According to McKinsey’s State of Fashion 2023 report, global GDP will slow to 2.9% in 2024, down 3% year on year.
In its latest survey, McKinsey noted net intent to purchase apparel in the third quarter of 2023 was 7% in China, but negative 25 in the US and negative 29 in Europe.
Meanwhile, in Asia, investment along with domestic demand and developing infrastructure make it a promising market for fashion.
Though inflation is set to fall on 2023 and 2022 levels, it will remain high with interest rates expected to remain higher for longer. But what is different in 2024 are regional-based challenges in key economies. Europe continues to struggle under the shadow of the war in Ukraine while in the US, GDP growth is expected to slow from 2.1% to 1.5%. In China, an ongoing crisis in the property market and youth unemployment are both pressuring the economy.
However, even with muted demand and slow GDP growth, China has seen an expansion in import volumes by 1% during the first half of 2023.
“Consumer spending plans in China appear to be marginally more positive than in the US and Europe, with a 7% net intent to purchase apparel as well as jewellery, and 8% for footwear, McKinsey research shows. Meanwhile, 69% of consumers are planning to splurge on shopping,” reads the report.
In India, GDP growth stood at 6.9% in fiscal 2023, benefitting from strong investment activity, consistent domestic demand and a policymaker push to invest in infrastructure buoyed the rapid growth. Consumer confidence reached a four-year high in September 2023 while India-based executives are more optimistic than Western peers, with 85% of respondents to a McKinsey global survey saying that conditions had improved in the six months to August.
“The impact of 2024’s mixed outlook will be felt by fashion businesses across the value chain. Brands and retailers will likely need to confront a further wave of low consumer demand in some key markets, while suppliers may feel the amplified effects of this dampened demand even more as it echoes along the supply chain, leading to underutilised capacity. Revenue growth in this environment is likely to be driven by price rather than volume, and businesses will need to plan price increases with care and precision to avoid alienating cash-strapped consumers.”
McKinsey’s report encourages fashion decision-makers to focus on contingency planning, ensuring that scenarios take into account high levels of uncertainty and the range of regionalised consumer demand shifts.
“Scenarios for each region will need to factor in increasingly divergent underlying factors. Meanwhile, strong inventory management is likely to remain a priority, continuing successful cost management programmes implemented in post-pandemic times.”
On the supplier front, the report notes competition is likely to increase with manufacturing sector price wars a possibility as weak consumer demand puts pressure on orders and leads to excess capacity in some supply chains.
“Suppliers may want to work to build deeper, collaborative relationships with brands to reduce exposure to price competitiveness while ensuring they retain tight control of costs in the year ahead,” reads the report.
