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Fashion industry to unlock big changes in 2024

Published: 2024-02-22

In 2023, the apparel industry faced persistent and deepening challenges. On a regional basis, Europe and the US saw slower growth throughout the year, while China's initially strong performance faded in the second half. Though the luxury segment did well initially, it too began to feel the effects of weak demand towards the end of the year, leading to declining sales and uneven performance.

Fashion industry

Figure: In the US, the luxury sector is forecast to grow by 0 to 2 percent.

New Year means new start, big changes in the fashion world. Looking ahead to 2024, the most prominent sentiment among fashion industry leaders is uncertainty, reflecting the prospect of subdued economic growth, persistent inflation and weak consumer confidence. Against this backdrop, businesses will be challenged to identify pockets of value and unlock new drivers of performance.

According to an analysis by McKinsey's Fashion Forecast, the global industry will post top-line growth of 2 to 4 percent in 2024, with regional and country-level variations. Again, the luxury segment is expected to generate the largest share of economic gains.

However, even there, companies will be challenged by the tough economic environment. The segment is forecast to grow 3 to 5 percent globally, compared to 5 to 7 percent in 2023, as consumers rein in spending following a post-pandemic surge. European and Chinese growth is set to slow, while US growth is expected to pick up after a relatively weak 2023, reflecting a somewhat optimistic outlook.

Outside of luxury, growth of 2 to 4 percent is forecast for next year, in line with possible results in 2023. The European market will likely expand by 1 to 3 percent, 3 percent in the second half compared to 5 percent in the first half of 2023. Declining consumer confidence and declining household savings are expected to be the most likely reasons for restrained spending.

In the US, the luxury sector is forecast to grow by 0 to 2 percent. And China is expected to be similarly challenged to between 4 and 6 percent growth, which is a slight increase from the end of 2023 but slow when considered on a historical basis.

Still, there are geographic outliers that can provide comfort. One is India, where consumer confidence reached a four-year high in September 2023. India-based executives are more optimistic than those in Western countries, with 85 percent of respondents to McKinsey's Global Economics Intelligence survey saying the situation has improved over the past six months.

China's economy faces challenges, but the country's consumers show a higher intent to shop for fashion in 2024 than consumers in both the US and Europe.

However, to prepare for challenges and remain alert to opportunities, leading fashion companies will likely prioritize contingency planning for the coming year. A key theme will be companies keeping a firm grip on costs and inventory and driving growth by precisely managing prices.

Brands and suppliers can expect an increasingly competitive environment. But they will also have opportunities, where consumers will discover new styles, tastes, and preferences—all of which will lead to value creation.

Fashion brands should be revising their operations regularly to decide how they can function most effectively, both from a profitability and sustainability viewpoint.