the-state-of-fashion-2022

The State of Fashion 2022



The State of Fashion 2022



CONTENTS EXECUTIVE SUMMARY 10—11 GLOBAL INDUSTRY OUTLOOK 12—17 ECONOMY GLOBAL ECONOMY 20—39 01: Uneven Recovery CONSUMER How the Global Wealth Gap Is Impacting Fashion SHIFTS 02: Logistics Gridlock Li & Fung: Facing up to Vulnerabilities in the Supply Chain CONSUMER SHIFTS 40—63 03: Domestic Luxuries FASHION JHSF: Betting Big on a Permanent Shift to Local Retail SYSTEM 04: Wardrobe Reboot PVH: Harnessing Creativity to Cut Through the Noise 05: Metaverse Mindset Gucci: Testing Luxury’s Opportunities in the Metaverse FASHION SYSTEM 64—111 06: Social Shopping MGFI Snapchat: Enhancing the Social Shopping Experience BEAUTY 07: Circular Textiles 2022 Novetex: Encouraging Brands to Raise Their Game on Circularity Time for Fashion to Raise Its Sustainability Ambitions to Deliver on COP26 08: Product Passports Aura Blockchain Consortium: Uniting Rivals to Make Luxury Goods More Traceable 09: Cyber Resilience Five Imperatives to Protect Fashion Businesses from Cyber Risk 10: Talent Crunch Farfetch: Adapting to the New Talent War MCKINSEY GLOBAL FASHION INDEX 112—121 THE STATE OF BEAUTY 2021 122—129 5

CONTRIBUTORS The State of Fashion 2022 IMRAN AMED ACHIM BERG ANITA BALCHANDANI Imran Amed is one of the global fashion Achim Berg is a senior partner in Anita Balchandani is a partner in industry’s leading writers, thinkers and McKinsey’s Frankfurt office, and leads McKinsey’s London office, and leads commentators, and is founder, chief McKinsey’s Global Apparel, Fashion the Apparel, Fashion & Luxury group executive and editor-in-chief of The & Luxury group. He is active in all in EMEA and the UK. Her expertise Business of Fashion (BoF), a modern media relevant sectors including clothing, extends across fashion, health and company and the authoritative voice of textiles, footwear, athletic wear, beauty, beauty, specialty retail and e-commerce. the global fashion and luxury industries. accessories and retailers spanning from She focuses on supporting clients in Imran holds an MBA from Harvard value to luxury segments. As a global developing their strategic responses to Business School and a B.Com from McGill fashion industry and retail expert, he the disruptions shaping the industry, University. He was born in Canada and supports clients on a broad range of particularly accelerating digital growth holds British and Canadian citizenship. strategic and top management topics, and delivering customer-led growth Previously, Imran was a management as well as on operations and sourcing- transformations. consultant at McKinsey & Co. related issues. SASKIA HEDRICH JAKOB EKELØF JENSEN  MICHAEL STRAUB Saskia Hedrich is a global senior expert Jakob Ekeløf Jensen is an associate Michael Straub is an associate partner in McKinsey’s Apparel, Fashion & partner in McKinsey’s London office, and in McKinsey’s Hong Kong office, and Luxury group. She works with fashion is part of the leadership of McKinsey’s co-leads the Apparel, Fashion & Luxury companies around the world on strategy, Apparel, Fashion & Luxury group. He practice in Greater China. He partners sourcing optimisation, merchandising works with fashion and luxury companies with global luxury, fashion and beauty transformation and sustainability topics as well as investors in the industry across clients in defining their growth and go-to- and publishes regularly. Additionally, she Europe, China and the US on topics such market strategies for China and other is involved in developing strategies for as e-commerce, strategy, value creation, Asian markets. national garment industries across Africa, operating model and M&A. Asia and Latin America. 6

FELIX RÖLKENS ROBB YOUNG PAMELA BROWN Felix Rölkens is a partner in McKinsey’s As global markets editor at The Business Pamela Brown is a partner in McKinsey’s Berlin office, and is part of the leadership of Fashion, Robb Young oversees content New Jersey office, and is part of the of McKinsey’s Apparel, Fashion & from Asia-Pacific, the Middle East, Latin leadership of McKinsey’s Apparel, Luxury group. He works with apparel, America, Africa, the CIS and Eastern Fashion & Luxury group in North sportswear and pure play fashion Europe. He is an expert on emerging America. In this dynamic industry, she e-commerce companies in Europe and and frontier markets, whose career as a partners with brands and retailers across North America on a wide range of topics fashion editor, business journalist, author categories and price points to tackle including strategy, operating model and and strategic consultant has seen him lead topics ranging from M&A strategy to merchandising transformation. industry projects around the world. growth acceleration and organisational transformations. LEILA LE MERLE HANNAH CRUMP AMANDA DARGAN Leila Le Merle is an engagement manager As associate director, editorial strategy As director of strategy at The Business of in McKinsey’s London office, and is part of at The Business of Fashion, Hannah Fashion, Amanda Dargan manages the the Apparel, Fashion & Luxury group. She Crump contributes to the execution of execution of special projects and strategic works with fashion and luxury companies special editorial projects, ranging from initiatives spanning the company’s across Europe and the US on topics such case studies to in-depth market reports. creative and commercial divisions. With as e-commerce, strategy, value creation With an extensive editorial background a background in private equity, she and operating model. in B2B and B2C publishing, she partners partners with internal and external with industry experts to develop, edit stakeholders to identify and develop new and produce data-driven research and business opportunities and optimise key analysis for professionals in the global internal operations. fashion industry. 7

The State of Fashion 2022 8

ACKNOWLEDGEMENTS The authors would like to thank Emma Bruni and Dunja Matanovic from McKinsey’s London and Oslo offices respectively for their critical roles in delivering this report. We would also like to thank Abhishek Goel for his significant contribution to the MGFI article this year. A special thanks to all members of The Business of Fashion and the McKinsey communities for their contributions to the research and participation in the BoF-McKinsey State of Fashion 2022 Survey, especially the many industry experts who generously shared their perspectives during interviews. In particular, we would like to thank Claire Bergkamp, Daniela Ott, Daria Shapovalova, Geraldine Wharry, Harald Cavalli-Björkman, Harminder Matharu, José Auriemo Neto, Joseph Phi, Lance Spitzner, Libby Wadle, Margaret Mitchell, Patrik Lundström, Rajni Jacques, Renee Parker, Robert Triefus, Ronna Chao, Sian Keane, Stefan Larsson, Steve Lamar, Steven Whitehead and Susan Scafidi. We’d also like to thank StyleSage and Lyst for their invaluable data sharing for this report. The wider BoF team has also played an instrumental role in creating this report — in particular, Alexandra Mondalek, Amy Vien, Amy Warren, Anna Rawling, Brian Baskin, Casey Hall, Chantal Fernandez, Chavie Lieber, Darcey Sergison, Diana Pearl, Emma Clark, Isolda Hanney, Janet Kersnar, Jael Fowakes, Joan Kennedy, Josephine Wood, Kate Vartan, Laura Bateman, Marc Bain, Nick Blunden, Olivia Howland, Rachel Deeley, Robert Williams, Sarah Kent, Scarlett Fillingham Burrows, Sheena Butler-Young and Zoe Suen. We would like to thank the following McKinsey colleagues for their special contributions to the report creation and in-depth articles: Aimee Kim, Andrea De Santis, Andres Avila, Annabel Morgan, Benjamin Klein, Carlos Sánchez Altable, Carsten Lotz, Charlie Lewis, Colin Henry, Corinne Sawers, Daniel Zipser, Elisa Albella, Ellie Baker, Ezra Greenberg, Guenter Fuchs, Hannah Yankelevich, Harry Bowcott, Ian De Bode, Irina Duchanin, Isabel Brito, Jaana Remes, Jessie Wang, Jonatan Janmark, Karl-Hendrik Magnus, Kris Cai, Krzysztof Kwiatkowski, Leigh Chantal Pharand, Libbi Lee, Marie Strawczynski, Mario Ortelli, Natalia Lepasch, Nic Cornbleet, Philipp Rau, Rachel Dooley, Rebecca Johnson, Rebecca Zhang, Richard Ward, Rickard Vallöf, Sakina Mehenni, Sarah Andre, Shruti Badri, Simona Kulakauskaite, Tiffany Wendler, Tom Skiles and Vanessa Goddevrind. We’d also thank David Wigan and Jonathan Turton for their editorial support, and Adriana Clemens for external relations and communications. In addition, the authors would like to thank Chelsea Carpenter for her creative input and direction into this State of Fashion report, Francesco Ciccolella for the cover illustration and Getty Images for supplying imagery to bring the findings to life. 9

EXECUTIVE SUMMARY Global Gains Mask Recovery Pains The State of Fashion 2022 With much of the world under Covid-19- and the list of casualties grew longer as the pandemic related restrictions through 2020 and 2021, the continued through 2021. Indeed, the fashion C-suite global fashion industry has faced exceptionally has been an uncomfortable place to inhabit for much challenging conditions. But after nearly two years of the past year, illustrated by the rising numbers of of disruption, the industry is beginning to find its takeovers and bankruptcies. feet again. After a hiatus in last year’s edition of The Despite ongoing headwinds, there were signs State of Fashion, we return to our roster of fashion by mid-2021 that things were taking a turn for the “Super Winners” — the top 20 listed companies by better, particularly in markets where vaccination economic profit. The proportion of value destroyers rates were high. In the US, the release of pent-up (companies generating negative economic profit) demand created spikes of so-called “revenge buying,” in 2021 was higher than ever. Moreover, the losses leading to a growth spurt that echoed an earlier of the bottom 80 percent in terms of value creation phenomenon in China. Return-to-work and occasion more than offset the profits of the top 20 percent. styles topped consumer shopping lists. This year’s Super Winners group is But the pandemic has only served to dominated by sportswear brands, luxury players exacerbate inequalities in performance that have and Chinese home-grown companies, all of which become a persistent theme over recent years. A outperformed the wider market. From a geographic small group of leading brands are equalling, and in perspective, China recovered to 2019 levels of some cases already surpassing, their pre-pandemic economic activity much faster than the rest of the performance. This should not, however, be confused world. Chinese demand was fuelled by appetite for with a universal return to form. Large numbers of local shopping, particularly in the luxury segment, companies will continue to struggle to create value — as consumers who faced travel restrictions shifted to and, in some cases, to survive — as the bruises of the domestic alternatives. crisis linger on. Looking ahead to 2022, in aggregate, The few brands that outperformed either McKinsey Fashion Scenarios suggest global fashion played into the needs of the moment — comfort, sales will reach 96 to 101 percent of 2019 levels in outdoor activities and online shopping — or appealed 2021 and 103 to 108 percent in 2022. Still, while to wealthier cohorts who were able to better weather overall sales are expected to make a full recovery the impacts of the crisis. Companies that couldn’t next year, performance will vary across geographies, align with these market features tended to struggle, with growth likely driven by the US and China, as 10

Europe lags. In addition, as international tourism chain transparency and ensure authentication — a remains in the doldrums, the shape of consumption significant advantage tackling counterfeiting. will continue to evolve, sparking a growing focus on domestic spending. In response, many companies Online business models were a standout will recalibrate their retail footprints, even amid success story of the pandemic. We expect that uncertainty as to whether these pandemic-induced companies will continue to invest in digital behaviour shifts will stick. innovation and experiment with fresh approaches to creativity and commerce in 2022. Digital assets In the year ahead, discount and luxury such as non-fungible tokens (NFTs), gaming fashion will continue to outperform, as recovery “skins” and virtual fashion will edge closer to the will be uneven across value segments, and the mainstream, with some brands expanding into the mid-market will be squeezed. Still, with economic digital “metaverse.” In-app social commerce will growth and consumer sentiment improving in some play an increasingly important role in sales and markets, and many shoppers looking to refresh their marketing. On the flipside, these opportunities will pandemic-era wardrobes, growth will be top of the bring increasing threats of cyber crime and data agenda for many brands. loss, meaning companies will need to work hard on resilience in an increasingly risky digital landscape. The market environment, however, will remain complex with new challenges to address, While overall fashion sales are amid logistical bottlenecks, manufacturing delays, high shipping costs and materials shortages. These expected to make a full recovery will further inflate input costs and strain imbalances between supply and demand. The likely result will be next year, performance will vary higher prices for customers. across geographies. The market Despite widespread operational disruptions, the pandemic has done little to slow down the environment will remain complex megatrends reshaping the industry. In fact, these have accelerated over the past year, with industry and inconsistent. leaders making bold moves in digital, taking action on environmental and social priorities and focusing Most fashion players will proceed on an more sharply on diversity, equity and inclusion in uneven footing in 2022, as an inconsistent and response. However, concerns around slow progress uncertain recovery requires them to either raise in these areas, coupled with all-time high job their games or face the threat of consolidation or vacancies, mean brands will need to work hard to bankruptcy. Indeed, many of the gains expected attract and retain talent in the year ahead. next year are likely to be offset by recovery pains and disruptions to the global economy, which will In a similar vein, fashion companies will compel decision-makers to take measures to keep need to ensure they are acting in the interests of all businesses steady. stakeholders — including customers, employees, contractors, investors and wider society. Many As fashion leaders consider their options, brands will push harder on circular business models, they will need to reflect on the many lessons they greener materials and more sustainable technologies. have learned during the pandemic, keeping their One breakthrough to support these initiatives is companies aligned with an ever-shifting playing blockchain, which is the underlying technology for field, enhancing their strategies for managing digital “product passports.” These contain coded turbulence and balancing the needs of various information that can add value, support supply stakeholders to create value for their customers, their shareholders and society at large. 11

INDUSTRY OUTLOOK Regaining Lost Ground Whilst Bracing for Aftershocks The State of Fashion 2022 Executives in the global fashion industry are with “uncertain” market conditions that they cautiously optimistic about the year ahead, though expressed in 2021 and turning their attention to new and ongoing disruptions are beginning to erode driving growth in an altered market landscape — that mood in some quarters. While some global even though a degree of uncertainty around crisis markets are starting to recover after 18 to 20 months recovery and inconsistency nonetheless persists in of pandemic-related turbulence, propelled by surging the year ahead. e-commerce adoption and domestic spending, challenges relating to supply chain bottlenecks and In 2022, fashion is poised to benefit from uneven consumer demand continue to hang over the fundamental macroeconomic drivers. Consumer fashion industry, undermining growth prospects. sentiment is on a positive trajectory, especially in markets where vaccination and saving rates are Overall, global fashion sales are on track to high. In the US, savings in the first quarter of 2021 pick up momentum in 2022, as increasingly hopeful were estimated to be 3.1 times higher than in the consumers unleash pent-up buying power, refreshing first quarter of 2019.2 Alongside this, 43 percent their wardrobes as social life begins to resume in of US consumers said they would increase their many key markets around the world. While the fashion spend in 2021,3 with clothing for work and luxury sector is expected to achieve a full recovery by special occasions top of their shopping lists. While the end of 2021, the wider fashion industry is not set pent-up demand has already played out as so-called to return to pre-pandemic performance levels until “revenge shopping” in the luxury segment in China, early 2022.1 This is a much quicker recovery than similar behaviour is expected to pick up steam in the was expected six months ago. broader fashion market in the US in early 2022. In Europe, consumer confidence in economic recovery The industry’s recent emergence from a is more cautious, with approximately one quarter of sustained period of turbulence is still weighing respondents in a September 2021 survey optimistic heavily on the minds of industry executives, as that the economy would rebound to pre-pandemic shown by their choice of the top three words to levels by the end of 2021, while over half expected describe business conditions in the year ahead recovery only in 2022 or later.4 in our BoF-McKinsey State of Fashion 2022 Survey: “recovery” (cited by 59 percent of fashion As fashion inches towards rosier conditions executives), “challenging” (50 percent) and in some regions, industry leaders have a more “changing” (42 percent). However, executives are hopeful outlook than last year. Some 75 percent leaving behind the all-consuming preoccupation of luxury executives, 61 percent of mid-market 12

Exhibit 1: Supply chain pressures on input costs will push some fashion companies to increase retail prices next year EXPECTED RETAIL PRICE CHANGE IN 2022, % OF RESPONDENTS 35.0 3.2% average1 expected retail price 15% increase in 2022 of fashion executives 16.4 16.9 expect an increase in prices by 10% or more in 2022 7.1 11.5 2.7 3.3 3.8 3.3 >-15% -15% to -10% -9% to -4% -3% to -1% 0% (no change) 1% to 3% 4% to 9% 10% to 15% >15% 67 % of fashion executives expect an increase in retail prices for 2022 1 Weighted average of executive responses SOURCE: BOF-MCKINSEY STATE OF FASHION 2022 SURVEY Exhibit 2: Digital and sustainability will offer fashion’s biggest opportunities for growth, while supply chain pressures will challenge the industry in 2022 TOP THREE ANSWERS, % OF RESPONDENTS WHO MENTIONED THE WORDS Biggest opportunity ahead Biggest challenge ahead 32 30 12 11 14 10 Digital1 Sustainability1 Consumer Supply chain, Sustainability Covid-19 engagement logistics and recovery1 inventory management 1 Also mentioned as a top industry challenge or opportunity in The State of Fashion 2021 report. SOURCE: BOF–MCKINSEY STATE OF FASHION 2022 SURVEY 13

INDUSTRY OUTLOOK The State of Fashion 2022 executives and 50 percent of value executives expect The US is not far behind — US non-luxury better trading conditions in 2022 than 2021.5 This segment fashion sales will have recovered to +5 to +10 reflects a different distribution of mood compared percent over 2019 levels by the end of 2021, according to our last survey, which was conducted in 2020 to to McKinsey Fashion Scenarios analysis.9 A similar capture sentiment about 2021, in which mid-market picture will emerge in the US luxury segment, which executives were the least hopeful group, with only is expected to return to -5 to +5 percent of 2019 levels 22 percent expecting better trading conditions, in 2021, slightly below non-luxury due to ongoing whereas value executives were the most hopeful at 36 luxury spend repatriation in China muting sales percent followed by luxury at 31 percent. While there recovery in the US. In Europe, there will be a slightly are most likely a variety of reasons why mid-market slower trajectory for recovery of non-luxury fashion executives are feeling more positive about 2022 than sales, reaching just -15 to -10 percent of 2019 sales they were about 2021, one may be that the surviving by the end of 2021, and taking until 2022 to recover and restructured players in that segment of the fully. Meanwhile, the European luxury segment will market are expecting a rebound after it fared poorly remain below 2019 levels until beyond 2022, as vast for several years. amounts of spend from Chinese nationals travelling abroad is redirected to Mainland China.10 Given this From a demand perspective, younger cohorts diverse set of dynamics and with the global fashion such as Gen-Z and wealthier consumers from industry fully recovering only in 2022, growth will middle-income groups and upwards are predicted to be front of mind in the year ahead: 87 percent of demonstrate the strongest appetite for leisure spend fashion executives plan to pursue sales growth (including fashion, dining out, travel, entertainment, in 2022.11 electronics, etc.) in the US through 2021 and beyond. Fashion is one of the top three categories Despite the slower projected return to on which they seek to splurge or treat themselves.6 pre-pandemic sales levels in Europe, executives In China, there are strong prospects for growth in in that region are the most optimistic about the consumer spending power, where rising incomes will year ahead, likely owing to factors such as the contribute to an anticipated increase of $10 trillion comparatively strong presence of European luxury in consumption growth between 2021 and 2030.7 brands across global markets. Indeed, 67 percent of Europe-based executives expect better trading While the global fashion market will continue conditions in 2022 than 2021. This compares with to grow overall, performance will be uneven across 57 percent of executives in North America (where geographies, depending on their ability to recover the release of pent-up buying spiked in 2021) and from pandemic-induced health and economic 52 percent in Asia, where most key markets have shocks. The Chinese fashion market — including already returned to pre-pandemic sales levels. both luxury and non-luxury segments — is already None of the executives in Asia anticipate worse back to pre-Covid sales levels. The non-luxury trading conditions in 2022, while some scepticism segment reached +2 percent over 2019 H1 sales remains among executives in Europe and North in H1 2021.8 However, for a full-year comparison, America, where 8 percent and 9 percent expect macroeconomic disruptions through the latter half worse conditions respectively.12 Collectively, these of 2021 will likely temper this growth to -3 to +2 sentiments likely reflect a relaxation of stimulus percent for 2021 versus 2019 sales overall. On the packages and the release of pent-up buying, and other hand, the luxury sector shows strong signs of point to the caution required next year in the face growth in China amid ongoing travel restrictions and of supply chain stresses and the challenges of increased domestic spend; the luxury segment is set maintaining stable growth. to reach +70 to +90 percent over 2019 sales by the end of 2021. 14

Exhibit 3: Non-luxury fashion sales in the US and China will broadly recover by 2021, while Europe will not recover until 2022 NON-LUXURY FASHION SALES IN MCKINSEY FASHION SCENARIOS, COMPARED TO 2019, % Global Europe US China 0 to +5 -2 to +3 +5 to +10 +2 to +7 -4 to +1 -1 to +4 -3 to +2 -15 to -10 2019 -20 2020 2021E 2022E -7 -20 -22 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E EUROPE MONTHLY NON-LUXURY FASHION SALES VS. 2019, % 80 Actuals Projection Europe’s non-luxury fashion sales are expected 60 to surge in early 2022 following pent-up demand 40 from the pandemic 20 Key drivers and headwinds for Europe include: 0 1. European economic -20 recovery to 2019 levels in 2022 with ~3% GDP growth -40 vs. 2019 -60 2. Long-term channel shift to online and new shopping -80 formats such as resale J FMAM J J ASOND J FMAM J J ASOND J FMAM J J ASOND 3. Supply disruptions and resulting price increases / inflation slowing demand 2020 2021E 2022E 1 Columns represent average of range. SOURCE: MCKINSEY FASHION SCENARIOS, MCKINSEY ANALYSIS, EXPERT INTERVIEWS 15

INDUSTRY OUTLOOK The State of Fashion 2022 Several forces are at work to create both last year’s survey, the health crisis was highlighted by opportunities and risks in 2022, including new just 10 percent of respondents as a top challenge for growth channels, consumer behaviour patterns and 2022, suggesting that measures to curb the impact of complications in the global economy. Executives the pandemic on business are proving their mettle in predict that supply chain pressures, the rise of some markets.15 Looking ahead, fashion companies domestic luxury spend amid muted international will need to address these interconnected challenges travel and the continuing evolution of digital by taking an active and vigilant approach to supply channels will have the biggest impact on their chain management while establishing priorities for business in 2022. To be sure, the disruption of global an ambitious and revitalised sustainability agenda. supply chains ranked at the top of the agenda for 84 percent of executives in the BoF-McKinsey survey, Alongside sustainability, executives are also as the turmoil experienced over the last two years — looking to “digital” and “consumer engagement” amid material shortages, transportation bottlenecks as opportunities for 2022, cited by 32 percent and soaring shipping costs, exacerbated by surging and 11 percent of fashion executives respectively. consumer demand in some markets — is expected to While both digital and sustainability opportunities remain in the year ahead.13 As the logistics industry are longer-term themes that are highlighted by continues to shift and challenges mount, executives executives year on year, consumer engagement is need to pay close attention to the transparency and a new opportunity cited by executives for 2022, control measures in their supply chains to meet reflecting the view that customer experiences consumer demand. with brands across online and offline channels are becoming even more important for brand Invariably, supply chain stresses will impact differentiation in a highly competitive marketplace. margins. As a result of these cost inflation pressures, Fashion players will therefore need to accelerate 67 percent of fashion executives expect to increase their use of data and analytics across business retail prices in 2022, with an average uplift of 3.2 functions to develop customer insights and adjust percent, while 14 percent of executives even expect their strategies accordingly.16 to increase prices by more than 10 percent. Since many players will be focusing on sales growth, price The year ahead will present a welcome shift increases will be used to offset narrowing margins. for some fashion players, having regained much of Still, 17 percent of executives expect to lower prices, the ground lost to the pandemic after nearly two with the most expectation for price decreases coming years of turmoil. Still, worrying signs, supply chain from the mid-market, perhaps due to the segment’s stresses and a degree of uncertainty across some ongoing squeeze throughout the pandemic.14 geographies and parts of the industry point to a need for prudence as an increasingly inconsistent Following supply chain disruptions, the overall picture emerges. At the same time, as overall second most prominent challenge on executives’ industry sales recover, fashion players will likely minds is the sustainability gap, cited by 15 percent of continue to suffer business disruptions through executives as one of their top three concerns for 2022 2022, with some fighting for survival as both in the BoF-McKinsey survey. However, 12 percent of pandemic-related and global economy aftershocks executives also rate sustainability as an opportunity are likely to emerge in the year ahead. All told, the in the year ahead, suggesting that any costs or state of the global fashion industry in 2022, defined challenges they encounter relating to sustainability by the 10 themes in this report, will be characterised may be outweighed by business benefits associated by new and persisting challenges tempered by fresh with improving their company’s impact on the opportunities to grow and evolve at a crucial time for environment and society. Compared with 45 percent most businesses. of executives who cited Covid-19 as a top challenge in Industry Outlook as of the beginning of November 2021. 16

Exhibit 4: Luxury fashion sales in the US and China will broadly recover by 2021, while Europe will not recover until beyond 2022 LUXURY FASHION SALES IN MCKINSEY FASHION SCENARIOS, COMPARED TO 2019, % Global Europe US China +90 to +110 +70 to +90 +60 2019 +15 to +25 +5 to +10 +5 to +15 -5 to +5 -15 to -5 -6 -30 to -20 -25 -35 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E 2020 2021E 2022E LOCATION OF CHINESE CONSUMER LUXURY FASHION SPEND, % SHARE OF TOTAL Outside of 65 30 35 40 Share of As travel shut down due Mainland 70 65 60 Mainland China to Covid-19 restrictions, China 35 2020 2021E 2022E spend expected domestic spend on luxury 2019 to increase by goods in China exploded as Mainland ~25pp from ‘19 spend previously allocated China to ‘22 abroad was repatriated to China. As a result, luxury markets in the US and Europe dropped, while China soared, also driven by duty-free incentives and local brand initiatives. SOURCE: MCKINSEY FASHION SCENARIOS, MCKINSEY ANALYSIS, EXPERT INTERVIEWS 17

The State of GLOBAL ECONOMY CONSUMER SHIFTS 01. 02. 03. 04. 05. Uneven Logistics Domestic Wardrobe Metaverse Recovery Gridlock Luxuries Reboot Mindset Recovery from The fashion industry is Travel has traditionally After focusing on the As consumers spend Covid-19-related reliant on an intricate been a key driver of likes of loungewear and more time online and economic shocks will web of global supply luxury spending, but sportswear for nearly the hype around the be uneven across chains that are seeing international tourism two years, consumers metaverse continues consumer markets and unprecedented is not expected to fully will reallocate wallet to cascade into virtual sourcing regions, as levels of pressure recover until between share to other goods, fashion leaders countries with strong and disruption. 2023 and 2024. To categories as pent-up will unlock new ways healthcare systems and With logistical capture the shift in demand for newness of engaging with high- economic resilience logjams, rising shopping patterns coincides with more value younger cohorts. outperform. In this shipping costs and set to shape the year social freedoms outside To capture untapped patchy environment, shortages of many ahead, luxury players the home. To anticipate value streams, players fashion players with kinds adding new should engage more these nuanced and should explore the international footprints layers of complexity, deeply with domestic sometimes paradoxical potential of non- will need to look at companies must consumers, rebalance preferences, brands fungible tokens, investment decisions rethink their sourcing their global retail should lean more on gaming and virtual with precision, strategies while footprints and duty- data-driven product fashion — all of reassessing local implementing cutting- free networks and development, adjusting which offer fresh conditions regularly edge supply chain invest in clienteling their inventory mix routes to creativity, while mitigating for management, and for local e-commerce accordingly to ensure community-building market-specific risks. building in greater channels. that assortments and commerce. flexibility to keep resonate with products flowing with consumers adjusting to customer demand in new lifestyles. the year ahead. ~4/5 49% 51% 37% 7.3 Approximately 4 out 49% of fashion 51% of 2019 air traffic 37% of fashion 81% of Gen-Z played of every 5 vaccines executives signalled flows between Asia and executives expect video games in the past distributed globally by supply chain Europe are expected to occasion wear to be six months, averaging 7.3 September 2021 were in disruptions as the top recover in 2022 a top-three category hours per week high- and upper-middle- theme to impact their for year-on-year sales income countries business in 2022 growth

Fashion 2022 FASHION SYSTEM 06. 07. 08. 09. 10. Social Circular Product Cyber Talent Shopping Textiles Passports Resilience Crunch Social commerce is One of the most In a bid to boost As the digitisation of Companies that rely experiencing a surge important levers that authentication, fashion businesses on brand appeal or in engagement from the fashion industry transparency and reaches new heights, the allure of fashion brands, consumers can pull to reduce sustainability, brands companies face more to attract and retain and investors alike its environmental are using a portfolio of threats of cyber attacks talent will need to as new functionality impact is closed-loop technologies to store and growing risks raise their game as and growing user recycling, a system and share product relating to improper competition from both comfort with the which is now starting to information with data handling. Amid within and outside the channel unlocks be rolled out at scale, both consumers and increased sophistication industry intensifies, opportunities for promising to limit the partners. To get the in cyber crime and leading to more seamless shopping extractive production most from these digital rises in consumer and vacancies next year. experiences from of virgin raw materials ‘product passports,’ regulatory pressure, As employees from discovery to and decrease textile which can help brands brands need to act upper management checkout. Though waste. As these tackle counterfeiting, urgently to shore up to the retail front use cases differ technologies mature, differentiate their defences and line reconsider their across global companies will need themselves and build invest more to make priorities, companies markets, brands to embed them into loyalty by enhancing digital security a must refresh their should double-down the design phase of consumer trust, strategic imperative. talent strategies for an on tailored in-app product development businesses must increasingly flexible, purchase journeys while adopting large- coalesce around diverse and digitised and test opportunities scale collection and common standards workplace. in technologies such sorting processes. and engage with pilot as livestreaming and projects at scale. augmented reality try-on. 37% 53% 45% 60% ~2/5 37% of fashion 60% of fashion Approximately 2 out of 53% of fashion 45% of fashion executives cited social executives have already 5 fashion executives executives say it is either employees cited “sense commerce as one of the invested or plan to invest plan to adopt product likely or very likely their of purpose” as one of top three themes that in closed-loop recycling passports in 2022 or company will experience the most important will impact their business next year have already done so a significant cyber attack factors in choosing in 2022 in 2022 to remain at their employer

The State of Fashion 2022 GLOBAL ECONOMY 01.  UNEVEN RECOVERY 02. LOGISTICS GRIDLOCK 20

01. UNEVEN RECOVERY Recovery from Covid-19-related economic shocks will be uneven across consumer markets and sourcing regions, as countries with strong healthcare systems and economic resilience outperform. In this patchy environment, fashion players with international footprints will need to look at investment decisions with precision, reassessing local conditions regularly while mitigating for market-specific risks. In the global effort to vaccinate people to be the most exposed to further humanitarian against Covid-19 and recover from the economic crises and deeper economic shocks. shocks related to the pandemic, some countries are better positioned than others. The key parameters “The pandemic is reversing hard-won that will shape recovery patterns in the year ahead development gains, adding to the problems facing include levels of health resilience — a function the most vulnerable. The post-Covid recovery of both Covid-related measures and domestic must not leave anyone, or any country, behind,” healthcare systems —and economic resilience. World Trade Organization director-general Ngozi Gaps will also be impacted by varying levels of Okonjo-Iweala declared in a 2021 plenary session, government fiscal support and the maturity of their calling for equitable access to vaccines and greater digital economies. In response, fashion companies trade cooperation. “Keeping global markets open is operating international businesses will likely need essential for a strong and sustained recovery.”19 to tailor strategies to local conditions, as well as take steps to mitigate risks and boost their supply Countries that lack the digital chain resilience. infrastructures for remote working, or whose economies rely heavily on manual labour, are A significant differentiator is access to particularly susceptible to further shocks. vaccines, which varies substantially between low- The fashion industry has seen workers in and high-income countries. Of the approximately manufacturing hubs impacted by ongoing Covid-19 5.5 billion vaccine doses that were administered outbreaks and associated shutdowns that have globally by September 2021, some 80 percent punctured production output. Throughout were in high- or upper-middle-income countries, 2021, outbreaks in Vietnam led to the closure of according to the World Health Organization.17 numerous factories affecting supply for companies Looking ahead, many low-income countries may such as Adidas and Swiss shoe brand On.20 not receive enough doses to vaccinate all adults Meanwhile, Ethiopia, Honduras and India also until well into 2022 or 2023.18 With the ongoing saw increased uncertainty around job security threat of new variants, these countries could stand and working conditions, while China’s zero-Covid policy continues to result in factory shutdowns.21 21

GLOBAL ECONOMY The State of Fashion 2022 Coupled with the slow distribution of vaccines in the unpredictable nature of viral outbreaks and some markets, these ongoing disruptions will have differences in fiscal and healthcare responses. In both upstream and downstream consequences the US, year-on-year GDP growth of 3 to 3.2 percent on fashion. is likely in 2022, according to McKinsey analysis.25 While the economy in China had regained GDP The global fiscal response to the pandemic levels from the third quarter of 2019 by as early as has been three times higher than the response the end of the first quarter of 2020, further year- to the 2008 global financial crisis, exceeding on-year growth of between 6.3 and 8.2 percent $10 trillion in the G20 alone.22 However, many is expected in 2022.26 Across the Eurozone, the countries struggling under high debt burdens have year-on-year GDP growth rate is predicted to lacked the firepower to drive recovery. For fashion, be approximately 5.3 percent. For example, in this meant some companies used the financial Germany, the forecast is 5 to 5.3 percent GDP support available to them to maintain labour and growth, following rising infections and accelerating budget balances, while others have faced prolonged inflation through mid-2021.27 Despite record difficulties. With many existing fiscal support numbers of Covid-related deaths and one of the schemes set to come to an end in the year ahead — most severe economic slowdowns, the UK outlook while others have already ended — companies will is brighter, with a forecast of 7.2 to 7.4 percent need to consider alternative strategies to support a in 2022.28 return to growth.23 Adjacent to fiscal and healthcare responses, The global fiscal response to consumer sentiment will play a large part in determining the speed of return to pre-pandemic the pandemic has been three social and working lives. Spending restrictions by consumers during Covid-19 lockdowns combined times higher than the response with stimulus payments boosted savings across key consumer markets such as the US, where to the 2008 global financial saving rates in 2020 were double that of 2019. This will translate into increased optimism next crisis, exceeding $10 trillion in year, particularly among younger and wealthier customers who will continue to drive spending the G20 alone. in fashion categories, particularly in the luxury segment.29 The spikes in spending that emerged in Looking ahead to the medium term, China during so-called “revenge shopping” periods McKinsey in partnership with Oxford Economics in 2020, when lockdowns ended and consumer has developed a range of scenarios24 for how confidence returned, are expected to play out in the virus will likely influence the recovery of some other fashion markets as they recover.30 individual economies, based on the varying levels of In the US and UK, these spending spikes will effectiveness of their healthcare systems and fiscal likely occur after the start of 2022, according to responses. While some countries are likely to see McKinsey analysis.31 their GDP growth return rapidly to pre-pandemic levels, others will likely face recurring health As a result of these and other factors, shocks and therefore weaker short-term growth or McKinsey Fashion Scenarios project an almost even prolonged downturns. complete recovery to pre-pandemic sales levels in 2022 in Europe, the US and China, with the latter’s In the scenarios analysed across fashion’s incremental growth in domestic luxury spend largest consumer markets, 2022 is broadly expected to be a year of growth. However, there will be variations across countries, reflecting 22

01. UNEVEN RECOVERY outperforming.32 Globally, these scenarios suggest economy. This, combined with the inflationary that total fashion industry sales could surpass impact of additional supply chain disruptions 2019 levels by 3 to 8 percent in 2022, with the — including shipping industry consolidations, luxury segment surging by 15 to 25 percent over global labour shortages, longer-term regulatory 2019 levels. changes and a burgeoning energy crunch — and other macroeconomic and geopolitical risks, means However, lower- or middle-income significant and unpredictable challenges will countries that have lower vaccination rates face remain in the year ahead. the risk that Covid-19 could become endemic, causing cyclical waves of the virus and subsequent “We are living in very uncertain and slowdowns in economic growth.33 On top of this, the uncharted times,” declared the International highly transmissible Delta variant has accelerated Monetary Fund’s chief economist Gita Gopinath the spread of Covid-19 in some countries, with at an October 2021 press briefing for the its high levels of vaccine resistance disrupting organisation’s world economic outlook. “We have the recovery trajectory. For example, in India, never seen a recovery of this kind… and we have to the variant’s proliferation in the first half of 2021 be particularly vigilant.”38  pushed consumer sentiment to a record low and disrupted fashion industry suppliers.34 While As fashion leaders consider potential spending has rebounded in urban areas especially, scenarios for the markets in which they operate with the country’s GDP predicted to expand by in the year ahead, they will need to plan for around 8 percent in 2022 according to McKinsey, accelerating growth in some and delayed recoveries supply chains remain impacted amid ongoing in others. As a result, they should adopt market- factory closures. 35 specific strategies that reflect conditions in their key centres of commerce. Those who navigate this Across other regions, growth projections uneven outlook by better anticipating granular remain uneven and subject to rapid change. In demand trends across specific income groups, cities Latin America, McKinsey projects between 2 to and demographics within each market will likely 5 percent GDP growth in Mexico in 2022, which fare better (see “How the Global Wealth Gap Is is linked to growth in the US economy, while Impacting Fashion” on page 26). Brazil is set to experience slower growth of 1.5 to 3 percent.36 In the Middle East, growth is expected Given such a mixed global picture, to pick up overall, driven by the loosening of travel restrictions and increased oil output. Meanwhile there will likely be significant in Africa, the outlook is mixed and will depend on vaccine dissemination and the severity of potential variation in recovery profiles across new waves of Covid-19. In Nigeria for example, the outlook is increasingly muted for 2022, with growth consumer markets and sourcing expected to be 2 to 4.5 percent following another wave of the Delta variant in 2021.37 countries that play a critical role in Given such a mixed global picture, there will fashion’s supply chains. likely be significant variation in recovery profiles across consumer markets and sourcing countries Furthermore, given the supply chain that play a critical role in fashion’s supply chains. uncertainty embedded in this outlook, fashion Moreover, the outlook remains volatile as Covid-19 brands should reassess the risks of relying on each continues to send shockwaves across the global manufacturing hub in their sourcing footprint while weighing up the need for supply chain resilience with the increased cost of sourcing 23

GLOBAL ECONOMY from new and diversified locations. In any event, meet consumer demand as it ebbs and flows across brands should consider avenues to strengthen markets. By planning for an uneven recovery and their supply chains and logistics networks, where allocating resources accordingly, fashion players a renewed focus on flexibility, sustainability, are more likely to achieve a smoother upward transparency and cost management will help them growth trajectory in 2022 and beyond. Exhibit 5: Some of the world’s largest economies can expect robust recovery in 2022 The State of Fashion 2022REAL GDP PROJECTIONS 2019-2022, INDEX (100=Q4 2019)REAL GDP PROJECTION 2021-2022, % CHANGE People queue to register for Covid-19 vaccines in Gurugram, India. Parveen Kumar/Hindustan Times via Getty Images. World China US Eurozone Scenario 1: Recurring health impacts with slower near-term growth 125 7.7 8.2 120 115 4.5 5.0 4.1 5.3 110 3.0 2.5 105 100 2021 2022 2021 2022 2021 2022 2021 2022 95 90 World China US Eurozone1 85 Scenario 2: Recurring health impacts with strong 2019 initial growth rebound and recovery 11.8 7.0 7.0 6.3 6.3 5.3 4.6 3.2 2021 2022 2021 2022 2021 2022 2021 2022 2020 2021 2022 World China US Eurozone1 1 19 EU member states that have adopted the Euro as their currency: Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Greece, Slovenia, Cyprus, Malta, Slovakia, Estonia, Latvia and Lithuania. SOURCE: MCKINSEY RECOVERY SCENARIOS, IN PARTNERSHIP WITH OXFORD ECONOMICS, JUNE 2021 24

25

IN-DEPTH How the Global Wealth Gap Is Impacting Fashion Widening inequality between income groups and other demographics could exacerbate the already uneven economic recovery from the pandemic which is expected across countries in 2022. How fashion companies respond to these disparities will depend on the local context of each consumer market, operating hub and sourcing region that make up their global footprints. by Casey Hall The State of Fashion 2022 The neighbourhood of Boa Viagem in Recife, Brazil. Diego Herculano / NurPhoto / Getty Images. When the president of the World Bank lower-income countries from the impacts of the appeared at a virtual press conference in October Covid-19 pandemic.39 2021 for the organisation’s annual meeting, his account of the growing inequality gap was Since countries with stronger healthcare unambiguous. “As you know, the world is suffering systems and economic resilience are likely to from a dramatically uneven recovery. Inequality outperform others in 2022, business performance is worsening across country groups,” said David will vary across many of the consumer markets, Malpass, referring to the different recovery operating hubs and sourcing regions that speeds and trajectories of higher-income and underpin the global fashion industry. But fashion companies will need to do more than just take 26

GLOBAL ECONOMY these differences into account as uneven recoveries have noted these shifting patterns are now doubling across countries will be exacerbated by uneven down on certain states and cities. recoveries within countries. “The luxury brands that have been in the Indeed, the recovery picture is far more market for a long time… are now seeing that Brazil diverse, complex and nuanced at the sub-national is bigger than just states like São Paolo and Rio de level, complicated by disparities in each domestic Janeiro [in the Southeast region]. They’re seeing context. Within countries, some provinces, states, opportunities in the South region [where we have regions and cities were impacted unevenly by the malls and outlets in Rio Grande do Sul and Santa pandemic or saw economic gaps between them Catarina states] and in the Central-West region of widen as a result. the country like Brasilia [where we have a mall in the Distrito Federal] and places where the cultural The recovery picture is far industries have been booming [in spite of the pandemic] and a lot of money is flowing into like more diverse, complex and Goiânia [in Goiás state],” he said.42 nuanced at the sub-national Different demographic groups within countries were also unevenly affected by the level, complicated by pandemic, with the nature of impacts influenced by factors such as socioeconomic group, occupation disparities in each domestic type, educational attainment, race, ethnicity, gender and others.43 Due to the intersectional context. nature of some of these characteristics, pre-existing inequalities between cohorts are often reinforced In the UK, for example, the pandemic has or exacerbated by a widening wealth gap, which can made the country’s “North-South divide even lead to more severe outcomes for affected groups. worse,” according to a report by the Centre for Cities, a London-based think tank. The health and In some countries, early discussions of economic impact of the crisis has made it “four “V-shaped” or “U-shaped” economic recoveries from times harder” to narrow the divergence between the pandemic have largely given way to a “K-shaped” people’s living standards in the North and Midlands model, in which the wealthiest people saw a quicker regions and those in the South, with cities like economic recovery, and those at the lower end of the Birmingham and Hull therefore predicted to face income spectrum saw their economic opportunities greater challenges than others.40 dwindle or stagnate. This has happened in both developing and advanced economies. Fashion companies considering their expansion priorities in a given market or refining In the US, for example, poverty increased their assortment mix across an existing retail after some of the benefits that were part of a footprint would be wise to keep such shifts in mind. government relief package ended in 2020, according to data published in a joint report by researchers at A similarly uneven picture has emerged three universities in December of that year.44 The across cities and regions in many other countries. authors noted a disproportionate impact on some In Brazil, longstanding economic disparities groups and communities: “The increase in poverty between certain states have heightened since the in recent months was more noticeable for Blacks, onset of the pandemic,41 such as significantly higher children and those with a high school education or poverty levels in the states that make up the North less,” reads the report. A disproportionate impact and Northeast regions compared to wealthier states between different demographic groups has been in the South and Southeast. observed around the world, in countries as diverse as Japan,45 Russia46 and Argentina.47 According to Carlos Jereissati Filho, outgoing chief executive of Iguatemi Empresa de “The most marginalised groups always get Shopping Centers, a retail group which owns malls across Brazil, international brand partners that 27

GLOBAL ECONOMY The State of Fashion 2022 hit the hardest,” Wendy Edelberg, director of the levels or distributing merchandise by value segment Hamilton Project, an economic policy arm of the across countries, it obscures important detail about Washington DC-based Brookings Institution, told sub-national disparities. Decision-makers must a US media outlet in 2021.48 “But what is so unusual weigh up risks and opportunities by studying subtly is, for a lot of other groups, it’s not that they’re being different and sometimes rapidly changing local hit less — it’s that they’re seeing no pain at all [or] market conditions across different subsets of society they’re doing well,” she added. “For a lot of people, and different expanses of each country, which are the crisis is over. It’s invisible to them.” influenced by a unique context of political, cultural, economic and historical factors. This is certainly not the case for the 97 million people around the world who were pushed Consider the following four snapshots which into extreme poverty in 2020 by the pandemic, illustrate how uneven recoveries within countries now living on less than $1.90 per day.49 Among could impact the global fashion industry in 2022. the working poor are many who are employed by manufacturers and raw materials producers in the The widening wealth gap could trigger policy developing world that supply global fashion brands. changes that impact specific segments, such Many have been at the sharp end of the Covid-19 as the luxury sector in key markets like China. crisis, increasingly vulnerable to factory closures and exploitation.50 According to analysis in the Even in China, where comparatively “BoF Sustainability Index,” a significant proportion effective early management of the Covid-19 of fashion companies’ commitments to pay workers pandemic allowed it to be one of the only major living wages are not backed by concrete action.51 economies to experience growth in 2020,54 recovery has been uneven across different demographics. Meanwhile, the number of people accruing extreme wealth during the pandemic period has Chinese President Xi Jinping’s calls to risen precipitously. A record 493 people joined rein in “excessive incomes” can be seen as a direct Forbes’ World’s Billionaires list in the year spanning result of widening inequality in the country, which March 2020 to 2021,52 amounting to the creation has become more pronounced since the arrival of a new billionaire every 17 hours on average. The of the pandemic. Like in many other countries, growing number of people who are either very rich poor workers and small businesses bore the brunt or very poor has meant that the global middle class, of China’s Covid-related economic impact, with which had been an expanding demographic for many Gavekal Research estimating that the bottom 60 years, shrank by 54 million people in 2020.53 percent of Chinese households lost about $200 billion in income during the first half of 2020.55 These shifting dynamics clearly point to numerous moral imperatives for governments, Meanwhile, the Hurun Research Institute societies and businesses in the years ahead. Yet, reported that the collective wealth of the members in addition to their collective and individual of its 2020 China rich list — made up of 2,398 responsibilities to help tackle inequality across the people with individual wealth of over 2 billion yuan countries where they operate, fashion companies (approximately $312 million) — increased more that must also prepare for the many potentially year than in any other during the 22-year period the profound business implications that such organisation has been compiling the list.56 disparities present. As they decide where and how to invest, leading fashion players will determine In China and other countries, growing how unequal recovery speeds and trajectories affect inequality undermines the social contract between them (see “Uneven Recovery” on page 21) in more the government and its people, whose satisfaction granular terms. rests partly on the belief that they will collectively continue to grow more prosperous. Indeed, however useful a bird’s-eye view on the wealth gap may be for identifying living wage Though some luxury analysts are concerned that new policy interventions to curb income 28

IN-DEPTH inequality could be implemented which may Futshane, author of a May 2021 report prepared hit the luxury market (an October 2021 China for the United Nations about the intersection of International Capital Corp report predicted, for inequality and recovery, “upward mobility [in example, that China would expand its consumption South Africa] is greatly influenced by gender, tax to cover more luxury consumer goods),57 others race and class,” and “all of these dimensions of suggest that any impact on the bottom line is likely poverty and inequality have been heightened by the to be muted for most luxury brands. Covid-19 pandemic.”61 The luxury sector’s ultra-wealthy VIP South Africa has a “heavily racialised” consumers, the likeliest target of any overt moves to labour market, according to a report by the curb perceived excesses, are defined by investment country’s department of statistics, in which Black bank Jefferies as those who spend more than South Africans are not only the most likely to be €100,000 ($117,000) a year on luxury goods. This unemployed, but also earn the lowest wages. Whites cohort is estimated to comprise around 110,000 earn substantially higher wages than all other individuals, accounting for a quarter of total population groups.62 Chinese spending.58 Manifestations of this longstanding Though this is a significant proportion inequality have been felt in both direct, as well as a of the luxury market, it is not the main driver of multitude of indirect, ways by fashion retailers. One luxury spend in China. Rather, that is the middle recent example was the attack on shopping malls and and upper-middle class, a cohort which expanded other retail centres as part of looting and protests by 350 percent between 2009 and 2020.59 A push that began in July 2021. The unrest was nominally to lift more of China’s population into this group triggered by the jailing of former President Jacob by promoting a so-called “olive shaped” economy Zuma, but it also signified the release of longstanding (shrinking economic extremes at each end and pent-up grievances felt by Black South Africans who growing the centre) could actually be positive have been hit hard by job losses and rising living for luxury sales in the long term, some analysts costs as a result of the pandemic. contend. Despite a slowdown in GDP growth in Still, as future policymaking plays out, recent years and a contraction of per capita income analysts see 2022 as a pivotal year for luxury since 2014, international fashion retailers have brands. Some may consider opportunities to shift continued to enter the South African market and, marketing, distribution and product development in some cases, have succeeded in taking market in ways that align to consumers who are either less share from local chains. The middle class and inclined to exhibit their wealth or prefer a more lower-income groups in South Africa have been discreet experience. squeezed throughout the pandemic period, denting business at shopping centres, but hopes are high for Events in South Africa highlight how a relatively fast recovery among some high-end intersectional inequality can create a mall executives. destabilising force for future high-growth retail markets. According to Preston Gaddy, general manager of Sandton City and Nelson Mandela Even before the pandemic, South Africa had Square in Johannesburg — both of which emerged one of the highest, persistent economic inequality unscathed from the unrest, though Sandton City rates in the world, with a consumption expenditure did close its doors for a period as a precautionary Gini coefficient, which measures the deviation measure after consultation with police — the from equal income distribution, of 0.63 in 2015 number of weekend shoppers between 2021 (0 represents perfect equality and 1 represents lockdowns bodes well for 2022. In an echo of other maximum inequality).60 According to Vuyokazi markets, repatriated spending on luxury goods has helped soften the blow during the pandemic. 29

GLOBAL ECONOMY The State of Fashion 2022 “‘Mrs Sandton’ cannot go to the Champs- According to Rajagopalan, the South region Élysées to buy her LV bag, so she’s been buying of India, and most of the country’s North region, locally,” he said, referring to an archetypal where malls and retailers were open for business customer at the shopping centre seeking brands like “almost all the way through [the pandemic]” in Louis Vuitton. “Global luxury brands are saying, some states, have seen a faster retail recovery in ‘It might be a small dot on the edge of the African the wake of India’s second wave. By August 2020, continent, but the numbers being posted by luxury an RAI survey showed the North had recovered 98 retailers in South Africa [are] notable and we need percent of retail sales (versus the same month in to pay attention.’” 2019) and the South had reached 97 percent. Gaddy said that brands from Adidas to However, in the country’s East region, Alexander McQueen have continued opening, “there have been some ups and downs,” he expanding or investing in Sandton City. He believes said, especially in the Northeast region, where more luxury entrants are eyeing South Africa persistently high Covid-19 case numbers resulted in as a gateway to the continent, a region which is more restrictions. increasingly on their radar. Others, however, are less certain that those who can afford to drive South As one of the first states that went into Africa’s consumer comeback in 2022 and beyond lockdown and one of the last to emerge from can necessarily be counted on to do so. Covid-19 restrictions, Maharashtra in India’s West region, which boasts one of India’s largest “I think we are going to see a huge dent to economies64 and is home to the city of Mumbai, confidence… and maybe [we’ll also see] another initially lagged other regions in its recovery. wave of emigrations,” explained Sasfin Bank senior equity analyst, Alec Abraham. “Where we could It is not yet clear how these divergent have had an uneven but something of a recovery in recoveries will play out in the year ahead. This is more discretionary categories in retail, the fear that in part due to the dynamic and complex nature of many people experienced during those riots will income inequality and other disparities between certainly impact that recovery in 2022.” people living in India’s regions, states and cities. However, there will almost certainly be perceptible A local approach to controlling India’s differences which require diverse responses from Covid-19 outbreak has led to uneven retail global fashion companies as they decide how to recovery speeds across different regions of invest across the country. the country. Overall, Rajagopalan says the “India story” In late 2021, the recovery of the Indian is as compelling as ever for the broader retail retail sector from the country’s devastating second sector: “India has a young population; its middle wave of Covid-19 infections was still underway. class is growing; per capita income is growing According to Retailers Association of India (RAI) above the $2,000 level; all these stories are still chief executive, Kumar Rajagopalan, recovery has there. If you consider [all that alongside the return been uneven, not only across income groups — of] government spending and employment… the income inequality has broadly been widening over market for retail should return to its full might the last 20 years in India63 —but also geographically. in 2022.” Unlike in 2020, when India’s pandemic plan According to RAI’s September 2021 business included a lengthy nationwide lockdown, lockdowns survey, nationwide retail sales had already reached in 2021 were mostly rolled out and lifted on a 96 percent of comparable levels in 2019, boosted by state-by-state basis. With different durations and the beginning of India’s festive season, which runs severities of restrictions, retailers across the country through to December, and the return of weddings, naturally experienced different economic impacts. many of which were postponed due to restrictions on people gathering. 30

IN-DEPTH Women’s employment-to-population Both industries have been beneficiaries ratios declined more than men’s during the of Saudi Arabia’s Vision 2030 master plan for pandemic but the impact of the gender gap economically diversifying the kingdom away from on economic recovery will depend partly on reliance on oil, spearheaded by Crown Prince local local market conditions like those in Mohammed bin Salman Al Saud. Growth of the Saudi Arabia.65 Saudi service sectors is a key pillar, particularly those that also boost domestic consumption and “Social and economic inequalities tourism. By 2020, 26 percent of Saudi women have been exacerbated, undermining women’s were working in the wholesale and retail sector, economic security and resilience against shocks,” according to figures from the Brookings Institution. said Michelle Bachelet, UN High Commissioner for Human Rights, explaining the reasons for a An exodus of foreign workers during the growing gender gap over the pandemic period in a pandemic and a relatively early retail reopening 2021 address. “[Yet] the majority of socioeconomic after the lifting of restrictions unlocked even Covid-19 responses adopted by states are more opportunities for women in the country. surprisingly gender-blind, often failing to address Saudi women are more likely to replace expatriate the specific needs of women.”66 workers than Saudi men in some settings, according to Brookings, and they are also more likely to The need to work from home and to work in service sectors like fashion and retail. home-school children has prompted many women Though this is partly driven by their comparative to drop out of the labour force since the beginning willingness to work for lower wages, both Saudi of the pandemic. According to estimates by the women and men are paid significantly more than International Labour Organization (ILO), women’s foreign workers.70 employment worldwide declined by 54 million in 2020.67 While there are questions around how permanent the shift to local employees will be for There have been some anomalies, though. In blue collar and manual labour sectors, white collar Saudi Arabia, despite fears the pandemic would set jobs and those in the fashion and retail sectors are back recent progress in labour force participation, more likely to remain open to local women. The the number of women in the country’s workforce country’s overt “Saudisation” policy, which compels actually grew 64 percent in the two years from companies to allocate a certain proportion of jobs late 2018 to the end of 2020, according to World to native Saudis, should help encourage that. Bank data.68 Though part of that timespan covers a period prior to the pandemic, economists at the “For the first time, brands [are employing international organisation have specifically noted Saudi women and therefore] have direct access to evidence of a continued rise since the onset their female consumers via their teams… and the of Covid-19.69 result is [that brands are] having more insight into the consumer behaviour of their target market,” Though years of gender inequality and laws explained Marriam Mossalli, founding partner limiting Saudi women’s participation in society and senior consultant of Jeddah-based luxury prior to reforms that started in 2016 mean the communications and marketing consultancy country is coming from a very low baseline in Niche Arabia. terms of female labour force participation, the recent lift in employment rates bodes well for the Members of this new female workforce are country, assuming it is accompanied by a more also looking for new work-appropriate items for comprehensive female empowerment agenda. More their wardrobes, a change she suggests more global working women is also good news for the fashion fashion brands should note. “It’s not just attire [for and retail industries. women who] lunch anymore.” The author of this article focuses on global markets in Asia-Pacific and other regions at The Business of Fashion. 31

The State of Fashion 2022 32

02. LOGISTICS GRIDLOCK The fashion industry is reliant on an intricate web of global supply chains that are seeing unprecedented levels of pressure and disruption. With logistical logjams, rising shipping costs and shortages of many kinds adding new layers of complexity, companies must rethink their sourcing strategies while implementing cutting-edge supply chain management, and building in greater flexibility to keep products flowing with customer demand in the year ahead. The ship that blocked the Suez Canal undergoes maintenance. Tang Ke / Costfoto / Barcroft Media via Getty Images Around half of global businesses suffered of supply chain management company Li & Fung, supply chain disruptions in 2021, with one in eight which counts fashion brands among its clients.74 severely affected.71 This was the fallout from a combination of global and local factors, including Three structural factors are at play in material and component shortages, transportation creating these conditions, which add to the bottlenecks, staff unavailability and rising shipping impact of the Covid-19 pandemic: operational costs.72 Many of these challenges show no signs of challenges (caused in part by soaring demand), abating, and the majority of business leaders expect shifting industry dynamics and new waves of trade logistical roadblocks to persist through 2022 and agreements and regulation. beyond. Indeed, 87 percent of fashion executives in our BoF-McKinsey State of Fashion 2022 Survey After months of lockdowns, consumer expect supply chain disruptions to negatively demand is surging in markets such as the US and impact margins next year.73 UK. However, some brands have struggled to obtain products on time, with manufacturing and It is likely that logistics challenges will only transport delays — on sea, in the air and on land intensify in 2022, with global surges in demand — leading to chronically depleted inventories in clashing with unpredictable pressures on freight some cases. Brands with manufacturing operations services, ports and terminals. There are growing in regions severely impacted by the pandemic concerns that increased levels of disruption and have faced staff shortages and factory closures. In price hikes could last longer term, or even represent August 2021, Adidas said that pandemic-related a new logistical normal for the global fashion supply chain disruptions could cost the company up industry. to €500 million ($586 million) in sales.75 “The supply chain assets are running at full Outbreaks of Covid-19 have also worsened capacity. It’s bursting at the seams. So my opinion port congestion and restricted ship availability. is that these frustrations will continue until at In July 2021, container ship supply was 11 percent least the second half of [2022 or]… even extend lower than the previous September. The situation into 2023,” said Joseph Phi, group chief executive was exacerbated by the limited availability of steel container boxes, as surging demand to 33

GLOBAL ECONOMY The State of Fashion 2022 restock inventories amid shipping disruptions it will set companies back between $21,000 and left thousands of boxes at sea, in freight hubs or in $23,000.83 Looking ahead to 2022, shipping prices ports.76 The dislocation contributed to skyrocketing will likely continue to climb and remain above costs and undermined brands’ efforts to keep their pre-pandemic levels in the longer term, as pace with demand. In response, some turned to shipping companies continue to consolidate and air freight and trans-continental rail alternatives, new capacity only slowly emerges.84 leading to new capacity jams, longer waiting times and rising costs in air and rail freight, too.77 “What happened in the Suez Alongside logistical challenges, fashion Canal… is a call to action that and shipping companies are facing a range of new regulatory and trade hurdles. Among incoming we need to identify and build regulations is the EU’s proposal for a world-first carbon border tax and new restrictions on contingencies.” emissions from ship engines. Companies must manage these alongside challenges such as import In response, fashion brands may need to bans from China’s Xinjiang region.78 For companies abandon the idea that cost increases are hiccups, shipping between the EU and the UK, Brexit adds instead planning for a permanently more expensive new layers of paperwork and customs delays. logistical future.85 Still, some fashion players will Equally, ongoing trade tensions between the US be more exposed to these factors than others. There and China threaten to exacerbate supply may be opportunities for luxury brands to pass on chain disruptions.79 higher costs to customers by raising prices.86 In 2021, the vulnerability of maritime Globally, pressure on containers and chokepoints was highlighted by the Suez Canal shipping will continue to require logistics players blockage, when a container ship became wedged in to deprioritise some shipments, while a lack of the canal, preventing shipping in both directions. road-transport drivers, both domestically and The six-day event delayed the transport of billions internationally, will exacerbate operational costs of dollars’ worth of goods.80 Though such events and delays. In holding back the delivery of products are rare, they demonstrate the industry’s reliance to stores and homes, these conditions will continue on a limited number of supply routes. “[With] the to make it difficult for brands to respond to Panama Canal, there’s always a threat of closure, booming consumer demand. To further complicate either by accident, or maybe intervention by matters, customers have become accustomed government and other factors too [but]… what to super-fast delivery, both online and in store, happened in the Suez Canal… is a call to action with delivery delays putting a strain on customer that we need to identify and build contingencies. satisfaction,87 while adjacent trends such as Given what’s going on, overland freight [via train accelerating demand for sustainable materials are between China and Europe] is definitely a viable putting additional pressure on supply.88 alternative,” said Phi of Li & Fung.81 In the longer term, brands will need to Today, it costs up to six times more to ship balance the desire to enhance speed to market a container from China to Europe than it did at the with the need to alleviate supply chain pressure. start of 2019, and up to 10 times more from China That may mean streamlining production, logistics to the US West Coast.82 In real terms, shipping a planning and booking capabilities, as well as 40-foot container from Asia to the US West Coast putting in place contingency plans and alternative cost between $1,600 and $2,100 in July 2019; now suppliers, while remaining as agile and flexible as possible. To do this, some companies are bringing 34

02. LOGISTICS GRIDLOCK shipping in-house: in late 2021, companies such as “As an industry, we still have too long lead Walmart and American Eagle invested in dedicated times,” said chief executive of PVH Corporation container services to avoid third-party shipping Stefan Larsson. “There is a big opportunity to congestion.89 In the last mile of delivery, dynamic better match planning and buying to demand, and rerouting and drone delivery could present that’s something that we learned when Covid hit. alternative solutions to short-staffed last-mile The second-biggest learning is to build resilience distribution in some circumstances. into the supply chain now.”92 At the same time, brands need to work with Brands need to work with their their suppliers to scale up nearshoring and reshoring suppliers to scale up nearshoring activities to build production capacity and safeguard and reshoring activities to build access to raw materials. Indeed, a number of production capacity and safeguard European companies doubled down on nearshoring access to raw materials. efforts through the pandemic, moving textile manufacturing from China to Turkey to minimise Of course, adapting operations and delays.90 Over 70 percent of companies plan to adjusting to rising demand will come at a cost to a increase the share of nearshoring close to company company’s profitability. Shoe brand Steve Madden headquarters, and roughly 25 percent intend to reshore sourcing to their headquarters’ country, according to McKinsey’s Apparel CPO Survey 2021.91 Exhibit 6: Multiple factors will negatively impact supply chains in 2022, with higher shipping and materials costs as the main concerns OPERATIONAL TRENDS EXPECTED TO IMPACT1 SUPPLY CHAINS IN 2022, % OF RESPONDENTS 74 71 69 58 52 48 37 35 Inflation of Inflation of raw Transport Port closures Availability of Geopolitical Vendor Changes in trade capacity and disruptions raw materials trade tensions shutdowns agreements shipping costs material costs 1 Responded “very high impact” or “high impact” SOURCE: BOF-MCKINSEY STATE OF FASHION 2022 SURVEY 35

GLOBAL ECONOMY The State of Fashion 2022 reported that supply chain disruptions were forward. VF Corporation chairman, president behind a $30-million cut in its first-quarter sales and chief executive Steve Rendle said that he sees expectations in 2021, while Asos has warned that “significant opportunities in creating a hyper- supply chain pressures and consumers returning to digital supply chain.”97 Meanwhile, H&M Group pre-pandemic behaviour could reduce 2022 profit chief executive Helena Helmersson suggested that a by over 40 percent.93 There will likely be more profit lot of the firm’s supply chain development is focused warnings attributed to supply chain issues in the on technology and that it is a priority to find year ahead. “competitive advantages in a supply chain context when it comes to speed, agility, cost efficiency “It has been difficult to plan and price.”98 inventory flow with much With logistics caught in the industry’s crosshairs like never before, decision-makers precision... We do not expect should think carefully about how to adapt. In 2022, brands will aim to regain control of supply those conditions to change chains while communicating potential delays with customers at each step. It will pay to consider any time soon.” control towers, in-house distribution, nearshoring of manufacturing and cutting-edge inventory Given the hefty bottom-line implications of management, all while securing early access to raw logistical gridlocks, many fashion executives are material supplies. working hard to find solutions. “It has been difficult to plan inventory flow with much precision,” said Leading brands will collaborate closely with Erik Nordstrom, chief executive at Nordstrom. “We logistics providers, communicating frequently and do not expect those conditions to change any time expecting that providers will hold more cards in soon.”94 Common practical measures have included negotiations. To keep a watchful eye on finances at introducing agile ways of working to improve a time of rising supply chain costs, they may also efficiency, upgraded inventory management, consider using a zero-based budgeting system, reimagined supply chain organisations requiring all costs to be re-justified at each budget (incorporating visibility-enhancing solutions) and review. In short, as the pressure intensifies, careful technologies such as sophisticated dashboards planning and a deeper integration of supply chain known as digital supply chain control towers.95 considerations into decision-making will become table stakes in the year ahead. As leaders innovate to create efficiencies, there is an imperative for slower-moving brands to expand their focus from efficiency initiatives to digital and operational enhancements which help to better plan and track logistics. In addition, expectations for prolonged logistical turmoil will encourage larger brands and retailers to consider more fundamental solutions. It is likely some will explore cross-functional or even vertical integration, such as bringing distribution or production in-house.96 Fashion executives have pointed to further digitisation of supply chain operations as the way 36

EXECUTIVE INTERVIEW Li & Fung: Facing up to Vulnerabilities in the Supply Chain Joseph Phi Group Chief Executive, Li & Fung In its 115 years of doing business, Hong It’s difficult to imagine the Kong-based supply chain management challenges that faced Joseph Phi company Li & Fung has seen off many when he was promoted to group challenging periods but the latest logistics chief executive of Li & Fung in crisis of container shortages, price hikes, October 2020. Not only was a logjams and threats to vital shipping routes pandemic raging, causing untold is unprecedented. Group chief executive complications in global supply Joseph Phi says fashion brands can chains, but his company had only nevertheless boost their resiliency if they just delisted from the Hong Kong diversify their post-pandemic sourcing base, stock exchange after 28 years adopt new technologies and invest in serious of public trading. Now, supply contingency planning. chain stressors, including port shutdowns, a container shortage — by Casey Hall and the rapid rise in freight costs, are front of mind for both Phi and the fashion executives who rely on him to provide solutions for international sourcing, production and logistics. In 2022, responsible supply chain management means expecting even more of these unexpected shocks. Future-proofing supply 37

GLOBAL ECONOMY The State of Fashion 2022 chains requires sustainable external shocks, just like the you are only as strong as the diversification, technological [March 2021] Suez Canal closure weakest partners. innovation and a wholesale and the driver shortage in the reframing of the concept of UK following Brexit. During Your parent company the “value,” he says. Instead of trying normal times, frankly, we can Fung Group was one of 30 to wring out every ounce of cost withstand these shocks, but this global fashion and textile from the chain, value should time around they had an out of industry companies to first be captured by decreasing proportion impact because the sign on to the G7 Fashion Pact complexity, shrinking lead times whole supply chain is running in 2019, committing to key and reducing the financial cost at full capacity. So what this environmental goals. What of doing business while also pandemic has done is expose kind of tangible progress have reducing the cost that the fashion vulnerabilities across the entire you made so far? industry inflicts on people and supply chain. the planet. We need to address the Do you think businesses will environmental impact of the In 2021, there were port look back at this period as fashion supply chain. Li & closures, shipping container a point at which they made Fung’s technology spin-off, LFX, shortages, freight cost surges significant changes in the recently launched 3D-as-a- and more. How long will this running of the global supply service through a company we last and which challenges do chain? call UNIFi3D. In the past, a lot of you foresee carrying over into products were air freighted for 2022? I truly believe so. The pandemic approval, back and forth [until has shaken the very core and they are approved]. Essentially, Brand owners, retailers, the very foundation of how the the whole thing now can be done consumers, I think, even fashion supply chain has been in a 3D manner, so you eliminate suppliers, are starting to adapt to built. It was built on efficiency by waste during this process. The this so-called new normal. The squeezing every ounce to make shortening of the whole product irony is that this [consumption] it cost effective. There is a need development cycle also means rebound is adding pressure to a for a new equilibrium, and this companies can give themselves supply chain that’s already under will include diversification of the more time to read the market, a lot of stress. Now the containers sourcing base, instead of putting and with better intelligence and the capacity, they are in the all of your eggs in one basket. In develop products that have the wrong place and this imbalance the past, brand owners rarely highest probability of success, has resulted in a phenomenal rise needed to think about supply reducing the number of SKUs. So in freight rates, which together routes. Now, you’ve got to think of this reduces inventory, and then with a shortage of containers the trade lanes that you should be reduces inventory waste. It’s and lack of vessel space, will in. Of course, people need to think going to be game-changing, in slow down this global economic about the whole digitalisation of my opinion, because inventory recovery, unfortunately. My the supply chain too and you’ve [waste] is the biggest cost to the opinion is that these frustrations got to make it more transparent brand owners and retailers as well will continue until at least the so that it can facilitate decision- as [one of the] biggest negative second half of 2022, if Covid is making. impacts on the environment. under control, and if the ports and the factories are operating What is the most important What do you think the fashion with some sort of normalcy. If takeaway for brands? industry has learned from the things are not under control, then Suez Canal blockage? this may even extend to 2023. I think brand owners and retailers need to rethink the In the past, brand owners To what extent do you think relationship between themselves defined value in a way that was some of these problems would and the suppliers. You’ve got to always skewed towards the have hit the fashion industry, treat them as partners; you’ve demand, downstream side of the regardless of the pandemic? got to treat them as a critical chain. My sense is that the Suez component of the entire Canal incident is highlighting There were some unforeseen ecosystem. In a supply ecosystem, to everybody that we need to 38

EXECUTIVE INTERVIEW start investing in solutions that port city of Duisburg in Germany. they can enter ASEAN countries manage the upstream supply side, This agreement will definitely largely duty-free, so it softens the and form greater partnerships accelerate our expansion into cost of movement and transport. with your suppliers and vendors, Eurasia. For me, and for us as a your freight forwarders and your company, that’s the way to go. Do you think there’s an overall shipping lines. decreased appetite for riskier Despite recent waves of sourcing locations, such as What about the potential for offshoring from China and Ethiopia and Myanmar, even conflict in the South China international trade disputes if they are lower cost? Sea, is that a geopolitical involving China, many fashion factor the fashion industry companies are still reliant As a company, we have started needs to consider? on Chinese suppliers. In to look at Africa. In particular, this new, more diversified we’re talking about Egypt, I’ve lived in this region nearly my era of sourcing, which Ethiopia, Kenya, Madagascar entire life [and] my sense is that trade agreements are most and the like because they’re the probability of a conflict is important for the industry duty-free countries to America. low [and the] cost of a conflict is moving forward? Realistically, I think we possibly very high. Having said this, when need to wait until this whole we talk about probability, we are A very important agreement is pandemic stabilises for us to have playing with chance. So we really the Regional Comprehensive a really thorough assessment of need to think about if it happens, Economic Partnership [RCEP]. whether we want to scale up or how do you then rebalance your It’s the largest multilateral trade not, because there is some risk supply chain? How would you agreement in the whole world there. ensure that the flow of goods is and impacts 30 percent of the not disrupted? Certainly, as we world’s population. It has the How can brands make think about our three-year plan, potential to be at the core of themselves more resilient in it will be on my agenda, and I the reconstruction of the global this new sourcing era? think it should be on the agenda supply chain. RCEP is possibly of every chief executive in a the only trading block that has You’ve got to be mobile. You company that has exposure in both the production capacity cannot be tied to a particular this region. and the consumer demand, location and geography. Secondly, so my sense is that it’s going I think it’s about time that we Are there viable alternatives to dramatically facilitate the seriously look at our business to these sea routes that are regional trade and investment continuity and contingency maritime chokepoints? within Asia. plans. The third thing is that shipping costs are sky-high — I may not have said this 20 What does the conversation my goodness — so brands need months ago, but given what’s about hedging supply chain to find ways of offsetting this going on, overland freight is risk look like as we look ahead increased cost through increasing definitely a viable alternative. to 2022? productivity. I think the exercise My guess is that the future road of value engineering is therefore and rail costs may be similar to Given everything that we have very important. By reducing the current ocean rates, but take learned from the pandemic, it’s the number of players between half the lead time of the ocean very important to diversify our myself, as the chief executive, to route, which means that it’s sourcing base, but it should the lowest rank and by delayering, actually faster to ship by land. not be blind diversification. In you reduce your costs. At the Earlier this year, our logistics my opinion, the export share same time, you improve your business, LF Logistics, signed an of China will gradually reduce customer service because things agreement with a local company by design. The finishing part of get done faster. You remove in Chongqing [to leverage the] production can then move to bureaucracy. I think a lot of growing railway network linking ASEAN [Association of Southeast companies should pay attention China and Europe along the Asian Nations markets]. Because to that. New Silk Road, which basically of RCEP, the movement of raw connects Chongqing with the materials, the fabric, components, This interview has been edited and condensed. 39

The State of Fashion 2022 CONSUMER SHIFTS 03. DOMESTIC LUXURIES 04. WARDROBE REBOOT 05. METAVERSE MINDSET 40

03. DOMESTIC LUXURIES Travel has traditionally been a key driver of luxury spending, but international tourism is not expected to fully recover until between 2023 and 2024. To capture the shift in shopping patterns set to shape the year ahead, luxury players should engage more deeply with domestic consumers, rebalance their global retail footprints and duty-free networks and invest in clienteling for local e-commerce channels. Before the Covid-19 pandemic, 30 to 40 pairings, only reaching 50 percent of 2019 levels by percent of luxury sales were generated by shoppers 2022. In comparison, travel between the Middle in transit and abroad.99 However, international East and Europe and between North America travel flows plunged to new lows at the height of and Europe is expected to rebound to 110 and 105 lockdowns and by 2021, global tourism spending percent of 2019 levels respectively by 2024. had been cut nearly in half.100 With tourists set to stay local in 2022, consumers and brands alike are “[Recovery will be] phased across different doubling down on domestic luxury shopping. regions,” said Benjamin Vuchot, chairman and chief executive of LVMH-owned luxury travel Amid restricted international travel, retailer DFS Group, in mid-2021. DFS is planning consumers have switched to buying luxury online to open new T Galleria stores which will be fully and at home, taking advantage of local duty-free operational by 2023 in Australia and New Zealand, offerings and the narrowing price gap between two countries Vuchot predicts will be among the domestic and international markets. With tourism early beneficiaries of a resumption in travel. “When stalled, domestic shoppers helped buoy some travel becomes possible, luxury will be one of the of luxury’s biggest players. LVMH, Kering and first categories to benefit.”102 Richemont were among the companies to defy expectations, seeing sales surge above pre-Covid With cross-border travel restricted levels by the second quarter of 2021 thanks to throughout 2021, domestic markets have had an consumer enthusiasm to shop locally and online, opportunity to pick up the slack. Indeed, despite particularly in Asia and the US. In 2022, much of some reopening to international traffic, most this new onshore business will remain intact.101 shopping has been comprised of local customers. Following the reopening of non-essential retail Aside from flows between Europe and in the UK, the Bicester Village designer outlet North America which will get close to their 2019 reported a flood of domestic shoppers and only a performance next year, inter-regional travel is trickle of international visitors. Luxury retailers unlikely to return to pre-pandemic levels before including Harvey Nichols and Selfridges in London 2023. Moreover, the recovery of travel between and Galeries Lafayette in Paris have tried to adapt China and Europe — formerly a cornerstone of to the changing conditions, with the latter offering luxury purchases in Europe — is likely to lag other online clienteling and next-day home delivery.103 41

CONSUMER SHIFTS The State of Fashion 2022 Governments have been similarly proactive hotspots and first-tier locations to new stores in in encouraging luxury shoppers to spend more at cities such as Wuhan.110 Meanwhile, the activities home by cutting local consumption taxes, reducing of China’s daigou (grey-market surrogate shoppers import duties and promoting duty-free zones. In who buy goods overseas to sell on the mainland) China, the popular holiday destination of Hainan have shifted, with supply chain bottlenecks saw duty-free sales surge by 257 percent in the and closed stores and factories adding to the first half of 2021, to 26.77 billion yuan ($4.13 complexities of the trade. billion).104 This followed a Chinese government announcement that it planned to transform Hainan While domestic markets have prospered, into the world’s largest free-trade port. The plan international airports and city-centre retail included reduced corporate and individual tax locations, which are often designed for the rates, relaxed visa requirements and a drastic international traveller, have seen store closures and expansion of the Hainan duty-free programme. strategic shifts. In Japan, the ongoing travel ban The government also lifted purchasing limits from has hurt duty-free retailers and tourist-focused 30,000 yuan to 100,000 yuan ($4,646 to $15,487) outlets, leading to retailers shuttering more than and allowed consumers to buy duty-free products a dozen stores in Tokyo’s high-end Ginza Six mall online for six months after returning home.  in early 2021.111 Meanwhile, tourism shopping tax refund company Global Blue, headquartered The success of China Duty Free Group in Switzerland, saw a more than 80 percent drop (CDFG), which controls around 95 percent of the in its first-quarter 2021 revenues compared with Hainan market, has attracted companies such as pre-pandemic levels.112 LVMH’s DFS, Dufry and Lagardere over the past year. Looking forward, CDFG expects 20-fold With airports maintaining strict social revenue growth between 2019 and 2025. If that distancing measures and border controls, the is accurate, the island province will account for sense of a fun, airport-based experience will likely one third of China’s luxury market by 2025.105 continue to diminish in the year ahead. Of course, Meanwhile, elsewhere in China, municipalities in this does not spell the end of international travel. the city of Shenzhen are considering developing In countries that have seen rapid vaccine rollouts, their own downtown duty-free zones.106 the appeal of leisure trips abroad is returning: seven in 10 Americans are eager to book a vacation, Brands have also played their part in according to a recent Nielsen survey.113 Still, the shift to domestic sales. Many have launched even as international bookings rise, the practical or expanded local marketing campaigns and difficulties and risks (such as uneven vaccination invested in their domestic physical footprints.107 rates, testing and quarantine requirements and In November 2021, Dior opened its first Middle the threat of viral mutations) will mean many Eastern exhibition in Qatar, which was adapted consumers continue to favour domestic trips. specifically for the region and will run until March 2022,108 and Chanel hosted its 2022 cruise However, some travel retail players are collection in Dubai. In the US and UK, luxury ramping up their duty-paid airport concessions brands such as Dior and Prada have compressed alongside duty-free operations in provincial hubs price differences between markets, reducing the across markets like Brazil.114 “With our new shops allure of “travelling for a bargain” and shoring up spread across the whole [Salgado Filho Airport consumer confidence in domestic purchases.109 in Porto Alegre] we will be able to… serve both domestic and international travellers [tailored In China, Louis Vuitton and Prada have accordingly],” said Gustavo Fagundes, chief shifted some of their attention away from tourism operating officer of Dufry in South America.115 42

03. DOMESTIC LUXURIES Globally, domestic travel is on a steeper UAE-based luxury players with an online presence, upward curve than its international counterpart, such as Al Tayer Insignia’s Ounass and Chalhoub and is likely to recover to more than 90 percent Group’s Tryano and Level Shoes, are also expanding of pre-pandemic levels by 2022, compared to 50 fast across the region.117 to 80 percent for international travel. Demand for weekend and short shopping trips, which Citing the shift of international travel-based historically accounted for a large proportion of spending back to countries like the UAE and Saudi luxury tourism spend, will remain subdued. So too Arabia, Khalid Al Tayer, chief executive of Ounass will business travel, amid continued adoption of and managing director of Al Tayer Insignia, which digital alternatives. operates joint ventures with brands including Gucci and Saint Laurent, said the trend “has really Domestic luxury consumption has similarly accelerated the brands in their adaptation of local benefitted local and regional online players. In tastes and local cultures and local celebrations China, Alibaba expects to see a continued rise by coming up with communication, [events] and in cross-border e-commerce through 2022, as merchandising that appeals to them.”118 consumers browse for both foreign and domestic goods on local sites.116 Global luxury e-commerce Given the increased choice in home platforms such as Net-a-Porter may see more traffic markets, both in terms of brands and channels, from regions like the Middle East, where they have the rise of domestic luxury is likely here to stay. a localised offering with competitive delivery and Another outcome of this shift is that consumers are payment options and offer access to local designers. discovering new local designers or investing more in familiar local names. Exhibit 7: Travel flows between most regions will not recover until 2023 RECOVERY OF AIR TRAFFIC FLOWS WITHIN AND ACROSS REGIONS, INDEX (2019 = 100) 1–25 26–50 51–75 76–100 101–125 Intra- Intra Asia 54 94 117 regional Intra North America 73 97 101 Intra Europe 36 95 103 Inter- Asia - Europe 20 51 102 regional Europe - North America 17 84 101 Asia - North America 14 47 93 2021 2022 2023 SOURCE: “UPDATE: COVID-19 GLOBAL AIR TRAFFIC DEMAND SCENARIOS” – MCKINSEY TRAVEL, LOGISTICS & INFRASTRUCTURE ANALYSIS; PAX-IS, JULY 2021 43

CONSUMER SHIFTS The State of Fashion 2022 “Here in Shanghai, many showrooms horizons, offering more than the usual merchandise are still reporting a big boost in sales of Chinese mix to travellers and broadening the travel retail designer brands,” said Shaway Yeh, founder of proposition beyond the simple offer of tax savings. fashion innovation and sustainability agency Companies must offer value-adds, such as unique Yehyehyeh.119 “With consumers having less access local products or collaborations, that enrich the to international fashion than before, this isn’t customer experience and create a pull factor for surprising, but it also speaks to the rising national reluctant travellers. confidence that consumers are tapping into, and a newfound sense of solidarity to support local European luxury hubs will be especially businesses that won’t go away anytime too soon.” hard-hit by the sustained domestic spending boom in China and other markets and will need A similar pattern is emerging in key African to find ways to compensate. In Paris, London and markets like Nigeria, where luxury consumers have Milan, brands and retailers most dependent on been unable to travel abroad as easily as they did international shoppers will likely see sub-par before the pandemic to shop in hubs like London performance through the end of 2022 at the and Dubai. “While we do expect customers to earliest.121 Leading European luxury department return to previous [international] buying habits, stores that are able to adapt their approach will we’re certain that [more] ‘repatriated spending’ remain influential in their respective cities. will become the norm. As consumers search for However, while many have expanded their quality products they don’t have to travel for, local e-commerce operations, they will continue to rely designers and artisans are exceeding expectations largely on in-store shoppers, meaning they will and matching — sometimes surpassing — the need to increasingly court local customers using quality demanded,” said Avinash Wadhwani, enhanced localisation strategies. co-founder of Lagos multibrand store Temple Muse, which stocks both global and local luxury brands.120 Luxury brands will need to continue to expand their footprints across regions, moving Looking ahead, brands will need to adopt away from an over-reliance on tourist destinations. a two-pronged approach to capture the shift in In towns and cities, retail locations in transport luxury spend, targeting both domestic shoppers hubs and domestic terminals offer potential for and aligning with new travel and purchasing growth. To build meaningful relationships with behaviours. However, in line with projections that domestic customers, players will need to sharpen a travel rebound and sustained domestic luxury their localised marketing strategies. This may spend will not be mutually exclusive, the pressure mean introducing enhanced clienteling, holding will be on — particularly from investors who community-building events or offering tailored increasingly expect a full sales recovery in 2022 merchandise mixes to accommodate local tastes. — to prioritise the right opportunities at the right time. Indeed, consumers may begin to cautiously As the dynamic between travel and travel internationally, while temporary VAT luxury shopping shifts, luxury brands need to exemptions and other domestic incentives support formulate new solutions to capture both domestic demand at home. But most likely, luxury consumers shoppers and incoming tourism in the longer term, will shop for more novel, local designs abroad, while reallocating their investments accordingly. This, in continuing to spend on staples, accessibly priced turn, will require a rethink of all aspects of doing luxury items and local brands in domestic markets. business, across product development, marketing, merchandising and retail. In response to these dynamics, travel retail and duty-free players will need to expand their 44

EXECUTIVE INTERVIEW JHSF: Betting Big on a Permanent Shift to Local Retail José Auriemo Neto Chairman, JHSF Participações President, Cidade Jardim With tenants like Louis Vuitton and Though some have suggested Christian Dior and partners including that the repatriation of luxury Celine and Valentino, retail behemoth JHSF spending in Brazil is only Participações has had to strengthen its ties temporary, José Auriemo with local luxury clients during the pandemic, Neto believes otherwise. The and the group’s chairman is betting on long- increasingly local consumption term gains from their new shopping patterns. habits Brazilians developed over After leveraging the firm’s hospitality assets to the course of the pandemic aren’t boost loyalty, José Auriemo Neto reveals how going away, says the chairman of he plans to persuade well-travelled Brazilians JHSF Participações (JHSF), who to keep shopping domestically. is so confident that he is building a hotel on top of the group’s — by Zoe Suen largest luxury mall to make it more convenient and appealing for wealthy Brazilian travellers from across the country to shop domestically in the commercial capital. One of two major luxury retail players in the country, JHSF has fostered long-term relationships with tenants such as Louis Vuitton, Christian Dior and 45

CONSUMER SHIFTS The State of Fashion 2022 Cartier, while establishing year [in 2021], and also next year, not that bad, so I can be a regular exclusive joint ventures with due to all the demand that we’re customer in Brazil after all.” the likes of Celine, Valentino seeing. Brands saw that they’d drive their and Balmain. But more than business volume up, the closer a decade after he introduced How much of your retail sales they get to US and Europe retail the likes of Hermès and Jimmy did regional and international prices so now they’re making a Choo to Brazil by way of the tourism respectively account very strong effort not to be much group’s crown jewel Cidade for pre-pandemic? What did higher than 20 percent. Jardim, the executive is not the repatriation of luxury plotting international, or even spending look like for JHSF? What strategies are you using regional, expansion. Rather, now or planning to adopt at Neto is doubling down on one About 90 percent of our business your shopping centres next state in Brazil, where he plans was driven by locals, but we’d see year to continue to benefit on strengthening ties with the people coming from the other from repatriation? And how group’s high-end clientele using regions of Brazil to buy in São can you fend off competition a diversified, experience-first Paulo — 25 percent out of this from local luxury mall strategy. [domestic share of ] 90 percent. competitors in the process? Brazilian clients spent almost Brazil was hit particularly a year and a half with travel It’s all about providing these hard by Covid-19, both in restrictions to destinations like customers with the right terms of the human tragedy the United States, Europe and experience. Through our and the economic impact also some of the countries in Asia brand partners, we can do on businesses. But how and Africa. But this helped us merchandising and buy with substantial were JHSF’s retail provide an experience that they a focus on our customers and losses over the course of the were not having before; I believe their sizes. We are also having pandemic and the local luxury that the level of business that we lunches and dinners where we sector more broadly? are going to have post-pandemic are exhibiting some of the new is going to be higher, because products that we are receiving In the retail division we were customers adapted to buying in in advance. Some of the travel negative during the months we the country. restrictions to France were lifted, had to stay closed, down 15 to 18 so we’re taking some clients to percent, but sales recovered as of Brazil’s high tax burden Paris Fashion Week. We have the last quarter of 2020, where has traditionally prompted another advantage in that clients we saw growth exceed 2019 levels. luxury brands to retail at buy in instalments; this is a Sales in our malls grew 16 percent significantly higher prices common practice in Brazil. in Q2 2021, compared to Q2 2019. than in other markets, which Of course, the luxury segment gave affluent Brazilians We also launched a benefit has benefitted as our clients were an added incentive to shop programme where we provide not able to travel and people were abroad in the brand flagships 2 percent cash back on all their buying more domestically. in Europe and the US where buys in the mall; this is connected there is usually a larger with our real estate division, so In the state of São Paulo, where selection — rather than buying if you buy a house in one of our the majority of our business is, at home. Are things changing? countryside projects, you collect vaccination [is happening quite 0.5 percent cash back that you can quickly as of September 2021] so Some of the brands, they’re now use in our malls, restaurants and people are more confident about selling at 15 percent, 18 percent hotels. So we’re exploring these going out. We are seeing the above US retail but our customers synergies more and providing luxury segment grow faster than expected much higher price more benefits in terms of service, other segments and the country’s differentials considering prices experience and advantages to our GDP which I believe… will be used to be 50 to 60 percent higher clients. something close to 4.5 percent. than the US and Europe up until Our retail division is expecting 2019, so we saw a very positive Who is your core shopper? to have double-digit growth this impact when they came to the How have their habits stores and were saying, “Okay, it’s 46

EXECUTIVE INTERVIEW changed over the pandemic be where they are. It’s the centre, trying to tempt wealthy and what shifts do you predict the wealthy part of the country. Brazilians to buy from them. for the year ahead? More and more of these Brazilian How can your online offering clients are travelling to São Paulo compete? Around 65 to 70 percent are from elsewhere, too, so we want women, aged 22 to 55. In terms of to give them as good experience We have an advantage over geography, it’s mainly São Paulo, [as possible] when they are here. international players because the and states like Goiás, Minas We’re even opening a new hotel brands that we offer on our digital Gerais and Rio de Janeiro. We are on top of the Cidade Jardim mall. platform are in our malls. We seeing more people travelling to It’s going to be completed in about really believe that for a country São Paulo, not only to buy, but one-and-a-half years, so people where there are a lot of logistical also to enjoy the city. We’ve seen will be able to stay in the same challenges, it’s very important more of our clients buying online, place they’re shopping when they to have both; it’s different from and more of our clients accessing are travelling. other markets, where you can our concierge service, which we deliver merchandise across the started this year [in 2021] with You also have shopping country from a big warehouse. one person but we are expecting centres outside the state This integration is how we’re to have 50 staff working on it by of São Paulo, in cities like giving our clients the access to next January. Manaus and Salvador. How do the merchandise that they want, they factor into your plans? and how we can understand our JHSF operates five malls — clients in a very deep way. with a total gross lettable When we look at the growth area of over 265,000 square opportunities in the country, JHSF also operates the metres — and has others under they are more connected to the Catarina Fashion Outlet construction. What exactly state of São Paulo, and we are not outside São Paulo. What shifts are your expansion plans? seeing a very relevant growth in have you seen in your outlet the North or Northeast region business, and what are your We have four retail projects that where we have those two malls expectations for 2022? are under development. One, in that you mentioned. Right now, the area of Faria Lima, the central we’re focusing our expansion 100 The outlet business is growing a financial district of the city of percent on luxury malls but the lot. We’re seeing this business grow São Paulo, is a mall with exactly ones we run there are not luxury year over year in double-digits. the same model that we recently malls, they’re more democratic. inaugurated in the Jardins area Everyone is bracing of São Paulo. We have a physical Once restaurants and shops themselves for continued retail platform, and we also have re-opened after lockdowns uncertainty in 2022. How a digital platform integrated into in Brazil, did you see a fall is JHSF adapting to a more some of these stores; some of in e-commerce sales versus volatile market when it comes the merchandise is in the stores, physical retail sales? to luxury, travel and retail? but some orders that clients are receiving at their homes is Yes, the level of demand for the A good part of our strategy is delivered from a warehouse. We online platform stabilised, and related to mixed-use projects. have another three projects: one then went down about 10 to This is helping us a lot, because in the countryside of São Paulo 15 percent. But of course, that we can provide for our clients [state], called Boa Vista Village; means clients did download not only the experience to buy another one in São Paulo, called our app [CJ Fashion] on their merchandise, but the experience Real Parque; and the extension of phone and they started to surf for them to live in our properties. Cidade Jardim mall that we are this digital world, and once they I believe that this is relevant opening in H1 2022. started to go to digital, they got for the next few years, because more used to it. we’re seeing that people want to You’re really betting big on get together; they want to spend São Paulo. Why? There are many big global time with their families. So our luxury e-commerce challenge is to be on that trend Our business is focused on platforms out there with wide even more. high-end clients, so we have to assortments of merchandise This interview has been edited and condensed. 47

04. WARDROBE REBOOT After focusing on the likes of loungewear and sportswear for nearly two years, consumers will reallocate wallet share to other categories as pent-up demand for newness coincides with more social freedoms outside the home. To anticipate these nuanced and sometimes paradoxical preferences, brands should lean more on data-driven product development, adjusting their inventory mix accordingly to ensure that assortments resonate with consumers adjusting to new lifestyles. The State of Fashion 2022 The pandemic fashion era will be the more-than 100 percent growth rates that were remembered for a surge in comfortable clothing common in 2020.123 While 2022 will certainly not among other things, but some shifts in spending see a collapse of loungewear and leisurewear, some between categories were temporary, while others brands operating in these categories are beginning will see sustained momentum over the longer term. to slow down their inventory turnover. Launches of The net result is an altered consumer demand new activewear shorts and tops in the US and UK structure comprised of new baselines for some were down 20 percent and 50 percent respectively fashion categories, a change which will compel in late 2021 compared with the same period in some players to adjust strategies across product 2020, according to e-commerce trend research by development, merchandising and marketing data analytics platform StyleSage,124 reflecting a in 2022. similar trend in China. Consumers’ lifestyles were drastically On the other hand, as more people return to altered through the pandemic, causing lumpy the workplace and formal occasions are reinstated seasonal purchases characterised by irregular on social calendars, consumers will reinvigorate spikes and lulls of activity, such as surging demand the formalwear business in the year ahead, building for athletic wear and loungewear. Resizing needs on momentum established in the latter half of have also disrupted usual demand patterns. In the 2021, as pent-up demand manifests as so-called US, 40 percent of women and 35 percent of men are “revenge shopping” in some markets after people’s a different size than in 2019.122 Now, some categories social lives resume.125 Global monthly searches for and products are starting to experience demand occasion dresses, such as homecoming, wedding fatigue as the recent torrent of irregular purchases guest, cocktail and formal dresses, were already up is set to subside. 200 percent in 2021 compared to the previous year, according to StyleSage.126 According to analysis by online fashion platform Lyst, pandemic-resilient categories Similarly, in footwear, consumers will such as nightwear, activewear and underwear are look beyond the sneakers and comfy sandals that starting to see decelerating demand compared with ruled lockdown-era shopping. In August 2021, 48

CONSUMER SHIFTS online searches for women’s heels were up more offices will adopt hybrid styles, replacing suits and than 200 percent compared with the same month heels with business-casual styles and sneakers. in 2020.127 However, more practical heel shapes Of course, there are nuanced differences between that cater to adjusted consumer preferences will markets, where dress codes in some regions and likely remain popular even as people dress up professions will necessitate a return to formality. again: footwear styles with the highest number of This said, brands will still find opportunities to tap units sold in 2021 were wedge heels, rubber heels, into the casualisation shift by developing products thick or block soles and kitten heels.128 In summer with new fabric options or hybrid styles. For 2021, similarly comfortable options like Gucci pool example, athletic brands Lululemon and Athleta sliders and Tory Burch “Miller Cloud” sandals were have expanded into workwear, while Hugo Boss cited as bestsellers by Bloomingdale’s footwear collaborated with Russell Athletic to produce suits merchandiser.129 Dressier sneaker styles were also in jersey fabric, some of which have shorts in place high on consumer wish lists, particularly in the US, of trousers.132 where searches for platform sneakers and brands such as Golden Goose were up 28 percent and 104 In addition to the changes companies percent respectively.130 make across design, product development and merchandising, they may also need to employ In contrast to the reinvigorated demand fresh marketing strategies that align with those for occasion dressing, workplace wardrobes will changes. For example, exuberance in marketing witness increased casualisation in some markets, campaigns will likely mirror consumers’ eagerness such as the US and UK, as people adjust to new ways to dress up for social occasions again. As such, of working, including hybrid office-home patterns. brands should consider bold ads and ambassadors “Work looks and feels different now,” said US-based suitable for the new mood, fine-tuning their retail consultant Kathy Gersch. “Virtual work approach to rapid shifts in social marketing trends and flexible hours aren’t going to go away. Brands on platforms like TikTok and Instagram to enable that believe old patterns will revive will fall by customers a seamless and instantly gratifying the wayside.”131 route to purchase new styles. At the same time, leveraging marketing channels that were largely Workplace wardrobes will witness ignored during pandemic, such as in-store events, will be increasingly important to build a sense of increased casualisation in some community and loyalty. markets, such as the US and UK, With consumer demand rebounding alongside ongoing logistics challenges in many as people adjust to new ways global markets, 2022 pricing strategies should also be re-examined. Indeed, fashion executives of working, including hybrid across different value segments have cited plans to increase prices in 2022, with an average office-home patterns. expected rise of 4 percent in luxury, 2 percent in mid-market and 5 percent in value, according to In another sign of creeping casualisation, the BoF-McKinsey State of Fashion 2022 Survey.133 workplace returnees in many regions have been These price hikes are in part due to ongoing supply shopping for casual blazers rather than suits: global chain disruptions that will impact margins (see search volumes for blazers were more than 100 “Logistics Gridlock” on page 32). However, they will percent higher in August 2021 than in August 2019. also have downstream effects on how consumers In some markets like Germany, searches for suits were down. Even some traditional and corporate 49

CONSUMER SHIFTS The State of Fashion 2022 in each segment shop new styles to reboot their styles in late 2021.139 Indeed, this theme will likely wardrobes. extend into next year, with luxury players’ Spring 2022 collections by brands such as Michael Kors Looking ahead, there will likely be increased and Chanel showing skin-baring looks at fashion appetite for experimentation and self-expression weeks in New York and Paris. as consumers seek out more playful and energetic ways of dressing, boosting demand for novel In a bid to capture demand for new designs, more adventurous colourways and creative styles, particularly from younger consumer pairings across categories in 2022.134 cohorts, fast and ultra-fast fashion players are upping their inventory turn. Asos, Boohoo and “Often it’s the case during times of crisis, PrettyLittleThing are among those to have recently people revert back to shiny fabrics, bright colours, accelerated product introductions.140 Chinese clothing that can inspire happiness,” said London- ultra-fast fashion player Shein consistently based trend forecaster Geraldine Wharry. “If you introduces more than 6,000 new products per look at the 2008 [global financial] crisis, a couple day in limited units, with designs informed by of years after that, there was the trend starting customer data, which can be turned around in as to really gain traction in terms of bright clothing, little as three days.141 However, companies reliant almost clothing inspired by toy colours.”135 In the on these business models are facing increased US, patterned trousers and women’s garments in scrutiny for their environmental impact and labour bright colours such as fuchsia, green, orange and conditions.142 purple were more commonly sold out through 2021 versus 2020, according to StyleSage.136 “There are huge contradictions at the moment [with the concurrent rise of both ultra-fast The budding new consumer mood, which fashion and]… the mindful consumer,” said Wharry. was captured in late 2021 by fashion critics like “I think we’re at a tipping point when it comes GQ magazine’s New York-based Rachel Tashjian, to people associating the item they buy with its is likely to continue feeding into aesthetic contribution to society… [but even for those who preferences in 2022. “During the opening stages are less concerned about that aspect], there will of the pandemic, there was defeatism… but that’s be more awareness of ‘how can this item also evolved into this type of exuberant attitude,” she be recycled into other occasions?’”143 As such, a said.137 Brand leaders are increasingly aligning growing number of consumers are likely to allocate their creative teams with the changing consumer more of their wallet share to investment pieces sentiment: “People are ready for a little bit of and versatile items, even as inexpensive items and optimism… [and] looking to be inspired,” said impulse purchases remain an important part of the J.Crew Group chief executive Libby Wadle.138 wardrobe mix for many in 2022. “There will be more awareness For most brands, the demand for new styles does not necessarily mean adopting of ‘how can this [wardrobe] bigger assortments, but instead using greater thoughtfulness around data- and demand-driven item also be recycled into other product launches and inventory mixes. With increased opportunities to collect consumer occasions?’” data through the growth in e-commerce spend, brands should track category shifts and pay special Executives, merchandisers and buying team attention to how new assortments resonate with leaders at retailers including Moda Operandi and consumers. Intermix noted soaring appetite for bold and risqué 50