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OUR BEST IDEAS, QUICK AND CURATED | DECEMBER 9, 2022
Brought to you by Liz Hilton Segel & Homayoun HatamiGlobal leaders, Industry & Capabilities Practices
This week, why the fashion industry is likely to remain in a state of flux in 2023. Plus, consumer companies are turning to chief transformation officers more often, and why it’s important for leaders to demonstrate “deliberate calm.”
Fashion forward. After experiencing 18 months of robust growth through mid-2022, the global fashion industry is facing a challenging environment once again. Inflation and gloomier customer sentiment have led to declining growth rates in this year’s second half, a trend that is likely to continue through 2023. According to the annual Business of Fashion and McKinsey State of Fashion Survey, industry executives expect that rising prices will lead most shoppers to curtail fashion spending or trade down for less expensive products. Fashion companies are also anticipating that inflation will cause their costs to spike; cotton and cashmere prices, for example, have increased 45 percent and 30 percent, respectively, year on year.
Luxury is a bright spot. We anticipate that the luxury sector will outperform the rest of the industry, as wealthy shoppers continue to travel and spend, and thus remain more insulated from the effects of inflation. Based on our forecasts, the luxury sector is expected to grow between 5 and 10 percent in 2023, driven by strong momentum in China (projected to grow between 9 and 14 percent) and in the United States (projected to grow between 5 and 10 percent).
Trends to watch. As McKinsey senior partners Anita Balchandani, Achim Berg, and their team note, fashion companies can adapt to global economic uncertainty and the industry’s consumer complexities by updating their operating models and adjusting their strategies for supply chain, sales channels, and digital marketing. And they should take note of several consumer trends that are gaining steam, such as gender-fluid fashion and the reinvention of formal wear. For many brands and retailers, the blurring of the lines between men’s wear and women’s wear will require rethinking their product design, marketing, and in-store and digital shopping experiences. Formal attire, too, is taking on new definitions as shoppers rethink how they dress for work, weddings, and other occasions.
Despite the economic headwinds facing the industry, fashion leaders are in a unique position to reevaluate the ways that their brands produce, distribute, and market their collections. Supply chains remain disrupted from the COVID-19 pandemic, elevating the need to invest in faster and geographically closer manufacturing systems. While direct-to-consumer digital channels remain a top priority, fashion companies will need to diversify their sales channels to maintain efficiency and market relevance. Brands will need to be more creative in marketing to attract customers through bold, differentiated content that cuts through a crowded digital environment. Heading into 2023, those fashion brands that invest in agility and creativity will be in a position to succeed when the market recovers.
Off the charts
More consumer companies are turning to chief transformation officers (CTOs) to transform their strategy and operations—and to do so quickly as disruption becomes the norm in consumer packaged goods (CPG) and retail. Of 100 prominent CPG and retail companies—the top 50 in North America in each category—23 percent employ enterprise-level CTOs, defined as executive-suite transformation officers reporting directly to the CEO. When expanded to include transformation leaders at the level of vice president or higher, that number rises to 35 percent. Of the CPG and retail companies with established CTO positions, 86 percent say their current CTOs came to their roles in 2020 or later, indicating that many companies are newly embracing this function.
PODCAST
In this episode of The McKinsey Podcast, Jacqueline Brassey, a McKinsey senior knowledge expert, and Aaron De Smet, a McKinsey senior partner, talk about how extraordinary leaders succeed through volatile times by demonstrating “deliberate calm”—a practice of adaptive, intentional choice that anyone can develop by embracing what was once regarded as “soft stuff”: self-awareness, emotional intelligence, and mindfulness. To resist the temptation to react as usual, De Smet says, one has to be “very cognizant of a mindset that is reactive to protecting the status quo, where I just fall back on what I know, versus a learning mindset where I have to say, ‘This is an opportunity for me to learn something and evolve and adapt.’”
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SPOTLIGHT ON
Public speaking can be a nerve-racking experience, even for the most seasoned professionals. Whether presenting to a large group, a senior client, or a CEO, speakers must overcome fears and doubts, project confidence, and think on their feet. In My Rookie Moment, McKinsey leaders look back on presentations they gave as newbie consultants—sometimes unexpectedly and without much preparation—and the lessons they learned that helped shape their careers.
Vik Malhotra on his first time talking to a CEO.
Cindy Levy on her first time speaking to a large audience.
Shubham Singhal on his first proposal to a client.
— Edited by Barbara Tierney, senior editor, New York
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