The Fashion Industry in 2018

The fashion industry is going through a seismic shift in 2018. Gone are the days when Western markets were the global economic stronghold of fashion. Economic growth is shifting from mature regions in the West to emerging markets in the South and East. By 2018 more than half of apparel and footwear sales will originate outside of Europe and North America. Rapidly growing cities in emerging markets are particularly important growth centres for the fashion industry. Many incumbents with developed countries as their core markets face a stagnating sales outlook and profitability, and must seek new pockets of growth. Furthermore, adoption of disruptive technologies like advanced robotics, mobile internet, advanced analytics, virtual and augmented reality and artificial intelligence is accelerating, with the potential to disrupt entire industries including fashion.

With increased digital cross-border trade, it becomes harder for local heroes with an average value proposition to compete when anyone who is best at what they do could in theory become a global champion. Trade barriers and regulations are becoming irrelevant as consumers move to e-commerce for purchasing while seeking information on emerging brands through global online portals and virtual communities. Another problem with cross-border online transactions relates to the perennial issue of counterfeiting - an especially difficult issue for luxury brands.

The modern shoppers comfort with digital channels and content has changed the consumer purchase journey from a traditional linear model, to a complex journey across online and offline touchpoints. Many consumers today expect perfect functionality and immediate support at all times. They are becoming habituated to rapid delivery times as players are constantly competing to expedite products more quickly, as we have seen through the partnership between Farfetch and Gucci, which offers delivery in selected cities from the store to a customers home in 90 minutes or less.

Customer attention is also tuned to new communications channels to not just purchase, but to source information on favorite brands. In the Philippines, Brazil and UAE, social media users report that they are now spending more than three hours per day on average on these platforms. This has a profound impact on fashion, as purchase decisions are influenced by social media, peer reviews and influencer marketing.

With information and the ease of comparison at their fingertips consumers are becoming less brand loyal: among millennials, two-thirds say they are willing to switch brands for a discount of 30 percent or more. But while they are very price sensitive, they also base more of their purchasing decisions on whether a companys practices and mission align with their values. This is a generation that has higher expectations on what a company should be able to deliver: convenience, quality, values orientation, newness and price.

Hand-in-hand with the online movement, many fashion companies are experiencing a steep decline in brick-and-mortar traffic. They are simultaneously looking for ways to reduce store operating costs, re-evaluate store networks and innovate the in-store experience to attract customers. The digital shift has hit some harder than others. For example, US department store sales have fallen drastically in recent years and mall closures are expected to increase. Sluggish sales in the department store channel, combined with a desire to improve margins and control brand presentation, markdowns and customer data, are causing brands to move to direct-to-consumer-models.

Meanwhile, the fashion industry is being disrupted by innovative business models. Examples range from data-driven subscription-based services like Stitch Fix, to sharing economy startups such as VillageLuxe and peer-to-peer selling at Grailed. The proliferation of data and exponential increases in technology performance have opened the door to the use of big data. The use of rich data and granular customer insights to inform decisions offers business opportunities across the fashion value chain, in areas ranging from dynamic pricing to optimised product replenishment.

The fast pace of the industry is shaking up the fashion system. Sales of the traditional fast fashion-sector (Zara, H&M) have grown rapidly, by more than 20 percent over the last three years, and new online fast fashion players are gaining ground. This need for speed is driven partly by social media bringing fashion trends to more consumers at a faster pace than in the past. Industry leaders are also pushing up standards as analytics and customer insights enable them to meet customer needs better and improve responsiveness.

Non fast-fashion companies are struggling. Companies still playing by the old rules, with prolonged end-to-end product development processes, face increased fashion risk and excess inventory if they are not able to match customer demand. But others are building agile supply chains supported by higher-quality consumer insights. Fashion players that lead on speed are pushing the limits of their creative process and are performing supply chain acrobatics, with the frontier being close to a real-time supply chain fed by test and learn and data analytics.

But speed and flexibility bring new challenges. Shortening lead times requires major changes to the traditional business model and supply chain setup, and a shift in focus to a customer-centric model with the customer as the principal driver of design, production and merchandising. There are also issues relating to waste and environmental sustainability the fast fashion industry has been known for producing garments that may be worn only a few times before disposal. The processes that rush garments from production to consumers can be less efficient ecologically using for example air rather than sea for transportation.

Customer tastes also vary regionally presenting both opportunities and challenges. The soul is created [and] enhanced by the people working on it and experiencing it and these initiatives can come to life in magical ways resulting in repeat business, says Ghizlan Guenez, CEO of The Modist, a Dubai-based e-commerce site that offers contemporary designer brands like Stella Jean and Maison Rabih Kayrouz to women whose religious, cultural or personal tastes lean to a modest style aesthetic. Pointing to the framework offered by the government-supported Dubai Design District and the Dubai Design and Fashion Council, Guenez clearly feels that she has benefited from the government approach often used in the United Arab Emirates. The Algerian-born executive has lived in the UAE for 20 years and says that theres more to be done [but] the entrepreneurial engine is in full force within the UAE. What is impressive is the strength and speed of initiatives taking place to enhance [and] develop the influx of talent from all over the world into the Middle East. As entrepreneurialism accelerates in the region, high levels of investment are following opportunities across the fields of art, architecture, technology and education, she adds.

Discussion Questions

1. Discuss the political, economic, social, technological, environmental and legal/governmental forces impacting the fashion industry.

2. List them from most to least important, discuss how they are positively or negatively (sometimes both) affecting different industry participants.

3. Are these forces making the industry more or less attractive, for whom?