In Brief

New report predicts a 30 per cent contraction in global fashion revenues

London

8 April 2020

A new report from The Business of Fashion and consultants McKinsey makes for bleak reading as to the future of the fashion industry amidst the global pandemic.

An update to their annual report, 'The State of Fashion 2020', the new document predicts a 27-30 per cent contraction in global fashion revenues in light of the pandemic, as well as suggesting that 80 per cent of fashion companies in Europe and North America will be in financial distress if stores remain shut for two months.

The global fashion industry was worth $2.5tn in global annual revenues before the pandemic hit, but its average market capitalisation underwent a 40 per cent contraction between the start of January and 24 March 2020. Online sales, the most resilient element of the industry in light of lockdown, have declined 5-20 per cent across Europe, 30-40 per cent in the US and 15-25 per cent in China.

The report argues that while all industries will be severely affected by coronavirus, fashion is particularly vulnerable due to its "discretionary nature". The industry is expected to experience severe disruption to its manufacturing, supply and delivery chains.

The Business of Fashion writes: "By causing blows to both supply and demand, the pandemic has brewed a perfect storm for the industry: a highly integrated global supply chain means companies have been under immense strain as they tried to manage crises on multiple fronts as lockdowns were imposed in rapid succession halting manufacturing in China first, then Italy, followed by countries elsewhere around the world."

The statistics in the report are unambiguous and present a troubled future for fashion. "[We] expect a large number of global fashion companies to go bankrupt in the next 12 to 18 months," write the report's authors.

Less clear are a number of predictions that the report makes as to changes in fashion in the post-pandemic world. The report claims that "a decade-long build-up of bargain shopping culture will be exacerbated by a rise in anti-consumerism"; that "[the] crisis will shake out the weak, embolden the strong and accelerate the decline of companies that were already struggling before the pandemic"; and that the "crisis is a catalyst that will shock the industry into change – now is the time to get ready for a post-coronavirus world."

It seems unwise to place too much stock in trend forecasting (which can be nebulous at the best of times) during a period of major upheaval and change. Nevertheless, the report's concrete statement of the challenges facing fashion is of considerable value. "Dire consequences for fashion," the authors write, "[entail] joblessness or financial hardship for people across the value chain – from those harvesting the fibres used to make textiles to shop assistants selling the finished fashion product."

Of particular merit is the report's acknowledgment of the impact of the pandemic in countries where much of fashion's manufacturing takes place. "But it is in the developing world, where healthcare systems are often inadequate and poverty is rife, that people will be hit the hardest," writes The Business of Fashion. "For workers in low-cost sourcing and fashion manufacturing hubs such as Bangladesh, India, Cambodia, Honduras and Ethiopia, extended periods of unemployment will mean hunger and disease."

The precariousness of workers on the lowest rungs of fashion's supply chain was previously highlighted by Primark's announcement that it would create a fund to help pay the wages of workers affected by its decision to cancel tens of millions of pounds worth of orders from factories in Bangladesh, Cambodia, India, Myanmar, Pakistan, Sri Lanka and Vietnam. While the move was welcomed by many, there were also calls for greater clarity in how funds would be allocated within a supply chain that is often murky.