are investing in developing hybrid offerings, taking
the best of both models. For example, retailer
Mytheresa — which formerly used a first-party
model — has developed a “Curated Platform Model”
for working with brands. Mytheresa will continue
to manage curation and logistics, but brands
will own their inventories and pay a concession

on sales.447 Meanwhile, Yoox Net-a-Porter hasentered into drop-shipping arrangements withbrands such as Prada. And after Farfetch recently
acquired a 47.5 percent stake in YNAP, the shift
from a traditional first-party to a hybrid first- andthird-party model is expected to accelerate in themonths ahead.
Cumulatively, these hybrid models are
estimated to account for a small percent ofpure-play online retailer GMV today. However, theshare of the total is expected to rise as brands seek
alternatives to traditional first party.448
A Vision for the Future
Given shifting consumer behaviours that favour
digital engagement and the macroeconomic
challenges facing brands, the mechanics of
distribution are approaching a tipping point, which
will affect both brands and retailers. With luxury
brands focusing on DTC, along with work-inprogress digital and customer-centric businessmodel transformation, five key trends are set to
emerge over the coming period:
Growth of e-tailing, particularly the riseof third party, will be at the expense of physicalwholesale and traditional retail: By 2025, luxury
players will expand their share of the DTC market
to 25 percent from between 15 percent and 20
percent.449
Online DTC and third-party e-tailers
will drive growth: Online DTC and third party
will account for the majority of growth (with online
DTC GMV growing approximately 2.5 times andthird-party GMV growing more than 3 times
between 2021 and 2024).450
Third-party models will be the preferredchoice for brands in the near term: Brands
will increasingly favour third-party models overfirst party, in order to keep a tighter grip on brandpositioning, achieve higher margins (between 5 and
10 percentage points), and steer traffic acquisitionand data collection.451
First-party models will be relevant
125

The State of Fashion 2023

THE STATE OF LUXURY 2023

for brands that are at the highest risk during
a potential economic slowdown: They will beanchored on their ability to take on inventory risk
and help brands navigate economic headwinds.
Scale and consolidation will be required
to take third-party models to maturity: Third
party appears to offer a winning proposition but
requires mature operators with greater reach,rather than currently, which is characterised byfragmentation across countries and brands. This will
enable platforms to attract the attention of brands
and consumers beyond that offered by products alone.
Luxury players, retailers and consumers
will be impacted by these changes in varying
degrees. However, the ability of businesses to reap
the benefits is contingent on their flexibility toadjust to a shifting market while remaining alignedwith consumer behaviours and a dynamic economic
environment.
The potential impacts on luxury brands:
In the current economic climate, only a few brands
will have the capabilities to move decisively and
immediately to a DTC model — and even thehandful of brands that could make such a move will
likely wait for economic conditions to brighten. A
more likely scenario will be that brands transition
from traditional wholesale and online first party
into third party, while working to minimise any
loss in GMV. This will enable them to capture someof the benefits of DTC while insulating themselves
against excessive risk. The extent of recessionary
headwinds will be a significant factor in dictating
the speed of the shift.
Meanwhile, companies with lower brandawareness, weaker cash flows or inventory
accumulations will likely take a more cautious
approach, remaining on first-party platforms to
support near-term growth.
In aggregate, the market will be polarised
across brands forced to choose between first party
as a means of mitigating unfavourable market
conditions, and third party in order to establish
greater control over customer data, inventory
and pricing.
126

IN-DEPTH

The potential impacts on retailers:First-party players will be the most challenged
in the near term but will weather the short-term
impacts of a challenging macroeconomic
environment. It is expected many will use thiswindow to develop their third-party capabilities
and create hybrid offerings. By 2024, we expect all
major first-party players will develop third-person,
concession-based alternatives alongside traditional
wholesale models.
Retailers will bid to become hyperdistinctive in at least one area. This may be throughthe ability to facilitate discovery of up-and-coming
brands and designers, curation and assortment,
editorial content, the ability to optimise sellthrough and minimise waste, or best-in-classlogistics. Some will also look to develop ancillary
revenue streams, for example in data services orshareable logistics. First-party players that fail todifferentiate will come under pressure, potentiallyleading to consolidation or market exit.
Based on the current trends and shifts
observed, luxury goods distributed throughthird-party models are forecast to triple over the
next two years.452 Meanwhile, traditional omniretailers will leverage both models online. Already,some well-known retailers, such as Harrods, arepartnering with digital natives to develop andmanage their third-party solutions. Others may
consider separating their online businesses, via
spin-off or divestiture, to better optimise thetechnology focus needed to be a winning platform.
In the near term, winners of share will bee-tailers that are best positioned to capture thetransfer of volumes from offline to online, andprimarily those that successfully offer third-party
models.
The potential impacts on consumers: As
the competitive playing field resets, consumers willfind they are offered fewer markdowns (especiallyafter the current negative market momentum)
across online platforms. Indeed, online platforms
will no longer be seen as portals to the best prices.
On the other hand, the shift to third-party models

and DTC should mean that consumers may findmore streamlined assortments on their favourite
first-party destinations. They will also overall
see more refined and enhanced services online,
alongside faster innovation and improved customer
service. They may also start to use platforms to
support lifestyle choices, for example in discovering
new brands and ecosystems. Finally, they will
benefit from speedier, transparent and morereliable deliveries.

Luxury brands face strategic
choices over how they can best
engage with their customers andstakeholders, as well as support
their business priorities.

while expertly optimising investment and efficiency
to steer through the choppy waters ahead.
Achim Berg is a senior partner in McKinsey’s Frankfurt office, and leads
McKinsey’s Global Apparel, Fashion & Luxury group. Anita Balchandaniis a senior partner in McKinsey’s London office, and leads the Apparel,
Fashion & Luxury group in EMEA and the UK. Dale Kim is an associatepartner in McKinsey’s New York office, and a frequent contributor to The
State of Fashion. He focuses on Apparel, Fashion and Luxury, Private Equity
and M&A. Andrea De Santis is an associate partner focusing on Apparel,
Fashion and Luxury in Italy. He supports luxury companies in brand strategy,
assortment repositioning, digital and customer-centric transformation. Sarah
André is an engagement manager in McKinsey’s London office. She supports
apparel and luxury companies in topics such as brand strategy, digitaltransformation, sustainability, go-to-market and M&A. Meera Singh is an
engagement manager in McKinsey’s San Francisco Office, focused on growth
topics within Apparel, Fashion and Luxury.
The authors would like to thank Erwan Rambourg, Edouard Aubin, Emanuele
Pedrotti, Michael Straub and Franck Laizet for their contribution to this article.

As the economic environment evolves
and the impacts of the transition to more digital
engagement continue to play out, luxury brands
face strategic choices over how they can best engage
with their customers and stakeholders, as well as
support their business priorities. As leading brands
seize the DTC opportunity, the majority face morenuanced decisions over the best way to play and thepace at which they should embrace new models. For
many, the most prudent short-term strategy will
be to adopt a hybrid approach, in which they begin
to realise the control benefits that can be gleaned
from third-party models, but hold onto the security
offered by first-party approaches. For retailers,
the task at hand will be to cater to these competing
priorities, but also to make judgements around theprobable pace of change and how that may play out.
As they invest in their platforms, leading players
will also explore possible routes to differentiation,
both in respect of brand needs and consumer
demand, where value-added services will become
an increasingly important factor in willingness
to engage and loyalty. As brand decision makers
process these drivers to set budgets and makedecisions, the likely winners will be those that distil
their choices to reflect their specific segment needs,
127

GLOSSARY
3D printing
A process of making threedimensional objects from a digital
file, enabling production of complex
shapes using less material than
traditional manufacturing methods.
Affiliate marketing
A process where an affiliate partner,
for example an online blog, publishes
a link in its channel, promoting a
product or service from a merchant,such as a retailer. The affiliate
earns a commission for providing a
specific result, typically a sale, to themerchant.
Artificial intelligence (AI)Computer systems performing tasks
by mimicking the problem-solving
and decision-making capabilitiesof humans, often used to process
large amounts of data for predictive
purposes.

The State of Fashion 2023

AthleisureA hybrid fashion category thatcombines athletic with casual,
everyday styles — for example jogging
bottoms in athletic fabrics.
Baby Boomers
Demographic cohort born circa
1946-1964, following the “Silent
Generation.”
Blockchain
A digital database containing
encrypted information that can be
simultaneously used and sharedwithin a large, decentralised, publicly
accessible network.
BoF-McKinsey State of Fashion
SurveyA proprietary annual joint survey
from The Business of Fashion and
McKinsey polling international
fashion executives and experts about
their business sentiment, investment
plans and industry trends. For the2023 survey, 196 respondents took
part between August and October
2022.
California Consumer Privacy Act
The state law aimed at enhancing
data protection and privacy that went
into effect on Jan. 1, 2020.
Circularity
An economic system aiming toeliminate waste and pollution,
lengthen product lifecycles, promote
the continual use of resources andminimise resource inputs.
Closed-loop recycling
A process whereby textile productwaste (both post-production andpost-consumer) is recycled into new
textile products so that the materials
remain in constant circulation(garment-to-garment).

128

Consumer sentiment
A measurement of how optimistic
consumers feel about their finances,the economy and purchasing
behaviour.
Cost of goods sold (COGS)
An income statement item reporting
the total costs of creating a product orservice that has been sold.
Covid-19
Coronavirus disease 2019 is aninfectious disease caused bysevere acute respiratory syndrome
coronavirus 2 and was classified asa pandemic by the World HealthOrganization on March 11, 2020.
Direct-to-fabric (DTF) printing
A process in which printing is doneon a roll of fabric.
Direct-to-garment (DTG) printing
A process in which printing is done
directly on the fabric that is alreadycut and sewn into a garment.
Direct-to-consumer (DTC)
Selling products directly to the end
consumer instead of through thirdparty retailers, wholesalers and so on.
Discretionary goods
Goods that consumers deem are notessential, such as travel, dining out
or entertainment, as well as fashion
and beauty items, including apparel,
footwear and accessories.
EBITA
An income statement item that isarrived at by deducting amortisationfrom earnings before interest andtaxes, which is an alternative measureof income a company makes from its
core operations.
EBITA margin
A measurement of a company’s
EBITA as a percentage of its total
revenue.
Economic profit
A measure defined as currencyadjusted Net Operating Profit Less
Adjusted Taxes (NOPLAT) minus
capital charge (Weighted Average
Cost of Capital, or WACC, multiplied
by invested capital).
Environmental, social andcorporate governance (ESG)
investing
An investment strategy that screenspotential investments based on
environmental, social and corporate
governance criteria, as well as
financial performance.

First-party (1P) data
Data collected from customers via abrand or retailer’s own channels (suchas a website, app or in store), enabling
businesses to use data in a privacycomplaint and cost-effective way.

Gross domestic profit (GDP)As a measure of economic health, it
is total monetary or market value ofall the finished goods and services
produced within a country’s borders
in a specific time period.

Fiscal response
The use of government spending andtaxation (e.g. taxes or tax cuts) toinfluence the economy.

Gross merchandise value (GMV)
Also known as gross merchandise
volume, this metric is the total valueof sales generated or facilitatedby a company, including throughcustomer-to-customer or peer-topeer platforms. GMV is calculated
before accrued expenses (such as
costs associated with advertising andmarketing, delivery costs, discounts
and returns) are deducted.

Freight
Goods transported from place toplace by land, sea or air.
G20
The group of 20 brings together theworld’s developed and emerging
economies that form more than 80
percent of global GDP. G20 members
include Argentina, Australia, Brazil,
Canada, China, France, Germany,
India, Indonesia, Italy, Japan,
Mexico, Russia, South Africa, Saudi
Arabia, South Korea, Turkey, theUK, the US and the EU. (Spain is also
invited as a permanent guest.)
General Data Protection
Regulation (GDPR)
The EU’s law on data protection andprivacy, implemented in 2018.
Generation-Z (Gen-Z)
The demographic cohort born circa
1996–2012, following the Millennial
generation.
Giga-scaling
The process of scaling to a very highmagnitude.
Green hydrogen
With significantly lower carbon
emissions than grey hydrogen, it isgenerated by renewable energy orfrom low-carbon power, by using
clean electricity from surplus
renewable energy sources, such as
solar or wind power, to electrolyse
water.
Greenhouse gas emissions
Greenhouse gases vented to theearth’s atmosphere as a result of
human activity; includes carbon
dioxide and equivalents that cancause climate change.
Greenwashing
Communication that suggests
a company or its products areenvironmentally friendly in a waythat is misleading, exaggerated or notreflected in overall business practices.
Grey hydrogen
As the most common type ofhydrogen production, it is createdfrom natural gas, or methane, using
steam methane reformation without
capturing the greenhouse gases madein the process.

Hybrid working
A flexible way for employees to split
their working hours between an officeand their homes.
In-vitro cotton
Cotton produced outside of thenatural biological cotton — in-vitro
in a lab-type of environment. This
cotton uses significantly less waterand land than traditional cotton.
McKinsey Global Fashion Index(MGFI)A proprietary and copyrighted
McKinsey tool that provides a global
and holistic industry benchmark
for the entire fashion industry. The
MGFI was first created for The Stateof Fashion 2017 to track industry
performance through three key
variables: sales, operating profit andeconomic profit. MGFI comprises
an extensive list of public companies
spanning market segments, productcategories and geographies. The
analysis of public companies is builtwith data from McKinsey Corporate
Performance Analytics Tool
(McKinsey CPAT).
Mergers & acquisitions (M&A)
The combining of two or morecompanies through various typesof financial transactions, including
mergers, acquisitions, consolidations,tender offers or the purchase of
assets.
Metaverse
The envisioned future iteration of theinternet that is made up of 3D virtual
spaces linked within a perceived
virtual universe. In a broader sense, it
often refers to not just virtual worlds,
but the full spectrum of virtual
reality, augmented reality and theinternet.
Millennials
The demographic cohort borncirca 1982–1995, also referred
to as Generation-Y (based on
Generation-X, the generation thatpreceded them).

Nearshoring
The service of a third-party providing
a service from a geographic locationthat is relatively close to a company’smarkets.
Net promoter score (NPS)A measure of customer experience
used to evaluate and predict businessgrowth. The metric is calculated bycustomers answering a question
using a 0-10 scale: How likely is itthat you would recommend [brand/
product] to a friend or colleague?
Non-fungible token (NFT)
An entry on a blockchain recording
a unique digital asset (e.g. images orvideos) and its owner, enabling the
documentation of any sale or transferof the asset. Often associated with themetaverse, NFTs are a building-blocktechnology that will allow for true
ownership of digital goods.
Off-price channel
A trading format based on discountpricing. Off-price retailers or
retailers operating off-price channels
are typically independent of
manufacturers and buy large volumesof branded goods directly from them.
The model relies on the purchase ofover-produced, or excess, branded
goods at a lower price.
On-demand manufacturing
A manufacturing system in which
products are only manufactured
when needed and in quantities
required, in contrast to traditional
manufacturing that manufactures
products in large quantities which are
stored in facilities until they are sold,distributed and delivered.
Price segment
The company segmentation based on
a Sales Price Index, which provides arange of prices for a standard basketof products within each segment
and company’s home market.
The companies in the McKinsey
Global Fashion Index and the BoFMcKinsey State of Fashion Survey are
categorised in six segments, which
are based on a price index across awide basket of goods and geographies.
The segments comprise (from lowest
to highest price segment): discount,value, mid-market, premium/bridge,
affordable luxury, and luxury.
Radio-frequency identification(RFID)
A wireless system of tags that uses
radio waves to identify and track an
object, e.g. when tracking items alonga supply chain.

Regenerative materials
Materials that are bio-based,reusable, non-toxic and non-critical.
They are organic and can be madefrom by-products of agriculturalprocesses, or can be grown andharvested responsibly.
Repatriation
The process of sending money
back to one’s home country; inrelation to shopping, this refers towhen a consumer spends money
domestically rather than abroad.
Retail media networks
A network in which a retailer gives
advertisers access to its first-party
customer data and channels, suchas the retailer’s website or app. This
allows brands to reach in-market
consumers when they are in apurchasing mindset.
Retention
Keeping employees at a businessthrough a number of measures andincentives to reduce staff turnover.
Selling, general & administrative
expenses (SG&A)
An income statement item stating
all costs not directly tied to making a
product or service.
Social media growth hacking
An activity that seeks to reach a goal
as fast as possible; for example, higher
brand recognition, followers or sales,by experimenting with multiple
tactics and reviewing smaller sets ofdata and iterating. This could mean
sharing on different social media
networks and reviewing clickthroughrates to understand how traffic orsales are improving.
Super Winners
The top 20 fashion players byeconomic profit (based on average
economic profit 2019-2021)
according to The State of Fashion.
Sustainability
Within a business context,
sustainability refers to businesses
making decisions in terms ofenvironmental, social, humanand corporate governance impact
for the long term and relates to
how a company’s products andservices contribute to sustainable
development.

The Great Resignation
A term describing the elevated rate
at which US workers resigned fromtheir jobs that began in the springof 2021 amid strong labour demandand low unemployment rates, asvaccinations eased the severity of
the Covid-19 pandemic, with similar
developments in other parts of
the world. It was likely a result ofpent-up demand from workers whodeferred decisions to quit early in the
pandemic.
Third-party (3P) data
Data purchased from externalsources such as aggregators thatare not the original collectors of thedata. The third parties purchase datafrom other sources across the web toaggregate, segment and resell it.
Traceability
The ability to identify and monitor
the history, distribution, location
and application of materials, partsand finished goods to understandthe understand the sustainability
practices relating to a product.
Value creator
A company that creates value
generates positive economic profit— that is, its operating profit exceeds
its dollar cost of capital (profit above0). See above for the definition of
economic profit.
Value destroyer
A company that destroys value
generates negative economic profit— that is, its dollar cost of capital
exceeds its operating profit (profit
below 0). See above for the definitionof economic profit.
Vertical integration
A corporate strategy that occurs
when one company acquires
a producer, vendor, supplier,
distributor or other related company
along the same value chain.
Virtual sampling
A digitised, three-dimensional
product development process,enabling designers to create virtual
samples simulating movement,
stretch and use.
Web3
The next phase of the internet using
a decentralised, peer-to-peer model
powered by blockchain technology
on which apps and platforms would
be built.

Regenerated fibre
Fibre created from pre-existing fibres
whose cellulose areas are dissolved inchemicals and rebuilt into new fibres
by viscose method.
129

INFOGRAPHICS
1. Global Fragility
Source: BoF-McKinsey State of Fashion 2023
Survey2. Regional Realities
Source: BoF-McKinsey State of Fashion 2023
Survey3. Two-Track Spending
Source: McKinsey & Company US Consumer
Pulse Survey, July 7-10 2022, n = 4,009 sampled
and weighted to match the US general population
18+ years
4. Fluid Fashion
Source: Klarna Insights survey, May/August 2022,
in cooperation with Dynata. Survey conductedacross 11 countries (US, UK, Australia, Sweden,
Norway, Finland, Denmark, Italy, France,
Germany and Poland), (N=8,114: consumers aged
18 to 75)
5. Formalwear Reinvented
Source: BoF-McKinsey State of Fashion 2023
SurveyThe State of Fashion 2023

6. DTC Reckoning
Source: BoF-McKinsey State of Fashion 2023
Survey7. Tackling Greenwashing
Source: BoF-McKinsey State of Fashion 2023
Survey8. Future-Proofing Manufacturing
Source: McKinsey Apparel CPO Survey 2021
9. Digital Marketing Reloaded
Source: Retail Media Network Survey 2022
(N=188)
10. Organisation Overhaul
Source: Franck Laizet, Miriam Lobis, Patrick
Simon, Raphael Speich, “Crafting a fit-for-future
retail operating model”, McKinsey & Company,
May 26, 2021

EXHIBITS
Editor’s note: This report was revised on Dec. 8,2022, to clarify that Norway’s consumer authority
banned use of the Higg Materials Sustainability
Index data in marketing.

Exhibit 1: Industry Outlook
Source: McKinsey Fashion Forecasts; McKinsey
analysis; expert interviews
Exhibit 2: Industry Outlook
Source: McKinsey Fashion Forecasts; McKinsey
analysis; expert interviews
Exhibit 3: Industry Outlook
Source: BoF-McKinsey State of Fashion 2023
Survey, BoF-McKinsey State of Fashion 2022
SurveyExhibit 20: MGFI
Source: McKinsey Global Fashion Index (MGFI)
Exhibit 21: MGFI
Source: McKinsey Global Fashion Index (MGFI)
Exhibit 22: MGFI
Source: McKinsey Global Fashion Index (MGFI)
Exhibit 23: MGFI
Source: McKinsey Global Fashion Index (MGFI)

Exhibit 4: Industry Outlook
Source: BoF-McKinsey State of Fashion 2023
SurveyExhibit 5: Global Fragility
Source: BoF-McKinsey State of Fashion 2023
SurveyExhibit 6: Managing Inflation for Growth
Source: McKinsey & Company US Consumer
Pulse Survey
Exhibit 7: Managing Inflation for Growth
Source: BLS
Exhibit 8: Regional Realities
Source: BoF-McKinsey State of Fashion 2023
SurveyExhibit 9: Two-Track Spending
Source: McKinsey analysis based on Euromonitor
and McKinsey Europe Consumer Pulse Surveys
Exhibit 10: Fluid Fashion
Source: Klarna Insights survey in cooperation
with Dynata
Exhibit 11: Formalwear Reinvented
Source: StyleSage
Exhibit 12: DTC Reckoning
Source: Yahoo Finance and CNBC
Exhibit 13: Tackling Greenwashing
Source: BoF-McKinsey State of Fashion 2023
SurveyExhibit 14: A New Approach to Scaling
Innovative Materials
Source: McKinsey and Global Fashion Agenda,
Fashion on Climate
Exhibit 15: A New Approach to Scaling
Innovative Materials
Source: McKinsey & Company
Exhibit 16: Future-Proofing Manufacturing
Source: BoF-McKinsey State of Fashion 2023
SurveyExhibit 17: Digital Marketing Reloaded
Source: Business Insider
Exhibit 18: Organisation Overhaul
Source: McKinsey & Company Voice of Consumer
Organisations Survey 2022
Exhibit 19: MGFI
Source: McKinsey Global Fashion Index (MGFI)

130

131

END NOTES
1 BoF-McKinsey State of Fashion
2023 Survey
2 BoF-McKinsey State of Fashion
2023 Survey
3 BoF-McKinsey State of Fashion
2023 Survey
4 BoF-McKinsey State of Fashion
2023 Survey
5 BoF-McKinsey State of Fashion
2023 Survey
6 McKinsey Fashion Growth
Forecasts 2023
7 McKinsey Fashion Growth
Forecasts 2023
8 McKinsey Global Institute, as of
October 2023
9 McKinsey Europe Consumer Pulse
Survey, July 2022

The State of Fashion 2023

10 McKinsey Europe Consumer Pulse
Survey, July 2020
11 McKinsey Fashion Growth
Forecasts 2023
12 McKinsey Fashion Growth
Forecasts 2023
13 McKinsey Global Institute, as of
October 2023
14 McKinsey Fashion Growth
Forecasts 2023
15 “Travel Forecast”, US Travel
Association, November 17, 2015,
https://www.ustravel.org/research/travel-forecasts.
16 McKinsey Global Institute, as of
October 2023
17 McKinsey Fashion Growth
Forecasts 2023
18 BoF-McKinsey State of Fashion
2023 Survey
19 “World Economic Outlook
Update July 22, “Gloomy and more
uncertain”, IMF, July, 2022, https://www.imf.org/en/Publications/WEO/
Issues/2022/07/26/world-economicoutlook-update-july-2022
20 Bloomberg Consolidated
GDP Growth Estimates Annual,
Bloomberg Survey, September 28,
2022
21 Bloomberg Consolidated
GDP Growth Estimates Annual,
Bloomberg Survey, September 28,
2022
22 Jongrim Ha et al., “One-stopsource: A global database of inflation”,
World Bank Group, Policy researchworking paper 9737, July 2022
132

23 “Eshe Nelson, “Inflation in Britain
Jumps to 10.1 Percent, Pushed Higher
by Food Prices”, The New YorkTimes, August 17, 2022, https://www.
nytimes.com/2022/08/17/business/
inflation-uk.html
24 “German Inflation Hits 8.5% as
Food Prices Jump,” Financial Times,
July 28, 2022, https://www.ft.com/
content/ee39b164-d6d6-402e-a6afa1b26e918cfe
25 Edgar Meza, Benjamin Wehrmann,
Julian Wettengel, “Germany sets
new gas levy at 2.4 cents, sparking
warnings about rising inflation”,
Clean Energy Wire, August 15, 2022,
https://www.cleanenergywire.org/
news/gas-bills-triple-2023-says-gridagency-boss
26 Amine Mati and Sidra Rehman,“Saudi Arabia to Grow at Fastest
Pace in a Decade”, International
Monetary Fund, August 17 2022,
https//www.imf.org/en/News/
Articles/2022/08/09/CF-SaudiArabia-to-grow-at-fastest-pace
27 “Policy Responses to Covid-19,
Policy Tracker”, IMF, July 2,2022, https://www.imf.org/
en/Topics/imf-and-covid19/
Policy-Responses-to-COVID-19#J
28 Brenda Goh, Roxanne Liu,
“Millions tested in Shanghai as
China grapples COVID resurgence“,
Reuters, July 8, 2022, https://www.reuters.com/world/china/
shanghai-back-alert-china-battlescovid-outbreaks-2022-07-07/
29 Edited, accessed October 18, 2022
30 National statistics agencies; BLS;
Eurostat; McKinsey analysis, inpartnership with Oxford Economics
31 Felix Richter, “Investors predict
US recession in 2023 - here are thefacts”, World Economic Forum, April
12, 2022, https://www.weforum.org/
agenda/2022/04/recession-investorbank-pandemic-united-states/
32 “China’s Interest Rates Leave
Room for Future Action, PBOC
Says,” Bloomberg, September 21,
2022, https://www.bloomberg.
com/news/articles/2022-09-21/
china-s-interest-rates-leave-roomfor-future-action-pboc-says.
33 Josh Mitchell, Harriet Torry,“What Is a Recession and Are We in
One Now?”, The Wall Street Journal,
July 28, 2022, https://www.wsj.com/
articles/what-is-a-recession-and-arewe-in-one-now-11655392738
34 Felix Richter, “Investors predict
US recession in 2023 - here are thefacts”, World Economic Forum,
April 12, 2022, https://www.
weforum.org/agenda/2022/04/

53 “Kering Sales Rise 14% in Third
Quarter but Gucci Lags”, The
Business of Fashion, October 20,
2022, https://www.businessoffashion.
com/news/luxury/kering-sales-rise14-in-third-quarter-but-gucci-lags/

recession-investor-bank-pandemicunited-states/

and weighted to match the US general
population 18+ years

35 “World Bank East Asia and thePacific Economic Update October2022”, World Bank, October 2022,
https://openknowledge.worldbank.
org/bitstream/handle/10986/38053/
FullReport.pdf

44 McKinsey & Company
Europe Consumer Pulse Survey,
6/8–6/12/2022, n = 5,076 (France,
Germany, Italy, Spain, UK), sampled
to match European general
population 18+ years, University ofMichigan, McKinsey analysis

54 Ian Krietzberg, “Ultra-richfueling sales of luxury brands despite
inflation and recession fears”,
CNBC, August 13, 2022, https://www.cnbc.com/2022/08/13/
ultra-rich-still-shopping-for-luxurydespite-inflation-recession-fears.
html

45 McKinsey & Company
Europe Consumer Pulse Survey,
6/8–6/12/2022, n = 5,076 (France,
Germany, Italy, Spain, UK), sampled
to match European general
population 18+ years, University ofMichigan, McKinsey analysis

55 Heidi Karjalainen, Peter Levell,“Inflation hits 9% with poorest
households facing even higher rates”,
May 18, 2022, Institute for Fiscal
Studies, https://ifs.org.uk/news/
inflation-hits-9-poorest-householdsfacing-even-higher-rates

46 Laura He, “China’s Holiday
Spending Plunges to Seven-Year Low
as Zero-Covid Batters Consumer
Confidence | CNN Business,” CNN,
October 10, 2022, https://www.
cnn.com/2022/10/10/economy/china-golden-week-spending-plungecovid-intl-hnk-mic/index.html

56 “Fragile States Index Annual
Report 2022”, Fund for Peace, July
2022, https://fragilestatesindex.org/
wp-content/uploads/2022/07/22FSI-Report-Final.pdf

36 Fergal O’Brien, Farah Elbahrawy,“Euro’s Slide Below Dollar Parity
Brings Little Cheer to Business”,
Bloomberg, August 23, 2022,
https://www.bloomberg.com/
news/articles/2022-08-23/
euro-s-slide-below-dollar-paritybrings-little-cheer-to-business
37 David J. Lynch, Karla Adam,“British pound falls to all-time low
against dollar after taxes slashed”,
The Washington Post, September 26,
2022, https://www.washingtonpost.
com/world/2022/09/26/
uk-gbp-pound-falls-usd-dollar/
38 Laura He, “British pound
plummets to record low against the
dollar”, CNN Business, September
26, 2022, https://edition.cnn.
com/2022/09/25/business/britishpound-drops-record-low-intl-hnk/
index.html
39 Mehr Bedi, “Nike skids afterwarning on squeeze from higher
discounts, stronger dollar”, Reuters,
September 29, 2022, https://www.reuters.com/business/retail-consumer/nike-quarterlyprofit-falls-20-2022-09-29/
40 Martin Wolf, “Why the strengthof the dollar matters”, Financial
Times, https://www.ft.com/
content/daf5c774-fb7f-4ef3-a4bac92e3b373066
41 OECD Economic Outlook
111 Database, June 2022; OECD
Calculations
42 McKinsey analysis based on
University of Michigan data
43 McKinsey & Company COVID-19
US Consumer Pulse Survey,
7/6–7/10/2022, n=4,009; 2/25–
3/1/2022, n=1,064; 10/9–10/15/2021,
n = 2,095; 8/25–8/31/2021, n= 2,004; 2/18–2/22/2021, n =2,076; 11/9–11/13/2020, n = 2,024;
10/23–10/27/2020, n = 2,021; 9/18–
9/24/2020, n = 1,026; 8/19–8/23/2020,n = 2,026; 7/30–8/2/2020, n = 2,024;
7/7–7/12/2020, n = 1,923; 6/15–
6/21/2020, n = 2,006; 6/1–6/7/2020,
n = 1,966; 5/18–5/24/2020, n =1,975; 5/11–5/17/2020, n = 2,002;
5/4–5/10/2020, n = 1,993; 4/27–
5/3/2020, n = 2,105; 4/20–4/26/2020,
n = 1,052; 4/13–4/19/2020, n = 1,052;
4/6–4/12/2020, n = 1,063; 3/30–
4/5/2020, n = 1,484; 3/23–3/29/2020,
n = 1,119; 3/20–3/22/2020, n = 1,073;
3/16–3/17/2020, n = 1,042; sampled

47 Érica Moreti, “Consumers
Unmasked: EPAM Continuum Says…
The Unseen Force Driving Consumer
Behavior”, Epam, August 20, 2021,
https://www.epam.com/insights/
blogs/uncertainty-the-unseen-forcedriving-consumer-behavior
48 BoF–McKinsey State of Fashion
2023 Survey
49 McKinsey & Company COVID-19
US Consumer Pulse Survey,
7/6–7/10/2022, n=4,009; 2/25–
3/1/2022, n=1,064; 10/9–10/15/2021,
n = 2,095; 8/25–8/31/2021, n= 2,004; 2/18–2/22/2021, n =2,076; 11/9–11/13/2020, n = 2,024;
10/23–10/27/2020, n = 2,021; 9/18–
9/24/2020, n = 1,026; 8/19–8/23/2020,n = 2,026; 7/30–8/2/2020, n = 2,024;
7/7–7/12/2020, n = 1,923; 6/15–
6/21/2020, n = 2,006; 6/1–6/7/2020,
n = 1,966; 5/18–5/24/2020, n =1,975; 5/11–5/17/2020, n = 2,002;
5/4–5/10/2020, n = 1,993; 4/27–
5/3/2020, n = 2,105; 4/20–4/26/2020,
n = 1,052; 4/13–4/19/2020, n = 1,052;
4/6–4/12/2020, n = 1,063; 3/30–
4/5/2020, n = 1,484; 3/23–3/29/2020,
n = 1,119; 3/20–3/22/2020, n = 1,073;
3/16–3/17/2020, n = 1,042; sampled
and weighted to match the US general
population 18+ years
50 McKinsey analysis
51 McKinsey Global Fashion Index
2023
52 Trefor Moss, “LVMH Buoyed
by Big Spenders in Europe andU.S. | Louis Vuitton, Tiffany ownerreports rise in sales and profit despite
disruptions in China”, The Wall Street
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57 “Indian workers suffer asheat waves turn factories into
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india-heat-factories-furnace/
58 Simone Preuss, “How climatechange affects the luxury fashionindustry”, FashionUnited, November
16, 2015, https://fashionunited.
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59 Casey Hall, Tamison O’Connor,“China’s Covid Outbreak Prompts
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Disruptions”, The Business of
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china/chinas-covid-outbreakprompts-fears-of-more-supplychain-disruptions/
60 Kari Alldredge, Becca Coggins,
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mckinsey.com/industries/retail/our-insights/navigating-inflation-inretail-six-actions-for-retailers
61 Andreas Behrendt, Axel Karlsson,
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business-functions/operations/our-insights/how-businessoperations-can-respond-to-priceincreases-a-ceo-guide
62 Asutosh Padhi, Sven Smit, Ezra
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our-insights/navigating-inflation-anew-playbook-for-ceos\
63 McKinsey analysis
64 Melissa Repko, “Target expects
squeezed profits from aggressive planto get rid of unwanted inventory”,
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cnbc.com/2022/06/07/targetmarkdowns-plan-to-cut-inventory.
html
65 McKinsey analysis
66 Christian Grube, Sun-You
Park and Jakob Rüden, “Moving
From Cash Preservation To Cash
Excellence For The Next Normal”,
McKinsey & Company, September
29, 2022, https://www.mckinsey.
com/capabilities/strategy-andcorporate-finance/our-insights/
moving-from-cash-preservation-tocash-excellence-for-the-next-normal
67 McKinsey Consumer Pulse
Insights
68 McKinsey Analysis based onGoldman Sachs and Haver Analytics
data
69 Yue Wang, “China’s SecondQuarter GDP Growth Plunges To
Less Than 1% On Covid Hit”, Forbes,
July 15, 2022, https://www.forbes.
com/sites/ywang/2022/07/15/
chinas-second-quarter-gdpgrowth-plunges-to-less-than-1on-covid-hit/#:~:text=China’s%20
economic%20growth%20
slowed%20sharply,from%20
consumption%20to%20real%20
estate.
70 “Press release: Growth continues
at the same pace”, LVMH Corporate
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71 Affinity Solutions credit-card anddebit-card spend data, 2022
72 Karli Alldredge, Tamara Charm,
Eric Falardeau, Kelsea Robinson,“How US consumers are feeling,
shopping, and spending—and what itmeans for companies”, McKinsey &Company, May 4 2022, https://www.
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how-us-consumers-are-feelingshopping-and-spending-and-what-itmeans-for-companies
73 Jeffrey Sonnenfeld and Steven
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74 Georgi Kantchev, “Adidas
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75 Chantal Fernandez, “Moscow
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76 Euromonitor data as of August2022
77 “GDP — China”, The World
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org/indicator/NY.GDP.MKTP.
CD?locations=CN
78 Kevin Yao, “China Q2 GDP growthseen dipping to 1% on COVID hit,
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79 “Countering the Cost of Living
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80 “Fault Lines Widen in the Global
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82 “China’s GDP growth below
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October 24, 2022, https://www.
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83 Tamison O’Connor, “Luxury’s
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84 Jinshan Hong, Yasufumi Saito andAdrian Leung, “How Nationalism
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85 “China’s ‘Mr. Income Distribution’
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86 Edward White and Sun Yu, “China

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87 “China Economic Update June 2022,” The World Bank,
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88 “China’s Ponzi-like Property
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89 Kevin Yao, “China Q2 GDP growthseen dipping to 1% on COVID hit,
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90 “Real GDP long-term forecast”,
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91 Tamison O’Connor, “Luxury’s
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china/luxurys-china-challenge/
92 Zoe Suen, “Where to Invest in
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98 Pierre Mallevays, “Will the Luxury
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101 Maliha Shoaib, “Why Farfetch
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The State of Fashion 2023

102 “Farfetch Annual Report”, 2021,
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103 “Farfetch and Neiman Marcus
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104 Diana Pearl, “From Luxury toHigh Street, All Eyes On the USA”,
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105 Pierre Mallevays, “Will the
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106 Chavie Lieber, “How Luxury
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109 Pierre Mallevays, “Will the
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110 “Japan Economy Recovers
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111 “Korean Economy Joins China
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113 Laure Guilbault, “The Long View
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114 Khanh Linh, “Asia’s Luxury
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115 “Zegna Opens a New FlagshipStore in Ginza”, Zegna Group, March
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116 “Chanel opens ‘Chanel Beauty
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117 Rhonda Richford, “Hermès Sales
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118 BoF-McKinsey State of Fashion
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120 Louise Nichol, “The Real Reason
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121 Louise Nichol, “The Real Reason
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122 “How global companies canmanage geopolitical risk”, McKinsey& Company, July 15, 2021, https://www.mckinsey.com/businessfunctions/risk-and-resilience/
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123 Lisa Lockwood, “Gucci Opens
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124 “Brazil set to make another
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125 “GCC Personal Luxury in 2021: A
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126 McKinsey analysis based on datafrom the European Commission,
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127 McKinsey & Company
US Consumer Pulse Survey,
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sampled to match European general
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128 Robin Pomeroy, Rima Bhatia,
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129 Heidi Karjalainen, Peter Levell,“Inflation hits 9% with poorest
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130 Matteo Ceurvels, “Howmacroeconomic trends will impact

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131 McKinsey analysis based on datafrom the European Commission,
May 2022
132 McKinsey & Company
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133 McKinsey analysis based on datafrom US Bureau of Labor Statistics,
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134 McKinsey & Company US
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135 Jason Douglas, “China’s Economy
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137 “Gen Z consumers are feelingthe pinch. For luxury brands,
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138 “Shoppers Are Cutting Backon Clothing, Forcing US Retailers
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139 McKinsey US Consumer
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140 Anne Freer, “Buy Now, Pay Laterapp installs jump 339% in Europe”,
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141 Edited dashboard as of August
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https://www.thredup.com/
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143 Rachel Wolff, “Discount andoff-price retailers benefit from
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153 Zak Stambor, “LululemonEnters the Fast-Growing Online
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144 Joan Verdon, “Saks Off Fifth
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145 Eva Liang, “零售观察｜当折扣零售业务涨势强劲，时尚产业如果进退有当?”, WWD China, April 21, 2022,
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bba87c91c3391ed9e5d731e04eb490
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146 Lauren Sherman, “Ralph Lauren
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147 Robert Williams, “Jacquemus: A
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148 “2022 Resale Report”, ThredUP,
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149 “Everything you need to know
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150 Zoe Suen, “Luxury resale
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151 Junjie Wang, “Are Chinese
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152 “2022 Resale Report: Who’s
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154 Ezreen Benissan, “Vestiaire
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155 “The Secondary Market
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156 “Farfetch Acquires Luxury
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157 Mitsy White Sidell, “Louis
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158 Sarah Kent, “Luxury’s Big
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159 Angela Gonzalez-Rodriguez,“Online fashion rental market togrow over 10 percent annually”,
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160 “Online Clothing Rental
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161 “Shifting to a Circular Future
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162 “Zalando Launches Care & Repair
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163 Jonathan Eley, “Uniqlo Stepsup Clothing Repair Service,” The
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164 Sarah Butler, “Selfridges
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165 Cathaleen Chen, “How Brands
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166 “Analysis: Price hikes
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167 “Fans React to Harry Styles
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168 Danny Lewis, “Here’s why
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Women’s%20Clothes%20
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169 Caroline Kimeu, “‘People
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170 Helena Lee, “JW Anderson
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171 “A Deep Dive into Fashion
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172 Shepherd Laughlin, “GenZ goes beyond gender binaries
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173 PEW Research Center; Bank ofAmerica; Goldman Sachs; US Census
174 “Data Drop, Wednesday 06.02.21”,
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175 Hyojung Kim, Inho Cho and
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176 Jacob Gallagher, “Birkin Bros:
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177 Dylan Kelly, “Genderless Design
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178 “There’s More At Stake
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180 Marian Park, Zara Hussain, Susie
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182 Obi Anyanwu, “Decoding
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135

183 Alice Newbold, “Chindrenswear
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184 Rachel Lubitz, “The Phluid
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185 Uniqlo, https://www.uniqlo.com/
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186 Depop (app)
187 Romy Deridder, “Uniqlo andMarni Worked Together on a
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The State of Fashion 2023

188 Jennifer Robertson, “Exploring
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189 “Forget Fitted, Loose Unisex
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190 Kait Bolongaro, “How millennials
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191 Nia Warfield, “Men area multibillion dollar growth
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192 “Calvin Klein and Palace
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193 Douglass Greenwood, “How
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194 Derrick Clifton,”50% of Gen Zers
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197 Lauren Thomas, “Lines between
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198 Shepherd Laughlin, “GenZ goes beyond gender binaries
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199 Vanessa Friedman, “Jaden Smith
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200 Anna Braz, “How TikTok drives
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201 Jian Deleon, “Inside the
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202 Josh Sims, “Fix Up, Look
Sharp: The New Rules Of Formal
Dressing”, Ape to Gentleman,https://www.apetogentleman.com/
formal-attire-rules/; Pilita Clark,“The worry of what to wear towork is shifting”, Financial Times,
March 13, 2022, https://www.
ft.com/content/ebb02781-8817417c-af0a-21379b8606f9; Isabel
Berwick, Robert Armstrong, Adam
Galinsky, Audio transcript, “Howthe pandemic has changed what
we wear to work”, Financial Times,
June 15, 2022, https://www.ft.com/
content/3050bad4-fa8d-43efb814-b4833317ef8f; “The pandemic
has refashioned corporate dress
codes”, The Economist, September
11, 2021, https://www.economist.
com/business/2021/09/11/
the-pandemic-has-refashionedcorporate-dress-codes; “Italianmenswear industry recovers
as dress codes blur”, Fashion
United, June 23, 2022, https://
fashionunited.uk/news/fairs/
italian-menswear-industry-recoversas-dress-codes-blur/2022062363767;
Viktoria Herrman, “The Rise ofWorkleisure”, StyleSage, May,
2022, https://stylesage.co/blog/
the-rise-of-workleisure/203 Sapna Maheshwari, “The Office
Beckons. Time for Your Sharpest‘Power Casual”, The New YorkTimes, August 29, 2022, https://www.
nytimes.com/2022/04/29/business/casual-workwear-clothes-office.html
204 Euromonitor International,
October 2022
205 McKinsey analysis based on datafrom the European Commission,
May 2022; McKinsey analysis
based on data from University ofMichigan, May 2022; McKinsey &Company US Consumer Pulse Survey,
7/6–7/10/2022, n = 4,009 sampled andweighted to match the US general
population 18+ years; McKinsey &Company Europe Consumer Pulse
Survey, 6/8–6/12/2022, n = 5,076(France, Germany, Italy, Spain, UK),
sampled to match European general
population 18+ years
206 John Duka, “Recession Changing
Habits”, The New York Times, August
18, 1982, https://www.nytimes.
com/1982/08/18/style/recessionchanging-clothes-buying-habits.html
207 “Goldman Sachs Relaxes Dress
Code for All Employees”, BBC News,
March 6, 2019, https://www.bbc.
co.uk/news/business-47464681
208 “Goldman Sachs Relaxes Dress
Code for All Employees - BBC
News,” BBC News, March 6, 2019,https://www.bbc.co.uk/news/
business-47464681
209 Amy Shoenthal, “M.M.LaFleur’s
Co-Founders On The Future Of
Women’s Workwear”, Forbes, March
9, 2022, https://www.forbes.com/
sites/amyshoenthal/2022/03/09/
mmlafleurs-co-founderson-the-future-of-womensworkwear/?sh=1771e56428b3
210 Sapna Maheshwari, “The Office
Beckons. Time for Your Sharpest‘Power Casual”, The New York Times,
April 29 2022, https://www.nytimes.
com/2022/04/29/business/casualworkwear-clothes-office.html
211 “Press Release: (Reset) What
Makes a Man FW21 Campaign”,
Zegna Corporate Website, 2021,
https://pressroom.zegna.com/resetwhat-makes-a-manfw21-campaign/
212 “Canali looks to Italian Riviera
for spring ’23 collection”, The
Fashionisto, July 11, 2022, https://www.thefashionisto.com/collection/
canali-spring-2023-lookbook/
213 Google Trends as of September
2022
214 Jacob Gallagher, “Is theDress Shirt Dead?”, The WallStreet Journal, April 7, 2022,
https://www.wsj.com/articles/
dress-shirt-dead-11649353836
215 Larry Elliott, “Men’s suit removed
from UK ‘inflation basket’ as Covidchanges working life”, The Guardian,

March 14 2022, https://www.
theguardian.com/business/2022/
mar/14/mens-suit-uk-inflationbasket-covid-changes-ons
216 Daphne Howland, “Hugo Bossshifts gears with major rebranding”,
Retail Dive, January 26, 2022,
https://www.retaildive.com/news/
hugo-boss-shifts-gears-with-majorrebranding/617757/
217 Edited data comparing
September 2018 to September 2019
and September 2021 to September
2022
218 Sian Powell, “The suit is notdead but it’s getting more casual,
say tailors amid comfort wear’s
rise and the demise of Brooks
Brothers”, South China Morning
Post, July 29, 2021,https://www.
scmp.com/lifestyle/fashion-beauty/
article/3142661/suit- not-dead-itsgetting-more-casual-say-tailors-amid
219 Katie Linsell, “Savile Row Fights
to Stay Relevant as Suits Fall Out
of Fashion”, Bloomberg, August
6, 2022, https://www.bloomberg.
com/news/articles/2022-08-06/
savile-row-fights-to-stay-relevant-assuits-fall-out-of-fashion
220 Vic Chiang & Christian Shepherd,“In China, Civil Servant Chic is the
New Look for Straightened Times”,
The Washington Post, August 15,
2022, https://www.washingtonpost.
com/world/2022/08/15/chinafashion-trend-cadre-style-economy/
221 Lily Templeton, “Exclusive:
Elie Saab Launches Couture
for Men as Post-pandemic
Growth Accelerates”, WWD,
July 6, 2022, https://wwd.com/
business-news/business-features/
elie-saab-couture-men-fall-2022post-pandemic-growth-retailacceleration-1235242631/
222 Daniel-Yaw Miller, “TheUnlikely Return of Bespoke Suiting
Explained”, The Business of Fashion,
October 14, 2022, https://www.
businessoffashion.com/articles/
retail/the-unlikely-return-ofbespoke-suiting-explained/
223 StyleSage Insights based on 400
retailers’ listings in the US
224 StyleSage Footwear Report 2022,
https://stylesage.co/intelligence/
225 Sandra Salibian, Miles Socha,“Luxury footwear is standing tall”,
August 31, 2022, https://wwd.
com/accessories-news/footwear/
high-heels-luxury-shoes-footwearbusiness-outlook-1235293595/
226 Shannon Adducci, “How Amina
Muaddi Built a $55M Biz in Just FourYears — and Rewrote the Luxury
Footwear Playbook”, Footwear
News, September 12, 2022, https://footwearnews.com/2022/fashion/
designers/amina-muaddi-footwearnews-cover-interview-1203334693/

227 Gabriele Dirvanauskas,“High-performing product: Asos’s
top five bestsellers”, Drapers,
January 13, 2022, https://www.
drapersonline.com/news/
what-are-asos-best-sellers?tkn=1
228 Tiffany Ap, “Yes, Abercrombie
is back and its new look involves a
lot of going out dresses”, Quartz,
July 28, 2022, https://qz.com/
yes-abercrombie-is-back-and-itsnew-look-involves-a-lo-1849338697
229 “Online Clothing Rental
Market Size to Grow by USD 3.00
Bn| 44% of the growth to originate
from APAC”, Cision PR Newswire,
April 25, 2022, https://www.
prnewswire.com/news-releases/
online-clothing-rental-market-sizeto-grow-by-usd-3-00-bn-44-of-thegrowth-to-originate-from-apactechnavio-301531008.html
230 Kantar Profiles/Mintel June
2022 survey, n= 2,000 internet users
aged 16+
231 Forrester data as of September
2022
232 China’s National Bureau of
Statistics
233 Lauren Indvik, “Fashion’s‘Disrupters’ Aren’t so Disruptive
after All,” Financial Times, August23, 2022, https://www.ft.com/
content/616421f0-6946-485a-aca4e9a2a522af25
234 “Allbirds IPO: Digital
Sales Accounts for 89% of
Net Revenue”, May 11 2021,
Swaylytics, https://swaylytics.com/
allbirds-ipo-digital-sales-accountsfor-89-of-net-revenue/
235 Lauren Sherman, “Téthys
Joins General Atlantic to Back
DTC Brand Sézane”, The Businessof Fashion, September 2, 2022,
https://www.businessoffashion.
com/articles/entrepreneurship/
sezane-investment-tethysbettencourt-meyers-familymorgane-morgane-sezalory/
236 “How e-commerce share of
retail soared across the globe: A
look at eight countries”, McKinsey& Company, March 5, 2021,
https://www.mckinsey.com/
featured-insights/coronavirusleading-through-the-crisis/
charting-the-path-to-the-next-normal/
how-e-commerce-share-of-retailsoared-across-the-globe-a-look-ateight-countries
237 “Debenhams Set to Shut
Shop after 242 Years as Pandemic
Hammers UK Retail,” Reuters,
December 1, 2020, https://www.
reuters.com/article/uk-debenhamsliquidation-idUSKBN28B4DM
238 “These Traditional Brands Are
Shifting to a DTC Model. Here’s
How.,” Retail Dive, October 28,
2022, https://www.retaildive.com/

news/these-traditional-brandsare-shifting-to-a-dtc-model-hereshow/607646/
239 Alex Kantrowitz, “The Direct-toConsumer Craze Is Slamming into
Reality,” CNBC, October 28, 2022,
https://www.cnbc.com/2022/03/14/
the-direct-to-consumer-craze-isslamming-into-reality.html
240 Lauren Thomas, “Allbirds
to start selling its shoes in selectNordstrom department stores”,
CNBC, May 24, 2022, https://www.cnbc.com/2022/05/24/
allbirds-to-sell-its-sneakers-inselect-nordstrom-department-stores.
html
241 “Direct-to-Consumer Brands
Become Platforms,” December
2, 2021, Pymnts, https://www.
pymnts.com/news/retail/2021/
direct-to-consumer-brands-becomeplatforms-as-they-expand-beyondcore-products/
242 “’Tis the Stressful Season for
Holiday Gift Returns”, CBRE,
December 16, 2021,https://www.
cbre.com/insights/viewpoints/
reverse-logistics-tis-the-stressfulseason-for-holiday-gift-returns
243 Danielle Inman, “Retail
Returns Increased to $761 Billion
in 2021 as a Result of Overall Sales
Growth”, National Retail Federation,
January 25, 2022, https://nrf.com/
media-center/press-releases/
retail-returns-increased-761-billion2021-result-overall-sales-growth
244 Rachel Deeley, “Is This the
Beginning of the End for Free
Returns?”, The Business of Fashion,
May 20 2022, https://www.
businessoffashion.com/briefings/
retail/is-this-the-beginning-of-theend-for-free-returns/
245 Cathaleen Chen, “Why the
Retail Renaissance Can’t Last
Forever”, The Business of Fashion,
September 14, 2022, https://www.
businessoffashion.com/articles/
retail/retail-renaissance-brick-andmortar-boom/
246 Cathaleen Chen, “Why the
Retail Renaissance Can’t Last
Forever”, The Business of Fashion,
September 14, 2022, https://www.
businessoffashion.com/articles/
retail/retail-renaissance-brick-andmortar-boom/
247 Cathaleen Chen, “Why the
Retail Renaissance Can’t Last
Forever”, The Business of Fashion,
September 14, 2022, https://www.
businessoffashion.com/articles/
retail/retail-renaissance-brick-andmortar-boom/
248 “U.S. Real Estate Market Outlook2022”, CBRE, 2022, https://www.
cbre.co.uk/insights/books/us-realestate-market-outlook-2022/
retail249 Lauren Thomas, “Why Digital
Retail Darlings Warby Parker andAllbirds Are Betting Big on Stores toGrow Ahead of Public Debuts,” CNBC,
September 17, 2021, https://www.
cnbc.com/2021/09/17/why-digitalwarby-parker-allbirds-are-bettingon-stores-before-public-debuts.html
250 Abha Bhattarai, “Everlane Is
Opening Its First Stores, after Yearsof Swearing It Wouldn’t,” Washington
Post, November 26, 2017, https://www.washingtonpost.com/business/
economy/everlane-is-opening-itsfirst-stores-after-years-of-swearingit-wouldnt/2017/11/22/32e7d142c9ba-11e7-b0cf-7689a9f2d84e_story.
html
251 “Stores,” Everlane, accessed
October 3, 2022, https://www.
everlane.com/stores
252 Sarah Kent, “Beyond Disruption:
Everlane’s Next Chapter,” TheBusiness of Fashion, May 3, 2021,2,
https://www.businessoffashion.com/
articles/retail/beyond-disruptioneverlanes-next-chapter/
253 BoF interview with Tim Brown,
September 2022
254 Lauren Indvik, “Fashion’s‘Disrupters’ Aren’t so Disruptive
after All,” The Financial Times,
August 23, 2022, https://www.ft.com/
content/616421f0-6946-485a-aca4e9a2a522af25
255 “Drapers investigates:
retail property – the new rulesof engagement”, August 15,
2022, Drapers, https://www.
drapersonline.com/insight/
drapers-investigates-retail-propertythe-new-rules-of-engagement
256 “Retail vacancy rates in the
United States from 2019 to 2021 andforecast for 2022”, Statista, August30, 2022, https://www.statista.com/
statistics/194102/us-retail-vacancyrate-forecasts-from-2010/
257 Cathaleen Chen, “Why the
Retail Renaissance Can’t Last
Forever,” The Business of Fashion,
October 14, 2022, https://www.
businessoffashion.com/articles/
retail/retail-renaissance-brick-andmortar-boom/
258 Cathaleen Chen, “Why the
Retail Renaissance Can’t Last
Forever”, The Business of Fashion,
September 14, 2022, https://www.
businessoffashion.com/articles/
retail/retail-renaissance-brick-andmortar-boom/
259 “State of Fashion Technology
Report 2022”, McKinsey & Company,
May 2, 2022, https://www.mckinsey.
com/industries/retail/our-insights/
state-of-fashion-technologyreport-2022
260 Kaarin Vembar, “Amazon
opens second Style fashion store”,
Retail Dive, October 19, 2022,

https://www.retaildive.com/news/
amazon-style-opens-second-fashionretail-store-ohio-los-angeles/634381/
261 “How e-commerce share of
retail soared across the globe: A
look at eight countries”, McKinsey& Company, March 5, 2021,
https://www.mckinsey.com/
featured-insights/coronavirusleading-through-the-crisis/
charting-the-path-to-the-next-normal/
how-e-commerce-share-of-retailsoared-across-the-globe-a-look-ateight-countries
262 Robert Williams, “Chanel
to Open Private Stores for Top
Clients as Sales Soar 50%”, The
Business of Fashion, May 24, 2022,
https://www.businessoffashion.
com/articles/luxury/
exclusive-chanel-to-open-dedicatedstores-for-top-clients-as-sales-soar/
263 Tamison O’Connor, “Inside
Ganni’s Modern Approach to
Old-School Retail,” The Business of
Fashion, April 12, 2021, https://www.
businessoffashion.com/articles/
retail/inside-gannis-modernapproach-to-old-school-retail/264 Cathaleen Chen, “How to
Navigate the Return of Wholesale”,
The Business of Fashion, June 21,2022, https://www.businessoffashion.
com/articles/retail/wholesale-strategy-fashion-brands/
265 “What will Glossier look likeafter a makeover with Sephora?”,Retail Wire, August 1, 2022,
https://retailwire.com/discussion/
what-will-glossier-look-like-after-amakeover-with-sephora/
266 Daniel-Yaw Miller, “How Puma
Became a Rare Wholesale SuccessStory”, The Business of Fashion,
April 28, 2022, https://www.
businessoffashion.com/articles/
retail/how-puma-became-a-rarewholesale-success-story/
267 Robert Williams, “Is Jacquemus
Ready for Retail?”, The Businessof Fashion, September 7, 2022,
https://www.businessoffashion.
com/articles/luxury/
is-jacquemus-ready-for-retail/268 “McKinsey China Luxury report2019”, McKinsey & Company, April 1,
2019, https://www.mckinsey.com/~/
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chinese%20consumers%20are%20
reshaping%20global%20luxury/
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269 “11 DTC Brands Opening
Physical Retail Stores in 2021 (AndWhy)”, Shopify, May 13, 2021,
https://www.shopify.com/retail/dtc-to-brick-and-mortar
270 “EU Strategy for Sustainable
and Circular Textiles”, European

137

Union, March 30 2022, https://
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TXT/?uri=CELEX%3A52022DC0141
271 “Asos, Boohoo Targeted in UK
Greenwashing Probe”, The Businessof Fashion, July 29 2022, https://www.businessoffashion.com/
news/sustainability/asos-boohootargeted-in-uk-greenwashing-probe/;“UK Regulators Crack Down on‘Greenwashing’”, The National
Law Review, August 15 2022,
https://www.natlawreview.com/
article/uk-regulators-crack-downgreenwashing
272 Zoe Hu, “Asos removes‘Responsible Edit’ in response to
CMA’s probe”, August 30 2022,
https://www.drapersonline.com/
news/asos-removes-responsibleedit-amid-greenwashing-probe

The State of Fashion 2023

273 “French Parliament passes law
to apply ‘carbon labels’ to garments”,
Fiber 2 Fashion, July 28 2021, https://www.fibre2fashion.com/news/
apparel-news/french-parliamentpasses-law-to-apply-carbon-labelsto-garments-275434-newsdetails.
htm
274 “5 Natural Disasters That
Beg For Climate Action | Oxfam
International”, Oxfam International,
2022, https://www.oxfam.org/en/5natural-disasters-beg-climate-action
275 “‘Unprecedented’ Wildfires Torch
Record Area Of EU Land To Date”,
Sky News, August 17 2022, https://
news.sky.com/story/unprecedentedwildfires-torch-record-area-of-euland-to-date-12675096
276 “India suffered more than 200
heatwave days in 2022 comparedto just 36 last year”, July 29
2022, https://www.independent.
co.uk/climate-change/news/
india-heatwave-days-2022comparison-b2133845.html
277 “How ESG Investors Are Making
Sustainable Fashion On Trend”,
Investment Week, 2022, https://www.investmentweek.co.uk/
opinion/4055103/esg-investorssustainable-fashion-trend
278 McKinsey UK Sustainability
Survey, October 2021 (n=889)
279 McKinsey California Survey,
Month Year (N=)
280 “94% Indian Consumers
Willing To Pay Brands More For
Ethical Products”, Fibre2fashion.
Com, October 12 2021, https://www.
fibre2fashion.com/news/textilenews/94-indian-consumers-willingto-pay-brands-more-for-ethicalproducts-276809-newsdetails.htm
281 “New Report Finds China andIndia’s Gen Z Is More SustainableThan UK and US Young Consumers”,
February 7 2022, https://www.
greenqueen.com.hk/gen-zsustainable-shoppers-china-india/
138

282 “The BoF Sustainability
Index 2022”, The Business of
Fashion, May 2022, https://shop.
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283 “Sustainable fashion
still a confusing concept for
consumers – survey”, Inquirer.
net, May 31 2021, https://business.inquirer.net/323898/
sustainable-fashion-still-a-confusingconcept-for-consumers-survey
284 Jasmin Malik Chua, “Consumers
are confused about what ethicalfashion really means”, Sourcing
Journal, December 3 2020, https://sourcingjournal.com/sustainability/
sustainability-news/ethical-fashionmodern-slavery-australia-oxfamgarment-worker-wages-248051/
285 “Sustainable fashion
still a confusing concept for
consumers – survey”, Inquirer.
net, May 31 2021, https://business.inquirer.net/323898/
sustainable-fashion-still-a-confusingconcept-for-consumers-survey
286 “What Chinese Consumers
Really Think About
Sustainability”, Jing Daily, July
5 2022, https://jingdaily.com/
chinese-consumers-sustainability/
287 Sarah Kent, “‘Vegan Leather’ or
Plastic? A Materials Marketing Battle
Heats Up”, The Business of Fashion,
September 13, 2022, https://www.
businessoffashion.com/articles/
sustainability/vegan-leather-plasticwool-animal-rights-sustainabilityethics-fashion-branding-marketing/
288 Rachel Deeley and Yola Mzizi,“Patagonia’s Radical New Ownership
Structure, Explained”, September
14 2022, The Business of Fashion,
https://www.businessoffashion.
com/articles/sustainability/
patagonia-gives-company-awayclimate-change/
289 “Patagonia doesn’t use the word‘sustainable.’ Here’s why”, Fortune,
November 2 2021, https://fortune.
com/2021/11/02/patagonia-doesntuse-the-word-sustainable-cop26/
290 “Brands Are Claiming
That They Are Not Sustainable.
Here’s Why That’s A Good
Thing”, Refinery 29, April 23
2021, https://www.refinery29.
com/en-us/2021/04/10433427/
fashion-brands-claim-notsustainable-transparency-ganni-noah
291 “Unpacking the myths aboutsustainable fashion”, The Australian,
February 18 2022, https://www.
theaustralian.com.au/business/the-deal-magazine/unpacking-themyths-about-sustainable-fashion/
news-story/0c17313fd1c11590817f1c
c7c1bb9d8b292 “The controversial way fashion
brands gauge sustainability is

being suspended”, Quartz, July 20
2022, https://qz.com/2180322/
the-controversial-higg-sustainabilityindex-is-being-suspended/
293 “How Fashion Giants Recast
Plastic as Good for the Planet”,
The New York Times, June 122022, https://www.nytimes.
com/2022/06/12/climate/veganleather-synthetics-fashion-industry.
html?searchResultPosition=1
294 Melissa Daniels, “Unpacked:
How the Higg Index, fashion’s
leading sustainability tool, cameunder fire”, Modern Retail, August
1 2022, https://www.modernretail.
co/operations/unpacked-howthe-higg-index-fashions-leadingsustainability-tool-came-under-fire/
295 ISSB delivers proposals thatcreate comprehensive global baselineof sustainability disclosures”, IFRS,March 31 2022, https://www.ifrs.org/
news-and-events/news/2022/03/
issb-delivers-proposals-that-createcomprehensive-global-baseline-ofsustainability-disclosures/
296 Sarah Kent, “Measuring
Fashion’s Sustainability Gap”, The
Business of Fashion, March 22 2021,
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com/reports/sustainability/
measuring-fashions-sustainabilitygap-download-the-report-now/
297 “ISSB delivers proposals thatcreate comprehensive global baselineof sustainability disclosures”, IFRS,March 31 2022, https://www.ifrs.org/
news-and-events/news/2022/03/
issb-delivers-proposals-that-createcomprehensive-global-baseline-ofsustainability-disclosures/
298 “The EcoBeautyScore
Consortium is now live with 50
industry players in a breakthroughinitiative to enable more sustainableconsumer choices”, L’Oreal, February
22, 2022, https://www.loreal.com/
en/press-release/commitments/
ecobeautyscore-consortium/
299 Melissa Daniels, “Unpacked:
How the Higg Index, fashion’s
leading sustainability tool, cameunder fire”, Modern Retail, August
1, 2022, https://www.modernretail.
co/operations/unpacked-howthe-higg-index-fashions-leadingsustainability-tool-came-under-fire/
300 “Transparency”, Asket, https://www.asket.com/us/transparency
301 “Kering Adopts ‘Greenwashing’
Guide Amid Rising Scrutiny OverSustainability Claims”, The Fashion
Law, October 4, 2022, https://www.
thefashionlaw.com/kering-adoptsgreenwashing-guide-to-aid-brandsin-making-sustainability-claims/
302 Sarah Kent, “Shein Joins Fast
Fashion’s Push Into Resale”, The
Business of Fashion, October 17, 2022,
https://www.businessoffashion.com/

articles/retail/shein-resale-fastfashion-sustainability-poshmarksecondhand/
303 Sophie Benson, “Fast Fashion
Brands Launching Resale Platforms:
Circular or Cynical?”, Good On You,
August 2, 2022, https://goodonyou.
eco/fast-fashion-resale/
304 “Fashion on climate”, Global
Fashion Agenda and McKinsey, 2020
305 Textile Exchange
306 “Scaling textile recycling inEurope – turning waste into value”,
McKinsey & Co, July 14, 2022
307 “Scaling textile recycling inEurope – turning waste into value”,
McKinsey & Co, July 14, 2022
308 Material production steps
account for 38% of CO2e emissions,
Fashion on Climate, Global Fashion
Agenda and McKinsey, 2020
309 “Closing the loop: increasing
fashion circularity in California,”
McKinsey, 2022
310 McKinsey analysis
311 “Preferred Fiber & Materials
Market Report”, Textile
Exchange, October 2022, https://
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uploads/2022/10/Textile-Exchange_
PFMR_2022.pdf
312 Textile Exchange 2020
313 “Circular fashion supply chain,”
Ida Marie Sandvik, May 21, 2019314 “Scaling textile recycling inEurope – turning waste into value”,
McKinsey & Co, July 14, 2022
315 “Worn Again Technologies
secures new investment tobuild ground-breaking textile
recycling facility”, October 7,
2022, https://wornagain.co.uk/
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medium=rss&utm_campaign=wornagain-technologies-secures-newinvestment-to-build-groundbreaking-textile-recycling-facility
316 “Natural Fiber Welding provides
Mirum”, Bioeconomy in Industry
Intelligence Inc., August 8, 2022,
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317 Galy, https://recruit.galy.co/

318 “EU strategy for sustainable
and circular textiles”, European
Commission, https://environment.
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319 “Closing the loop: Increasing
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327 Brett Matthews, “Pakistan floods
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328 BoF–McKinsey State of Fashion
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329 McKinsey Apparel CPO Survey
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330 McKinsey & Co. CPG Apparelnetwork model and analysis (June2022)
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334 Elizabeth Harris, “Workout
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344 BoF-McKinsey State of Fashion
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335 Jess Ratty, “Inditex Signs a
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339 Benjamin Fitzgerald, “Fendi
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345 McKinsey Apparel CPO Survey
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346 McKinsey Apparel CPO Survey
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347 Siddharth Cavale and Corina
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349 Arthur Zaczkiewicz, “AsSustainability Efforts Increase,
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351 McKinsey analysis based on datafrom the United Nations, the WorldBank and the World Economic Forum

340 “Chanel Buys Stake in Italian
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352 McKinsey analysis based on datafrom the United Nations, the WorldBank and the World Economic Forum

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353 McKinsey Fashion on Climate
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355 McKinsey Apparel CPO Survey
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356 Cecilia Li, “Alibaba’s C2M
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358 IFR World Robotics, McKinsey
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359 “Bankrupt Sri Lanka’s inflation
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364 Lauren Johnson, “Marketers
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367 Werner Geyser, “The Stateof Influencer Marketing 2021:
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372 “Zalando acquires majority stakein Highsnobiety, bringing together
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373 Robert Williams, “What Will
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374 “Commerce Media: The New
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375 “Commerce Media: The New
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376 “Roblox Reports August2022 Key Metrics”, August 2022,
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377 “Campaign of the Week:
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378 “Adidas Reveals New NFT
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381 “Bracketing: Fashion’s Hidden
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382 “Winning in Loyalty”,
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383 “Commerce Media: The New
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384 Cathaleen Chen, “Building
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385 “A Better Way to Builda Brand: The Community
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386 “A Better Way to Builda Brand: The Community
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387 Marc Bain, “How Brands Are
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388 Alex Kantrowitz, “The directto-consumer craze is slamming into
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389 Chavie Lieber, “What Fashion
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390 Aaron De Smet, Bonnie Dowling,
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hiring harder. Are you searching theright talent pools?”, McKinsey &Company, July 13, 2022, https://www.
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391 Aaron De Smet, Bonnie Dowling,
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399 Anna Behrmann, “Drapers
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400 Sheena Butler-Young, “A Guide
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392 “The State of Fashion 2022”, The
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401 Sarah Kent, “How Sustainability
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393 Sheena Butler-Young, “CanFashion Compete with Tech for
Executive Talent?”, The Businessof Fashion, September 2, 2021,
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402 Sarah Kent, “How Sustainability
Became a Path to Fashion’s
C-Suite”, The Business of
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394 Sheena Butler-Young, “ThePost-Pandemic CEO Shakeup”, The
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403 George MacDonald,“Profile: Michelle McEttrick, themarketing mastermind powering
Primark’s digital future”, RetailWeek, August 23, 2022, https://www.retail-week.com/people/
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395 David Fuller, Bryan Logan,
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frontline talent amid the Great
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396 David Fuller, Bryan Logan,
Pollo Suarez, Aneliya Valkova, “Howretailers can attract and retain
frontline talent amid the Great
Attrition”, McKinsey & Company,
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397 Sheena Butler-Young, “AreFashion Companies Holding Firm
on Diversity Commitments?”,
The Business of Fashion,
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398 Caroline Wadham, “Fashion CEO
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404 Sarah Kent, “How Sustainability
Became a Path to Fashion’s
C-Suite”, The Business of
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articles/workplace-talent/
how-sustainability-became-a-pathto-fashions-c-suite/
405 Sheena Butler-Young, “A Guide
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February 3, 2022, https://www.
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406 Barbara Santamaria, “Pumacreates chief sourcing officer role”,
Fashion Network, January 29, 2019,https://ie.fashionnetwork.com/
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407 Dominique Muret, “Isabel
Marant: Bruno Alazard named
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408 Jessie Dowd, “LVMH to Name
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409 Jeffrey Davis, “Under Armour
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410 Dylan Kelly, “Moncler
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411 Huw Hughes, “NewLook appoints first chief
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412 McKinsey 2022 Voice ofConsumer Organizations Survey,
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413 McKinsey 2022 Voice ofConsumer Organizations Survey,
North America, (n =1,470)
414 “Our Partners”, World Economic
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415 “Marie-Claire Daveu”,
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416 BoF-McKinsey State of Fashion
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417 Franck Laizet, Miriam Lobis,
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418 “Zalando Sustainability
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419 Michael T. Nietzel, “Macy’sWill Pay For Its Employees’ College
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420 Adrine Williams, “How Amazon’s
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global-luxury-success/421 Franck Laizet, Miriam Lobis,
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439 McKinsey analysis and expert
interviews

422 McKinsey MGFI analysis
423 McKinsey MGFI analysis
424 McKinsey analysis and expert
interviews
425 McKinsey MGFI analysis
426 McKinsey MGFI analysis
427 McKinsey MGFI analysis
428 McKinsey MGFI analysis
429 McKinsey MGFI analysis
430 BoF – McKinsey State of Fashion
2023 survey
431 “Growth continues at thesame pace”, LVMH, October 11,
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432 “Hermès Sales Jump 24.3% in
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433 “Slower recovery in greater
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434 “Fashion Startup Shein Raising
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435 BoF–McKinsey State of Fashion
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436 “Why Hermès Makes It
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438 McKinsey analysis and expert
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440 “The Pivot to E-Concessions
Is Reshaping Online Luxury”, The
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441 “From Net-a-Porter to Saks, themarketplace model is taking overfashion”, Vogue Business, June 14,
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442 McKinsey analysis and expert
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443 “The Pivot to E-Concessions
Is Reshaping Online Luxury”, The
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444 McKinsey analysis and expert
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445 “What’s next for Kering?”,
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446 “Prada Q4 2021 Results
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447 “Mytheresa’s New Model for
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448 McKinsey analysis based on
public companies’ channels reporting
449 McKinsey 2023 State of Luxury
Channel Model, based on publicly
available companies’ financials
450 McKinsey 2023 State of Luxury
Channel Model, based on publicly
available companies’ financials
451 McKinsey 2023 State of Luxury
Channel Model, based on publicly
available companies’ financials
452 McKinsey 2023 State of Luxury
Channel Model, based on publicly
available companies’ financials

437 “Hermès – The Strategy Insights
Behind The Iconic Luxury Brand”
Martin Roll, https://martinroll.
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hermes-the-strategy-behind-the141

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