Global fashion in 2020: The rise of Asia, a focus on resilience, and the pursuit of sustainability

During the holiday break, I had the chance to read through The State of Fashion 2020 report, coauthored by my colleague Achim Berg and by Imran Amed, founder and CEO of the Business of Fashion (BoF). This is the fourth year in a row that the Business of Fashion and McKinsey have joined hands to provide an authoritative picture of the global fashion industry.

The year 2019 was not easy for business leaders worldwide, and not just in fashion. Digital disruptions, economic headwinds, shock events, and trade disputes inevitably shaped business leaders’ daily decision making. Given that 2020 is not expected to be easier, making sense of the noise to find exciting hidden opportunities has become more pressing than ever. Through an in-depth survey with nearly 200 global fashion executives and interviews with thought leaders and pioneers, the State of Fashion 2020 report reveals how fashion’s winners are navigating the choppy waters—with lessons that apply to a host of other industries as well. 

China and Asia: local supply driven by exceptional demand

The fact that China and Asia are manufacturing a lot of apparel is hardly news. But the chief reason for the region’s continued leadership has changed, much as it has in other sectors: more and more of what these countries produce are for their own markets. Over the past 10 years, China accounted for 38 percent of global fashion-industry growth across segments. In the luxury segment alone, China’s spending will nearly double between now and 2025, propelled by an explosion in upper-middle-class households, which continue to purchase in luxury categories even as growth in China’s economy has eased.

Accordingly, China’s colossal market will continue to present exceptional opportunities. But it also makes sense to direct some attention to other high-growth markets in Asia. India’s clothing market will be worth $53.7 billion in 2020, making it the sixth largest globally. Across Southeast Asia, the median age is just 29, against 37 in China, highlighting the potential for growth as large numbers of young people enter the workforce each year.

These sorts of conclusions reflect Asia’s increasingly complementary diversity, as I discussed a bit more deeply in a previous article outlining Asia’s distinct subregions. Fashion brands and manufacturers will need to develop a more integrated view of the continent, understanding the nuances in each country while also exploring a regional approach to establish a toehold and benefit from newer economies of scale.

Asia going global: a challenge for products and value chains

Asian apparel manufacturers have been in competition with Western brands for decades but now the field of combat has expanded. As operational capabilities advance across Asia, empowered by the rise of cross-border e-commerce platforms, more Asian manufacturers and SMEs will be able to export their goods easily and affordably—and directly to consumers. In fact, some ambitious Asian brands are already tasting an important victory. In the last three years, the share of Chinese sellers with more than $1 million of revenues on Amazon rose from 23 percent to 45 percent, and we see the same pattern playing out in fashion.

Chinese e-commerce players aren’t the only ones with international ambitions. Looking ahead, we expect to see an acceleration of cross-border e-commerce from other Asian players as new platforms continue to emerge and expand beyond China. To stay ahead of the game, established international brands need to think more strategically on how to strengthen and differentiate their products and value chains, expand online reach, and become more competitive both in operations and pricing.

Operations-resilience playbook to prepare for uncertainty

The global economy is under pressure, with geopolitical instability complicating the outlook for the global fashion industry in 2020. In the report’s annual executive survey (Exhibit), 55 percent of respondents said they expect conditions for the industry to worsen in the next year, up considerably from 42 percent last year. Even in Asia, the most optimistic region, only 14 percent of executives expect an improvement in conditions. More than half of the fashion executives report feeling that they do not sufficiently understand Generation Z—now the world’s largest customer cohort.

With the uncertainty ahead, fashion companies should set the right pace to become more resilient in 2020. McKinsey’s analysis of companies that outperformed their peers during the last downturn showed that they made moves early and focused on earnings over revenue. By the time the downturn reached its 2009 trough, the EBITDA of these resilient players had risen by 10 percent, while their industry peers had lost nearly 15 percent.

To be more forward-looking, fashion players should develop a resilience playbook. That means undertaking a holistic reevaluation of their supply-chain and sourcing footprints to pinpoint the greatest vulnerabilities exposed to disruption—while also incorporating a clear approach to digitization and a sharp focus on financial flexibility.

Sustainability: The biggest challenge—and opportunity

While the executive surveys continued last year’s pattern by listing digitization and innovation as among the top opportunities, what’s especially interesting is that for the first time, sustainability ranks as both the biggest challenge and the biggest opportunity—a finding that was foreshadowed in the comments to my article last year.

As we know, the global fashion industry consumes more energy than it could, while producing more pollution and waste than is likely sustainable. Fashion accounts for 20 to 35 percent of microplastic flows into the ocean and outweighs the carbon footprint of international flights and shopping combined. Despite modest progress, only a minority of consumers are willing to pay more for sustainable products, and the industry’s efforts to tackle its waste problems are still at an early stage. How to bolster both sustainability and productivity is never an easy battle. Heading towards 2020, fashion companies are recommended to rethink their operating model, embrace a more energy-efficient manufacturing process fueled by digitization and innovation, and continue to grow consumer appetites for environmentally sustainable consumption.

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Despite heightened anxiety, both in fashion and more generally, exciting opportunities remain for those who are forward-looking and bold... and who like to solve problems!

Congrats and thanks to the leaders behind this masterpiece: Imran Amed and Achim Berg, along with Anita Balchandani, Saskia Hedrich, Felix R?lkens, Robb Young and Shrina Poojara.