2023 may represent uncertainty for many industries, but for retail fashion brand marketers, the consumers are still swiping right on sustainable luxury retail brands.
First, The Bad News: Most Fashion Brands Are Not Feeling Too Hopeful
According to The Business of Fashion-McKinsey State of Fashion 2023 Survey, the vast majority—84 percent—of industry executives in fashion expect zero growth or a decline in market conditions in 2023. That’s a significant shift from the 2022 survey when 91 percent of executives predicted market conditions would improve or remain the same. That’s not surprising; Inflation has taken a brutal toll on fashion brands, with the Ukraine conflict complicating European fashion retailers‘ struggles to move products amid a global economic downturn.
Fast fashion brands like H&M and Zara closed hundreds of stores across eastern Europe due to the conflict, and price hikes didn’t help European consumers return to old-school “retail therapy.” While many fashion brands like Zara and H&M showed sales growth in 2022, most are seeking to cut costs. H&M recently slashed 1500 jobs to meet its savings goal—approximately $190 million—for 2022. According to the survey, about 64 percent of European fashion brand executives expected marketplace conditions to worsen.
According to the report, retailers are also readying themselves for lower spending among the drivers of fast fashion: young people. “We see [younger and less affluent] customers spending much more cautiously on discretionary items and often waiting for promotions before buying,” said Richard A. Hayne, chief executive officer of retail group Urban Outfitters in August 2022.” That’s not surprising, but it could spell trouble for US retail brands that increased the number of discounts offered on products by 36% in 2022 over 2021, per the report.
With more than 97 percent of survey respondents saying they anticipate the higher cost of goods sold and the costs of selling, including general and administrative expenses, in 2023, further discounts may cut into profit margins. And that’s if they can get budget-conscious consumers shopping.
“Seventy-six percent of Gen-Z and 79 percent of Millennials reported that they are dipping into their savings, taking on more credit or taking on additional jobs to manage their finances,” the report reads.
According to the report, three-quarters of retail fashion brand executives plan to raise prices to cover costs. This a move that could scare away a critical demographic—Gen Z—who are now looking to sustainable fashion options as cost concerns mount.
The Good News: Sustainability Is So Hot Right Now
According to The Business of Fashion-McKinsey report, retail fashion brands in the sustainability space, or those developing sustainable options, have the best opportunity to capture new audiences.
According to the report, sustainable clothing options, like resale and clothing rentals, are booming – and new business models are taking hold at brands like Lululemon, Dr. Martens, and Patagonia, among others offering resale in recent years through their own services or third parties.
“Resale revenue is expected to grow to $47 billion by 2025, from $15 billion in 2022—11 times faster than apparel retail overall, albeit from a lower base,” the study reports.
The luxury market is still robust and leading the way in counterintuitive market trends are brands like ThredUp, meeting luxury buyers’ desire for name brands and affordability. Luxury shoppers are the outliers for marketers—driving up luxury brand revenues against inflationary pressure.
“According to McKinsey’s analysis of publicly listed companies, the luxury segment’s top-line grew 27 percent in the first half of 2022, compared to the same period in 2021,” the report states. Luxury groups like LVMH and Kering reported double-digit growth for the first nine months of 2022 and have increased their revenue projections.”
What It Means For Marketers:
Businesses will likely need to raise prices, and there is a limit to how much discounting is sustainable for retail brands. As retailers face competition from more sustainable alternatives—like digital resale outlets like ThredUp—marketers must be creative in reimagining how they appeal to key demographics like Gen Z. That means getting ahead of the curve and matching marketing strategy to consumer priorities creatively, whether it is through clothing trade-in campaigns designed to get Gen Z back into physical stores or luxury brand sustainable eCommerce.