The much-awaited ‘The State of Fashion 2023’ report launched on the second day of the annual gathering of industry experts in London by the Business of Fashion Voices in association with McKinsey & Co reiterates a fact that has already been trending, i.e. global slowdown of the fashion sector. It also predicts a shift in purchase of fashion will not only be determined by household incomes but also region-wise. The silver lining however, is luxury sales as this niche sector is expected to grow by 10 per cent, which is a new of relief for premium brands and hope for the industry. With uncertainty in China due to their zero-Covid spread policy and the tightest of lockdowns, the country has been deprioritized and the growth will be led by the usual markets of North Americas and the Middle East.
Luxury sales growth the good story
The successful growth is predicted for luxury is because higher-income households are least affected during these times of inflation and will continue purchasing luxury items. The Gulf Cooperation Council (GCC) countries will generate around $11 billion in luxury sales in 2023 as this is the region which is least affected by global recessions and inflation and continue maintaining a huge proportion of high-income households.
China was the center of focus for many fashion brands but due to many internal factors that the country faces, slowdown in demand, particularly for luxury items is the challenge that these brands will need to address right away. Experts are already identifying regions that are continuing to drive growth amid economic uncertainty, such as the Middle East and the US, and focus investment in those markets. In the Business of Fashion & MkKinsey & Co State of Fashion 2023 report, Achim Berg, Senior Partner, Global Leader of McKinsey’s Apparel, Fashion and Luxury Group, said, “Global fashion sales growth will be driven by the luxury segment — up to 10 per cent, compared to up to 3 per cent for the rest of the industry.”
Discretionary purchases will affect fashion segment
The interesting insight from the report is that consumers who are affected by recession and inflation will put away or completely do away with discretionary purchase. Research indicated that in the US and Europe, apparel and footwear will be in the ‘deprioritized’ list and suffer setbacks. Bargains will play a big role in sales of fashion items for this segment as will the resale, rentals and off-price items. This will be a tightrope walk for many fashion brands as whilst not diluting their brand equity, they will need to retain and acquire customers.
The report provides significant data to corroborate this fact. Customers may seek out lower-priced retailers and discounts, particularly in younger segments. Over 75 per cent of US Gen-Z and Millennials said they are taking steps to manage finances, compared with Gen-X’s 64 per cent and Baby Boomers’ 53 per cent. Off-price retail is expected to experience a boom with pre-loved and off-season items at heavily discounted rates. In fact, off-price as a fashion industry channel is expected to contribute 12 per cent of the industry’s income by 2025.
In China, the younger generation is really not affected by the recession and inflation running through Europe. However, young Chinese are feeling the impact of their economy’s slowdown, especially driven by the Covid-19 related issues. Unemployment stands at 20 per cent for Chinese aged between 16 and 24 years, compared to the overall national figure of 5.5 per cent. This in turn has severely impacted their lifestyle purchase choices as they make drastic cuts for a simpler life than did their parents. The trend is called “tang ping” – leaving the rat race for a low key life, with far less focus on material consumption.