The fashion industry insight report 2024

The fashion industry has demonstrated remarkable resilience amidst persistent challenges such as global economic instability, climate change, and a shortage of skilled labour in tech and AI sectors. These challenges present significant opportunities for those well-prepared and strategically positioned to capitalise on an anticipated economic rebound by mid-2025. However, the performance gap between luxury and non-luxury fashion has widened, with luxury brands outperforming benchmark indexes while non-luxury fashion lags, making private equity investors increasingly cautious about investments in highly trend-dependent non-luxury fashion.

The fashion industry must navigate the complexities of climate change, as extreme weather events could threaten $65 billion in apparel exports and nearly a million jobs in key fashion economies by 2030. Fashion executives are prioritising economic uncertainty, geopolitical tensions, and inflation over climate risks for 2024. To address these vulnerabilities, the industry needs to implement both short-term and long-term strategies to tackle climate challenges, including flexible sourcing strategies, operational shifts, and capital investments to enhance climate resilience and reduce environmental impact.

In June 2023, the United Nations issued a report urging fashion brands to address overconsumption, a key driver of the industry's environmental impact. The report, titled "The Sustainable Fashion Communication Playbook," emphasised the role of marketing in perpetuating cycles of overproduction and excessive consumerism. It highlighted the need for brands, including signatories to the UN Fashion Charter, to align their communications with sustainability goals, moving away from messages that promote overconsumption. The playbook outlines strategies for brands to combat greenwashing, promote circular solutions like resale and rental, and shift consumer aspirations towards sustainable lifestyles. It also calls for greater accountability within businesses and advocacy for policy changes that support sustainable consumption practices.

In recent years, the third generation of fast-fashion companies, exemplified by Shein and Temu, has significantly reshaped consumer behavior. A substantial portion of U.S. (40%) and UK (26%) consumers have shopped using these platforms in the past year alone. Their success hinges on innovative operational models that prioritise speed and affordability. These include agile manufacturer-to-consumer supply chains and data-driven product design, enabling rapid turnover of trendy styles at ultra-low prices.

Looking ahead to 2024, however, these third-generation players face mounting challenges. Evolving consumer and regulatory standards, particularly around sustainability and ethical practices, pose significant hurdles. Despite their popularity, criticisms regarding environmental impact and labour practices loom large. Moreover, legislative scrutiny in key markets like the U.S. and EU threatens to reshape trade dynamics, potentially undermining the advantages these companies have leveraged, such as minimal import taxes on individual orders.

The fashion industry has faced significant supply chain disruptions, exacerbated by demand volatility. Upstream suppliers, previously operating at full capacity in 2021, saw utilisation drop to 30-40% in 2023. This trend is expected to persist, with 73% of chief procurement officers foreseeing ongoing challenges from demand fluctuations. Textile factories are expected to see capacity improvements starting in the third quarter of 2024. The "bullwhip effect" has magnified these issues, amplifying changes in consumer demand across the supply chain and leading to overcompensation in production cuts and layoffs. This turmoil has particularly affected smaller manufacturers, with closures reported in Pakistan and operational halts in countries like Sri Lanka and Vietnam. The resulting worker displacement and humanitarian crises underscore the need for sustained industry resilience and ethical supply chain practices moving forward.

The anticipated resurgence in global travel to pre-pandemic levels by 2024 offers significant opportunities for the fashion industry. With a substantial portion of consumers planning to shop for fashion while traveling, fashion brands can capitalise on increased spending. The rise in remote and hybrid work has led to more "workation" trips, opening new markets in novel locations. The return of Chinese tourists, who prioritise experiences over shopping, necessitates elevated in-store experiences and integration with digital ecosystems. Fashion brands should enhance retail experiences in key international hubs and adapt product assortments to reflect updated tastes, balancing the needs of Chinese shoppers with other key demographics for inclusive and targeted experiences.

The outdoor apparel and footwear sectors are rapidly growing and showing increased potential compared to other fashion product sectors, evolving towards everyday wear, emphasising the fusion of style and utility in 2024. As consumer interest in outdoor activities like hiking and camping soars globally, brands are diversifying their offerings and competition intensifies across price points and categories. While the gorpcore trend declines, a shift towards "quiet outdoor" fashion is anticipated, marked by minimalist designs and technical fabrics. Luxury brands are increasingly integrating outdoor elements into their permanent collections, while technical brands like On and Salomon expand their appeal beyond traditional outdoor enthusiasts to fashion-forward consumers. This dynamic landscape calls for brands to innovate, balance utility with fashion appeal, and differentiate themselves amidst growing market convergence.

The fashion influencer landscape is also undergoing significant transformation, characterized by a 30% year-on-year decline in Instagram engagement rates and diminished post reach. Consumers, fatigued by sponsored content, are turning away from traditional influencer marketing, with 68% expressing dissatisfaction and 65% reducing their reliance on fashion influencers. TikTok has emerged as a preferred platform, with U.S. adults spending nearly 56 minutes daily compared to 30 minutes on Instagram, reflecting its appeal for authentic content. Influencers emphasising authenticity and relatability are gaining traction, with Gen-Z favoring TikTok for influencer content over YouTube and Instagram.

In the upcoming years, brand marketing is set to regain prominence in the fashion industry, marking a shift away from the dominance of performance marketing. As consumer preferences evolve and data privacy regulations tighten, brands are expected to prioritize building emotional connections with their audiences through compelling storytelling. A significant majority of fashion executives, 71%, plan to increase investments in brand marketing in 2024, contrasting with 46% intending to boost spending on performance marketing. This strategic pivot underscores a broader industry trend towards fostering enduring brand affinity amid rising costs and regulatory challenges.

To succeed in this new landscape, brands are rethinking their marketing strategies to emphasize authenticity and long-term engagement over immediate sales metrics. Examples like Hugo Boss's targeted rebranding efforts and collaborations by New Balance highlight how brands are leveraging storytelling and partnerships to resonate more deeply with consumers. The shift towards immersive retail experiences and cross-industry collaborations further illustrates the industry's move towards creating memorable brand interactions that extend beyond traditional marketing channels.

From a technological perspective, Generative AI (gen AI) is rapidly reshaping the fashion industry by offering transformative pipelines and diverse use cases. McKinsey highlights its potential to contribute up to a quarter of the industry's value through applications in design and product development, yet current adoption remains relatively low at 28% among fashion executives. Despite this gap, gen AI is already proving invaluable in enhancing online shopping experiences and streamlining creative processes. Brands like Ganni and Casablanca are pioneering its use in runway shows and marketing campaigns, demonstrating its ability to accelerate design iterations and bolster creative output.

Investment in gen AI startups soared to $14.1 billion in the first half of 2023, underlining its strategic importance for fashion businesses. Tools such as AiDA and Cala exemplify its capacity to automate design tasks, generate fashion templates, and facilitate rapid prototyping. Beyond operational efficiencies, gen AI enables hyper-personalization in customer interactions and empowers brands to scale creativity effectively. As fashion companies navigate challenges like bias and IP protection, strategic adoption of gen AI promises not only cost efficiencies but also significant competitive advantages in a rapidly evolving market landscape.

Since 2022, the fashion industry showed resilience primarily driven by the luxury segment's ability to raise prices effectively, offsetting challenges in other segments. Economic profit (EP) stabilized near 2021 levels despite macroeconomic uncertainties such as geopolitical tensions, inflation, and fluctuating consumer confidence. The luxury sector, dominated by major players like LVMH, demonstrated significant profit generation through pricing strategies. Meanwhile, mid-market and value/discount segments struggled, with some even experiencing declines in EP.

The industry saw a polarisation in profitability, with a small number of "Super Winners" capturing the majority of economic profit. These top companies, particularly in luxury and sportswear, outperformed others due to their strong margin performance and strategic market positioning. Despite challenges, including high inventory levels and supply chain disruptions, luxury brands maintained high margins and revenue growth. While luxury segments are expected to sustain profitability, other segments may face further challenges, potentially widening the gap between industry leaders and struggling companies. The luxury fashion industry is poised for continued growth in the coming years. Revenues are anticipated to increase by 3.6% in 2025, reaching $120.1 billion.

Forecasts indicate subsequent annual growth rates of 3.3% in 2026 and 3% in 2027, pushing total revenues to $124.1 billion and $127.8 billion, respectively. By 2028, the industry is projected to reach $131.7 billion following a 3.1% annual increase.

The challenges

Consumer confidence remains fragile in key markets, economic slowdowns across major commercial economies such as the U.S., Europe, and China.
The climate crisis is a significant concern, with extreme weather events in 2023 anticipated to continue or worsen in 2024. Potential losses due to climate impacts on apparel exports could reach $65 billion by 2030. These impacts will affect not only the fashion industry but multiple manufacturing industries.
Regulations in the E.U. and U.S. will push brands to drastically cut down greenhouse gases, emissions, and wasteful practices. Businesses are scheduled to push more capital towards sustainable business models that conserve and protect natural resources.

The opportunities

Generative AI is seen as a major growth lever, with 73% of executives prioritising it for 2024, despite a talent gap. Innovation through AI, particularly generative AI, is crucial for enhancing creativity and operational efficiency.
Marketing strategies are shifting from performance to brand marketing, with a focus on authenticity and relatability through influencers. Brands are looking for unique influencers with fresh perspectives, as opposed to “ultra-polished” and well seasoned influencers.
The return of travel to pre-pandemic levels is expected to boost demand for fashion, especially outdoor wear.
Sustainability and climate action remain high on the agenda, with 12% of executives viewing it as both a top opportunity and challenge.
Brand-building and differentiation will be key to attracting consumers in a competitive market. Focusing business strategy away from ‘trend-based’ fashion, toward long term brand value is also of high importance to executives.

Key industry insights

By 2023, the industry faced deepening challenges, with slow growth in Europe and the U.S., and deceleration in China. Global GDP growth is set to slow to 2.9 percent in 2024, down from 3 percent in 2023 and 3.5 percent in 2022.
In the third quarter of 2023, net intent to purchase apparel was 7 percent in China, negative 25 in the US and negative 29 in Europe. High savings rates in China contrast with depleted savings in the U.S. and Europe post-pandemic, affecting spending capacity.
Emerging Asia provides potential growth spots, with India’s investment activity, domestic demand and developing infrastructure making it a promising market for fashion. Markets like the Middle East are seen as promising for growth and investment.
Luxury initially performed well but faced a decline in consumer interest by mid-2023.
For 2024, executives anticipate expected retail sales growth between 2% and 4%, with the luxury sector taking the lead in performance growth.
Non-luxury fashion is expected to grow steadily, with variations across regions: Europe (1%-3%), U.S. (0%-2%), and China (4%-6%).
Luxury fashion growth is projected to slow globally, with regional growth rates varying: Europe (3%-5%), U.S. (2%-4%), and China (4%-6%).

Investment landscape

Scaling non-luxury fashion brands for IPOs remains challenging due to concerns about long-term value creation, high valuations, debt financing difficulties, and pressure on discretionary consumer categories.
Investors now prioritise brands with iconic, timeless designs to mitigate "fashion risk," leading private equity firms to focus on luxury brands, sportswear, wellness, outdoor gear, modern jewellery, and intimates.

High-demand AI job roles in fashion industries

AI Data Scientist/Engineer: develops and refines AI algorithms to analyse fashion trends and consumer data, ensuring models are accurate and effective for predicting market demands.
Creative Technologist: combines fashion design with technical expertise to innovate AI-driven solutions, creating and refining product prototypes using AI tools and technologies.
AI Product Manager: leads the development and implementation of AI-powered fashion products, collaborating with teams to define features, prioritise tasks, and align products with business goals.
Fashion Data Analyst: analyses consumer behaviour and market data to provide insights for fashion brands, using AI tools to forecast demand, optimise inventory, and enhance personalised customer experiences.
AI Ethics and Compliance Specialist: ensures ethical use of AI in fashion, addressing issues such as data privacy and bias, collaborating with legal teams and regulators to maintain industry standards.
Digital Content Creator: uses AI for content generation, including product descriptions, marketing copy, and visual content creation such as AI-generated imagery and virtual fashion try-ons, enhancing digital storytelling.
User Experience (UX) Designer: designs intuitive interfaces and experiences for AI-powered fashion applications, conducting user research, creating prototypes, and optimising usability for consumers and internal users.
AI Implementation Specialist: manages deployment and integration of AI solutions in fashion systems, collaborating with IT teams to ensure smooth implementation, testing, training, and support for end-users.

Final take-aways

Several key insights emerge from our analysis. Revenue growth is expected to stem more from price adjustments than from increased sales volumes, prompting brands to carefully balance pricing strategies to retain price-sensitive consumers. Effective inventory management remains critical amid fluctuating demand dynamics. Suppliers may encounter intensified competition and price pressures due to weak demand and surplus capacity. Building collaborative relationships between brands and suppliers is pivotal to navigating price competitiveness and cost control effectively. Additionally, brands must remain attentive to evolving consumer trends while cautiously approaching products reliant on fast fashion cycles. Recent regulatory shifts in sustainability practices and waste reduction, particularly in regions like Europe and the U.S., further underscore the need for vigilant strategic adaptation.