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Emerging markets to zoom past the West in fashion industry in 2018

"The Business of Fashion’s (BoF) latest study, ‘The State of Fashion 2018’ along with McKinsey highlights the global fashion industry is up for a big transformation in 2018. As per the report, average revenues for the global fashion industry are expected to rise between 3.5 and 4.5 per cent in the coming year, to a total of $2.5 trillion. The industry's profit margin (before taxes) is projected to hold steady at 10 per cent. This renewed growth will mainly be driven by emerging markets such as Asia, Africa, Latin America, as well as those in Europe."

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The Business of Fashion’s (BoF) latest study, ‘The State of Fashion 2018’ along with McKinsey highlights the global fashion industry is up for a big transformation in 2018. As per the report, average revenues for the global fashion industry are expected to rise between 3.5 and 4.5 per cent in the coming year, to a total of $2.5 trillion. The industry's profit margin (before taxes) is projected to hold steady at 10 per cent. This renewed growth will mainly be driven by emerging markets such as Asia, Africa, Latin America, as well as those in Europe. BoF and McKinsey projections show the emerging markets in Asia (India, Vietnam, China, etc.) achieving revenue growth of 6.5 to 7.5 per cent in 2018, with their European counterparts (Romania, Russia, Turkey, etc.) slightly behind at between 5.5 and 6.5 per cent. While mature markets in North America and Europe will grow only 1 to 3 per cent.

Emerging markets to zoom past the West in fashion industry in 2018

Imran Amed, Founder & Editor-inChief, The Business of Fashion (BoF) points out in 2018, more than half of revenues in the global fashion industry will come from new markets in the East than long established markets in Western Europe and North America. This is an important symbolic tipping point as business leaders across the industry continue to gear themselves up for growth, amidst a backdrop of rapid flux where new technologies, new consumers and an unpredictable macroeconomic environment continue to challenge leaders to rapidly shift their strategies and operating models.

A big divide

As per latest analysis by the McKinsey Global Fashion Index, top 20 per cent fashion providers earn a total 144 per cent of the industry's value increase. Achim Berg, Senior Partner, McKinsey and expert in the fashion and luxury goods opines, the best companies grow faster and more profitably. That is a massive contrast to the vast but basically unprofitable middle section of the industry and the poorly performing bottom fifth that is actually destroying value. The fashion industry will always be an industry where 'The winner takes it all’.

Key trends for 2018

In 2018, the trends will be triggered by global economic developments, including Asia's now pioneering role in technological innovation. Asian countries have long since overtaken western markets here: more than half of global online sales and two-thirds of e-commerce unicorns, i.e., startups valued at more than a billion US dollars, originate from Asia. Other trends will be shaped by consumers. These include the market dominance of online platforms, which conventional retailers are no longer able to outrun. Berg feels both brand name manufacturers and fashion retailers have stopped asking as to whether they can work with the online platforms. Now they are figuring out how those partnerships should look. One- third of the fashion managers surveyed believe that the growing dominance of online platforms will be one of the defining consumer trends in the fashion industry next year.

A third set of trends relate to the fashion system itself, including the growing importance of sustainability and the benefits of artificial intelligence in the value chain as a whole. According to Achim Berg, fashion is still lagging behind other industries when it comes to using artificial intelligence. It has acknowledged the significance of AI, however. Twenty percent of the fashion executives surveyed believe that artificial intelligence will be important in future as a means of reinventing design, merchandising, and marketing.

 
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