Just when the fashion industry was getting back on its feet after two years of Covid-19 turmoil, deteriorating macroeconomics and turbulent geopolitical conditions globally have started weighing in heavily in the second half of the year and are expected to continue through 2023. The fashion industry in the post-pandemic phase benefited from a sharp burst of pent-up consumer demand despite challenges such as supply chain disruptions and a wary middle class of overspending.
Strong regional difference in inflation levels
Global industry revenues in 2021 grew 21 per cent year on year, while the average EBITA margin almost doubled, growing 6 per cent in early 2022, with 13 per cent revenue growth in the first half of the year. But all this fell apart, as high inflation hit unseen levels with Russian-Ukraine war, hike in interest rates, a sagging stock market, and job lay-offs globally all are now pointing toward a long and deep recession.
The recent State of Fashion 2023 report from McKinsey and The Business of Fashion says while global sales in the fashion sector are likely to shrink by 2-3 per cent in 2023, there will be a healthy potential growth sales of 5-10 per cent in the luxury fashion sector. There will be a strong regional difference within different sectors as although Europe will be struggling to swim against the recession tide, the US will be in better shape with 61per cent executives expecting the same or better conditions in 2023 as in 2022.
Fashion apparel market of the Middle East and some countries of Asia Pacific region are likely to grow in 2023 and many companies are planning to increase their operations there and are expected to become higher priority territories for many fashion brands. If brand retailers can improve their inventory position by early next year, they will be on an upswing instead of going into recession. However, a seesaw ride of a doom-and-gloom along with a high and happy spending mindset is predicted in 2023 as unpredictable consumer attitudes don’t always share economists’ and fashion experts' expectations. Things are looking up as the US has managed to evade the global recession wave so far and the mass market of China will hopefully swiftly reopen as the country relaxes its Zero Covid policy as the pandemic subsides.
The recent upswing in retail can be attributed to easing inflation as the headline number which shows the purchases of everything from televisions to watches to dish soap, fell 0.6 per cent in the US and 0.4 per cent in the UK in November compared to October. However, in the UK, clothing sales volumes rose 2.1 per cent in November while in the US, sales in clothing and clothing accessories stores dipped a relatively mild 0.2 per cent.
Activewear brands are still unaffected
“The bull case on 2023 remains centred on clean post-holiday inventory levels and margin visibility,” points out Wells Fargo retail analyst Ike Boruchow in a recent report. With health and wellness still, a priority segment after Covid, sports and activewear brands are relatively better off. Profit figures of sportswear giant Nike had plummeted in September due to late-arrival and off-trend merchandise and weak sales in China and it had to resort to a heavy discount mode to get rid of its excess inventory.
However, it paid off and the company recently reported stronger-than-expected sales and earnings with stocks soaring. With Nike demonstrating that excess inventory can be a temporary problem if dealt with in time, others like Nordstrom, American Eagle, Vince and Urban Outfitters among others have also underscored their efforts to reduce inventory in recent earnings calls. A global recession may still be on the cards but it’s still on the backburner giving retailers hope that all may be well soon.
