How COVID-19 Has Affected the Fashion Industry

The fashion industry is only just beginning to comprehend the long-term adverse effects of COVID-19 on its once economically-successful quarters. Globally, the immediate results have been devastating. Of course, the coronavirus has presented challenges for every type of business, but the challenges facing the fashion industry are significant. Today, the focus of apparel executives is "crisis management," although this will pass. Those in the fashion industry must accept that the pandemic has created significant structural changes, which will undoubtedly affect customers’ behavior, style, and purchase calendar.

Important Questions to Ask

The focus must now shift to reimagining the fashion industry. So the questions to be asked are as follows - how has the business been affected by the devastating impact on the global economy and consumers’ subsequent behavior, and how will the fashion industry look in a post-coronavirus world?

Even before COVID-19, leaders in the industry were not particularly optimistic about 2020. But now the disrupted financial markets, unsure supply chains, and devastating global consumer demand have resulted in what looks like a very bleak future. Before the pandemic, fashion executives expressed pessimism across all areas of the industry, but today the industry sits on red alert.

COVID-19 has resulted in an unpredictable financial and humanitarian crisis, rendering strategies previously planned for 2020 redundant. Leaders of apparel centric businesses are confused as they confront an unsure future, while workers face destitution and unbelievable hardship. In this article, we’ll take a look at what it’s predicted the aftermath of COVID-19 will be by analyzing data and surveys and try to provide an insight into how the fashion industry might look in 12 to 18 months, or when this pandemic is finally over.

The Effects of COVID-19 on the Fashion Industry

There's no doubt that COVID-19 is going to have a long-lasting effect on the fashion industry. It's not only the fashion industry: every sector from hospitality to finance will be affected. However, because of its discretionary nature, the apparel business is particularly vulnerable. Between January and March 2020, the average market capitalization of fashion, apparel, and luxury players dropped nearly 40%, a much deeper decline than the overall stock market.

It's anticipated that the humanitarian effects of COVID-19 will outlast the pandemic itself, resulting in devastating consequences in particular for the apparel and fashion industry, one of the world's biggest. Post-pandemic, we'll see financial hardship and joblessness right across the value chain.

Estimated Growth

It’s estimated that global apparel & fashion industry sectors (clothing and footwear) will withdraw by between 27% and 30% in 2020 year-on-year; however, when compared to the 2019 baseline figure, it’s expected that the industry may well regain positive growth of between 2% and 4% in 2021.

When it comes to the personal luxury goods industry, including luxury accessories, watches, jewelry, and high-end beauty, it’s estimated there will be a global revenue contraction of between -35% and -39% in 2020 year-on-year. However, the forecast is that, when compared to the 2019 baseline figure, there will be positive growth of between 1% and 4% in 2021.

If clothing stores close (amidst outbreaks) for two extra months, forecasts predict that 80% of publicly listed North American and European fashion companies will be in financial distress. Analysis conducted in 2018 by the McKinsey Global Fashion Index (MGFI) found that 56% of fashion companies worldwide were not earning their capital cost, which leads to the prediction that within the next 12 to 18 months, many global fashion companies will go bankrupt.

Businesses Unable to Plan Ahead

The fashion industry is an "interconnected industry," making it exceedingly difficult for businesses to plan ahead. When it seemed that China had recovered from COVID-19, we then saw severe outbreaks in the United States and Europe. However, in the developing world, people will be hardest hit, where their healthcare systems are weak, and poverty is rife. Workers in countries like Cambodia, Bangladesh, Honduras, Ethiopia, and India will continue to suffer extended periods of unemployment, resulting in hunger and disease. These are the low-cost sourcing countries, were big-name companies manufacture most of their merchandise.

Consumer Pessimism

Almost everyone’s daily life has been affected by this crisis. It has created anxiety and uncertainty in most people, leading to widespread consumer pessimism about the economy. A survey conducted in the United States and Europe showed that 75% of shoppers believed their financial situation will be negatively affected for more than two months. And of course, we still don’t know the ultimate duration and severity of this pandemic, but we know that the fashion industry is already struggling.

The COVID-19 pandemic has delivered blow after blow to supply and demand, resulting in a setback for most businesses. The fashion industry can survive because of its highly integrated global supply chain. However, this interconnection has placed companies under enormous strain. They struggle to manage crises on several fronts, including imposed lockdowns, then halted manufacturing first in China, and soon after in Italy, then followed by many other countries around the world.

Consumers Have Changed Their Priorities

After the contracting consumer side of the business, the clothing world is now facing a crisis on the supply side. Today’s consumer has become more discerning and is prioritizing necessity spending over discretionary goods, and this, coupled with widespread store closures, has depleted cash reserves and hit brands’ bottom lines. The latest McKinsey analysis figures show that online sales in China have dropped between 15% to 25%, in Europe they’ve dropped between 5% and 20%, and in the United States, they’ve dropped between 30% and 40%.

Post-Pandemic Forecast

The fashion industry will be facing a recessionary market once the pandemic crisis is over, but this includes an industry landscape that’s been transforming for several years. Even before the pandemic, there were already signs of shifting in different directions in the consumer mindset. It’s anticipated that the recovery period will be characterized by a decrease in demand across channels and a continued lull in spending.

While it’s true that social distancing and lockdown measures have put a lot of pressure on the fashion industry, it’s also true that there were already underlying issues that predated COVID-19. Short-term business strategies, production waste, over-consumption, and labor exploitation are problems this industry has been facing for several years now. So once the engines restart, there will be great opportunities to rethink how some aspects of this industry should be approached.

In the meantime, some of the changes we’ll see in the fashion industry, like in-season retail, the digital step change, the decline of wholesale, and seasonless design, are just a hastening of the inevitable; meaning they were already going to happen, but the pandemic is catalyzing the transformation.

The Future Of The Fashion Industry

COVID-19 has presented the fashion industry with an opportunity to completely reshape and reset its value chain, providing the chance to rethink the values influencing decisions. Once we see a subsiding of the COVID-19 crisis, it's believed that themes of discounting, digital acceleration, corporate innovation, and industry consolidation will be already in place. There will be insolvencies, but with the potential for further outbreaks and subsequent lockdowns, leaders in the industry will have to juggle with increased uncertainty and work on future-proof innovations.

We are also going to notice collaboration within the clothing sector, including among competing businesses. No single company can survive COVID-19 alone, and players in the fashion industry will be required to share insights, strategies, and data on how to navigate crises. Contractors, suppliers, brands, and property owners should look at finding ways to share and resolve problems.

The Way Forward

Who knows when this pandemic will be over? We can only assume that its final throws will be linked to discovering a proven vaccine and a workable antiviral treatment. This could be 12 to 18 months away, but the future is still uncertain.

The players in the fashion industry will have to drive through this uncertainty, be decisive, and begin working on recovery strategies so they can re-emerge as successful business entities. Navigating this uncertainty will not be easy for any business, and players need to start putting recovery strategies into motion, so they emerge with new and rekindled energy.

The COVID-19 pandemic has dramatically affected the worldwide economy. The fashion industry is standing on the threshold of transition, leading to positive outcomes as it prepares for a post-coronavirus world.

This article’s data was sourced from McKinsey and the Business of Fashion’s joint report. For more information please visit: https://www.mckinsey.com/industries/retail/our-insights/its-time-to-rewire-the-fashion-system-state-of-fashion-coronavirus-update