Fashion industry executives are divided about what to expect next year, with 26 percent expecting conditions to improve, 37 percent saying things will remain the same and 38 percent predicting conditions will get worse. Image: The Business of Fashion, McKinsey & Company
A mix of geopolitical, economic and climate challenges mean the global economic outlook will remain unsettled in 2024, directly impacting consumer confidence and spending in major fashion markets.
That is the overarching theme reflected in The State of Fashion 2024, a report jointly published by trade publication The Business of Fashion (BoF) and management consultancy McKinsey & Company. The report identifies 10 key focus areas for the fashion industry in the year ahead, supported by insight from two proprietary global surveys of fashion executives and consumers.
“The fashion industry once again demonstrated remarkable resilience in 2022,” said report co-author Achim Berg, senior partner at McKinsey, in a statement from Dusseldorf, Germany.
“The luxury segment, in particular, propelled growth through price increases, partially offsetting the weaknesses of other segments,” he said.
“While there are many challenges ahead for the global fashion industry in the coming year – mainly driven by volatility and uncertainty due to macroeconomic developments – we expect limited global growth of about 2-4 percent in 2024.
“Luxury’s global retail sales growth is forecast to slow to between 3-5 percent in 2024, due to consumers' restrained spending after a post-pandemic shopping surge.”
McKinsey and The Business of Fashion partner on this annual exercise to shed insights on the direction of fashion.
Fashion industry executives are divided about what to expect next year, with 26 percent expecting conditions to improve, 37 percent saying things will remain the same and 38 percent predicting conditions will get worse.
Industry growth is forecasted to be just 2-4 percent, with potential bright spots coming from a rebound in global tourism to 10 percent above pandemic levels in 2019 and the opportunities presented by generative artificial intelligence, per the report.
Expectations for how fashion industry conditions will evolve in the year ahead compared to prior year. Source: BoF-McKinsey State of Fashion 2024 Executive Survey, BoF-McKinsey State of Fashion 2023 Executive Survey, BoF-McKinsey State of Fashion 2022 Executive Survey
Generative AI and its potential transformative impact on fashion creativity
2023 was a breakout year for Gen AI, fueled by $14.1 billion of funding for AI-focused startups in the first half of the year alone.
As for the fashion industry specifically, approximately 25 percent of Gen AI’s potential value may be driven by its use in design and product development, according to new analysis in the report.
However, despite fashion executives’ high expectations for Gen AI, they also acknowledge a significant knowledge and talent gap in their businesses, which could prevent businesses from fully leveraging the technology soon.
Seventy-three percent of fashion executives said Gen AI will be a priority for business in 2024, but only 28 percent have tried using it in creative processes and only 5 percent believe their employees currently have the requisite skills to tap into its potential.
“The rise of Generative AI provides a creative crossroad for the fashion industry: We are already seeing multiple use cases emerging,” said Gemma D’Auria, senior partner and global leader of McKinsey’s apparel, fashion and luxury group, in a statement.
“To capture the value of this transformative technology in the coming year will require fashion players to look beyond automation and explore Gen AI’s potential to expand the work of human creatives,” she said.
Global travel to surpass pre-pandemic levels
Consumers are preparing for their biggest year of travel since the pandemic, with global tourism projected to exceed 2019 levels by up to 10 percent in 2024, per the report.
More than ever, this represents a lucrative window for brands, particularly as shopping is high on travel agendas.
Eighty percent of surveyed shoppers from the United States, United Kingdom and China plan to shop for fashion while on holiday, and 28 percent expect to spend more on fashion shopping while travelling than the previous year.
Consumers are also now open to adding second-tier cities to their itineraries, while more than half expect to visit destinations they have not previously been to in the year ahead, according to the report.
Moreover, the report finds there is a post-pandemic shift in consumer behavior in terms of their expectations about how, when and where they connect with brands and retailers while on the road.
Fashion executives should adjust their global strategies accordingly to benefit from this travel rebound, the report recommends.
New age of influence: Authenticity over status
Influencer marketing — an industry currently worth $21.1 billion — will continue to be a key way for brands to connect with consumers.
However, consumers are showing signs of “influencer fatigue.”
The report reveals that 68 percent of surveyed consumers are unhappy with the amount of sponsored content on social platforms and 65 percent rely on influencers less than previous years.
The insights indicate a new trend for 2024, where consumers interact less with influencers that promote a polished, aspirational lifestyle and move towards those they deem authentic and fun.
Survey respondents praised traits such as relatability (43 percent) and authenticity (40 percent) over celebrity status (15 percent) and expertise in fashion (23 percent).
In response to these preferences, brands are looking to diversify the type of talent with whom they partner.
Climate crisis’ $65 billion risk to the industry
The frequency and extremity of climate-related catastrophes in 2023 means climate change is impossible to ignore, the report highlighted.
In real terms, it poses a significant risk to the fashion industry’s growth as data from the report predicts extreme weather events could jeopardize $65 billion worth of apparel exports and threaten 1 million jobs in four major economies by 2030.
Additionally, 90 percent of exported goods are reliant on shipping, but an estimated $122 billion of economic activity at ports are at risk from disruptions caused by extreme weather events.
Every part of the fashion industry is affected by climate change, from the production of raw materials to supply chains and logistics.
Indeed, these are set to come under increased scrutiny next year with new sustainability rules in Europe and the U.S. that will require brands and manufacturers to double down on initiatives that reduce emissions and waste, while protecting natural resources and embed climate strategies across their businesses.
The report found that just 12 percent of executives cite sustainability as a principal opportunity for 2024, as fashion’s C-suite acknowledges that a number of other challenges will vie for their attention in the year ahead.
The 10 themes outlined in The State of Fashion 2024 report are:
- Fragmented future: In 2024, the global economic outlook will continue to be unsettled in major fashion markets, directly impacting consumer confidence and spending. Consumers’ net intent to spend on apparel is -16 percent across the U.S., Europe and China in the fourth quarter of 2023.
- Climate urgency: The climate crisis has become more visible over the past year. Time is running out for fashion brands to build resilience into their value chains to address the climate risk and double down on efforts to reduce emissions. An estimated $65 billion of apparel exports are at risk of being wiped out by climate events such as flooding and extreme heat by 2030.
- Vacation mode: Consumers are preparing for their biggest year of travel since the pandemic, and brands have an opportunity to revamp distribution and other strategies to engage traveling customers. In 2024, global travel volumes are projected to reach up to 110 percent of 2019 levels, the first year to exceed pre-pandemic levels.
- The new face of influence: A new guard of influencer is gaining popularity as fashion consumers gravitate towards less polished, but more entertaining and even quirky influencers. More than 40 percent of consumers prefer fashion influencers who are relatable and authentic.
- Outdoors reinvented: Technical outdoor wear has witnessed a boom in popularity that is likely to continue into 2024, amid expectations that more outdoor brands could release lifestyle collections while fashion brands potentially expand outdoor wear offerings. Trade activity on resale platforms such as StockX for Salomon, Arc’teryx and The North Face grew on average 800 percent year on year in 2023.
- Gen AI’s creative crossroad: AI has been one of the buzzwords of the year. To use this technology correctly, brands will need to look beyond automation and explore the potential for AI to augment the work of human creatives. Seventy-three percent of fashion executives think Gen AI is a 2024 priority for their companies, but only 5 percent believe they have the capabilities to fully leverage it.
- Fast fashion’s power plays: Competition among fast-fashion brands will intensify in the year ahead. Success for both new and incumbent players will hinge on their ability to adapt to customer tastes and navigate new regulations that will impact the industry. Forty percent of U.S. consumers have shopped at third-generation fast fashion in the last 12 months.
- All eyes on brand: Brand marketing will re-emerge, as businesses can no longer solely rely on performance marketing. Seventy-one percent of fashion executives plan to increase brand marketing spend in 2024.
- Sustainability rules: Incoming regulations could soon reshape fashion businesses. Brands should revamp their business models to align with the regulatory changes ahead. Eighty-seven percent of fashion executives expect sustainability regulations to impact their businesses in 2024.
- Bullwhip snaps back: If supply is to keep pace with anticipated demand, businesses should consider bolstering strategic partnerships with manufacturers to avoid supply chain volatility. Seventy-three percent of chief procurement officers cited demand volatility as a dynamic that may impact supplier relationships in the next five years.
“Fashion leaders cannot rest on their laurels,” said Imran Amed, founder/CEO and editor in chief of The Business of Fashion, in a statement from London.
“While they must approach 2024 with caution, it is critical to continue seeking targeted opportunities for growth and innovation,” he said.