By Achim Berg
Senior partner at McKinsey & Company
In 2023, challenges will persist in the fashion industry, but things are not all gloom and doom. Disruption in markets, fears over global food and energy supplies, and worries over rising inflation pressure will continue to dampen the mood of the global fashion industry.
The world is grappling with high inflation and a cost of living crisis – which have had a deleterious effect on consumers’ purchasing power. Consumers are becoming more cautious about their discretionary spending worldwide. Thus, fashion companies will need to remain attractive to get consumers to open their wallets.
Genderless fashion is in
Genderless fashion is becoming a trend in Korea. This perspective shift has the power to uplift sales – especially in handbags, which were traditionally designed to accommodate women’s needs. Experts pointed out how men’s interest in bags is growing as fast as that of women while a recent report claimed that there is an even split of men and women when it comes to shopping for handbags.
Customers are moving fast, both in how and where they shop, and their buying behaviors and preferences are rapidly changing. One thing is clear. Fashion companies are not only required to maintain intimate relationships with their customers, but they should also understand what customers value and what their highest priorities are when choosing a product.
Luxury goods boom
According to the Business of Fashion-McKinsey State of Fashion 2023 Survey, the Asia-Pacific region, including Japan and South Korea, have renewed their reputation as dependable growth drivers, particular in luxury brands. Consumers are being more selective with how they are spending – but not necessarily opting for cheaper and discounted products.
While Europeans tend to make the biggest spending cuts on apparel, footwear, accessories and jewelry during times of recession, in Korea and Japan, Western luxury brands were booming during the COVID-19 pandemic.
For a luxury fashion brand, private appointments and distance sale transactions, where customers make purchases from home via video calls with sales associates, now account for 30 percent of sales in Korea and 20 percent in Japan. Against a backdrop of increased momentum in consumer spending, department store groups are expanding in Korea to accommodate global brands’ desire to capture domestic demand.
Despite price increases, demand for luxury products is still high in Korea, with customers queuing up in front of the stores even before opening time. The domestic luxury goods market size is estimated at $14.2 billion as of December 2021, according to global market research. Clearly, Korean consumers are putting their money where they see the value and the value equation is usually the combination of style, quality and price of the product.
Off-price continues to be on point
One way the fashion industry has been responding to spending shifts is to lean more heavily on discounting. In the US, 36 percent more items were discounted in 2022 compared to 2021. For bargain hunters who seek renowned brands at lower prices, off-price channels continue to be attractive. However, for higher-end brands, off-price channels should be managed with caution since they could erode brand perception among consumers. Off-price businesses have a good chance of boosting sales but at the same time also potentially damaging brand equity.
Those who choose not to take part in resale are confronted with smaller addressable markets while their goods are consistently being traded on outside digital platforms. Some experts claim that the pre-owned market is a passing fad, but others say it is here to stay as it brings opportunities for companies.
Fashion executives need to rethink their business models to survive and thrive in the fashion industry. Luxury and resale are newly compatible. While luxury brands are proving their resilience in the face of disruptions, the resale market is showing the potential to transform the entire fashion industry for the better.
Achim Berg is a senior partner at McKinsey & Company and the leader of McKinsey's global Apparel, Fashion & Luxury Group. Views in this column are his own. -- Ed.
