The fashion industry is cruising this year in a sea of uncertainty. From customer behavior shifts, climate changes and geopolitical tensions, companies are addressing challenges coming their way while looking toward a year with subdued economic growth, reduced consumer confidence and increases in raw material prices such as cotton and synthetic fibers.
In 2023, the industry saw slow growth throughout the year on a regional basis in Europe and the United States, while China’s initially strong performance faded in the second half, according to the State of Fashion report by consulting company McKinsey, writes eToro analyst for Romania, Bogdan Maioreanu.
The report estimates that the global fashion industry will post growth from core business of 2 to 4% in 2024, with regional and country-level variations. The luxury segment is expected to generate the biggest share of economic profit. However, even there, companies will be challenged by the tough economic environment.
In the non-luxury sector, the report forecasts growth of up to 2%. And China is expected to be similarly challenged amid 4 to 6% growth, which is a slight increase from the end of 2023 but still slow when considered on a historical basis.
The headwinds are also triggered by some relief seen by the struggling commodities, with cotton leading the price increases. The price of this material that is crucial across clothing, fast fashion, and retail rose almost 28% from the lows of November last year. India and China are the world’s dominant raw cotton producers, at 47% of total. But most is used locally. The US is the largest raw cotton exporter, at 29% of total. The US is also the biggest importer of finished cotton goods.
With 70% of the materials used in the fashion industry being synthetic oil-based fibers that are oil price dependent, like polyester, their relative price is a key driver for cotton demand. Cotton dominates the natural fibers market, 80% being used for clothing, led by denim. The rest is mainly for household sheets and towels, making consumer spending, and fast fashion in particular, the major demand drivers. Rising cotton prices, and sustainability issues, can bring big issues for retailers like Inditex – the owner of brands like Zara, Pull&Bear, Massimo Dutti, Bershka, etc. – H&M, GAP and Levi Strauss just to mention a few. It is also possible to see an increase in clothing prices this year. Across the industry, net intent to raise prices is more than 50%, according to the Business of Fashion – McKinsey Executive Survey.
Clothing prices in Romania rose almost 9% in February 2024 compared with the same month last year, and an increase in prices of manufacturers will likely reflect also in the prices on the Romanian market.
Inditex, the largest European fashion retailer, posted its earnings report, recording significant growth in 2023, with net profit increasing by 30.3% to €5.38 billion. Sales rose by 10.4% to €35.94 billion, underscoring the effectiveness of the company’s multi-channel strategy and global expansion. The company plans to invest approximately €1.8 billion in 2024 in the optimization of its commercial space and technological integration.
This is coming in the context in which the industry is evolving, the McKinsey report mentioning that in 2024, the most prominent sentiment among fashion industry leaders being uncertainty, reflecting the prospect of subdued economic growth, persistent inflation, and weak consumer confidence. Against this backdrop, businesses will be challenged to identify pockets of value and unlock new drivers of performance.
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