With dark clouds gathering on the horizon, the events of the past few years may offer clues as to how the fashion industry will navigate 2024.
The industry has shown resilience in recent years, achieving more than double the economic gains in 2022 compared to all but one year from 2010 to 2020, but by 2023 the industry was facing persistent and deepening challenges. By region, Europe and the United States saw growth slow throughout the year, while China saw an initial upswing before slowing in the second half. Conditions in the luxury market were better than other markets in the first half of 2023, but by the second half, consumer fashion purchasing confidence declined across the board, leading to slowing sales and uneven performance. After a long period of growth that had benefited the industry as a whole, even luxury goods were beginning to struggle.
Looking ahead to 2024, fashion leaders are expecting further headwinds and uncertainty about the future.
Looking ahead to 2024, fashion leaders are anticipating further headwinds and uncertainty about what the future holds. In fact, “uncertainty” was the word most frequently mentioned by executives in the BoF-McKinsey State of Fashion 2024 Executive Survey. Consumer confidence remains fragile in the key markets of the US, Europe and China, albeit for different reasons. Overall, the fashion industry is forecast to achieve year-over-year retail sales growth of 2-4% in 2024.
Apart from economic challenges, one pressure point that cannot be ignored in the coming year is the climate crisis. After a multitude of extreme weather events in 2023, major companies will likely strengthen their resilience to climate impacts in 2024. Inaction is no longer an option. Extreme weather events are already putting the lives and livelihoods of fashion workers at risk and could put an estimated $65 billion in apparel exports at risk by 2030.
How should fashion companies prepare? With cost-cutting measures nearly exhausted, the focus is expected to shift from increasing sales volume to increasing sales revenue supported by new pricing and promotional strategies. Industry-wide, there is a net intention to increase prices of over 50%, according to the BoF-McKinsey Executive Survey. Cost pressures are expected to ease, with less than 20% of executives expecting cost of goods sold and selling, general and administrative expenses to increase by more than 5%.
In 2024, the fashion industry is expected to be impacted by demand fluctuations that have been prominent over the past few years. During these times, supply chains experience the “bullwhip effect,” a phenomenon in which small sales fluctuations cause larger fluctuations, leading to lower factory utilization rates, layoffs, and delayed infrastructure investment. To weather these challenges, fashion brands should consider investing in building more transparent and collaborative relationships with their suppliers.
Meanwhile, fashion supply chains are likely to come under increased scrutiny as regulations are introduced on multiple fronts, including new sustainability rules in the European Union and the United States that will require brands and manufacturers to step up efforts to reduce greenhouse gas emissions and waste, as well as create business models that protect and conserve natural resources. The fast fashion industry, already under attack by companies like Shein and Temu that are not only faster and cheaper but also have big marketing budgets, could come under particular pressure from these new regulations.
One area BoF-McKinsey executive survey respondents are looking at as they try to identify growth levers is generative AI, which has great potential for creativity-driven use cases in design and product development. Some 73% of executives expect to prioritize generative AI in 2024, but many executives may face a talent shortage given that only 5% say they are ready to take full advantage of the technology.
Marketing is another area of focus. After years of relying on performance marketing, brand marketing will take an increasingly front and center position in the coming year. 71% of executives plan to spend more on brand marketing than they will in 2023 to foster an emotional connection with customers. At the same time, brands may find that consumers are more demanding when it comes to authenticity and relatability, resulting in a shift toward influencers who are more quirky, vulnerable and less polished. Forward-thinking companies should consider turning to this new wave of content creators to amplify their brand stories.
As consumers travel with renewed enthusiasm next year, fashion companies may need to reinvent how they engage with international shoppers. For the first time since the COVID-19 pandemic, travel levels in 2024 are projected to exceed 2019 levels. Chinese travel to international destinations is expected to reach 70-100% of pre-pandemic levels in 2024. As these shoppers return, there is a growing desire for branded experiences and traditional shopping trips in both tourist and second-tier cities. The return to travel, along with a trend towards spending more time outdoors, is likely to boost demand for outdoor wear in 2024, further blurring the line between function and style.
Ultimately, executives are preparing for a strategically challenging year ahead, and fashion industry leaders will need to carefully plan for a range of scenarios, better manage pricing and be ready to accelerate when the storm begins to pass.
10 fashion industry themes on the agenda for 2024:
1. A fragmented future
The global economic outlook is set to remain unstable in 2024. With new financial, geopolitical and other challenges significantly impacting consumer confidence, the US, European and Chinese fashion markets face different headwinds, forcing suppliers, brands and retailers to take different measures, including strengthening contingency plans.
2. The climate emergency
The frequency and intensity of extreme weather-related events in 2023 means that the climate crisis will become even more pronounced, making fashion value chains particularly vulnerable. With climate risks worsening across the continent, the fashion industry can no longer put off building the resilience of its supply chains and contributing to reducing emissions.
3. Vacation Mode
Consumers are gearing up for their biggest year of travel since pre-pandemic. But changing values mean travelers have different expectations, even though shopping remains a priority. Brands and retailers must consider revamping their distribution and category strategies to meet travelers where they are.
4. The new dimension of influence
It’s time for brand marketers to update their influencer strategies. New creative personalities are grabbing brands’ attention and earning the trust and following of key audiences. Working with these personalities in 2024 will require a different type of partnership, an emphasis on video, and a willingness to give up some creative control.
5. New outdoor discoveries
Technical outdoor wear is being driven by consumers’ post-pandemic embrace of healthy lifestyles and “goopcore” and is likely to accelerate in 2024. More outdoor brands are likely to launch lifestyle collections, and lifestyle brands will incorporate technical elements into their collections, further blurring the lines between functionality and style.
6. Crossroads in the creation of Gen AI
After a breakout year for generative AI in 2023, use cases are emerging across creative industries, including fashion. To capture the value of this transformative technology in 2024, the fashion industry must look beyond automation and explore its potential to augment human creative work.
7. Fast fashion power play
Fast fashion competition is likely to intensify in the coming year, with challengers led by Shein and Temu shifting strategies around price, customer experience, and speed. The success of disruptors and incumbents will depend on their ability to adapt to changing consumer preferences while navigating regulations that may impact the industry.
8. Focus on the brand
As the fashion industry faces a changing landscape where performance marketing is no longer dominant, brand marketing is likely to come back into the spotlight over the coming year. The emotional connection between consumers and brands is likely to become key as fashion marketers reposition their strategies to emphasize long-term brand-building strategies.
9. Sustainability Rules
The era of self-regulation on sustainability in the fashion industry is coming to an end worldwide. Across jurisdictions, new rules are likely to have far-reaching effects on both consumers and the fashion industry. Brands and manufacturers will need to reinvent their business models to adapt to the coming changes.
10. Bullwhip recoils
Shifting consumer demand has created a “bullwhip effect,” leading to widespread order cuts across different parts of the supply chain, putting pressure on fashion suppliers. Now, for supply to keep up with expected new demand, brands and retailers must prioritize transparency and consider strengthening strategic partnerships.
