Post 2 mgmt 385

Case: Pisani and Augier (2021) “The Future of the Fashion Industry in a Post-COVID-19 World”.

Study Questions: What challenges did the fashion industry face during the COVID-19 crisis? How did the pandemic expose vulnerabilities in the industry? What are three top trends facing the fashion industry? Based on these trends, formulate recommendations for companies in the fashion industry. What strategic actions can fashion companies take to build sustainable competitive advantages in the post-pandemic era?

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IMD-7-2266
26.02.2021
THE FUTURE OF
THE FASHION INDUSTRY
IN A POST-COVID-19 WORLD
Inès Augier, University of Amsterdam, prepared this case under the supervision of
IMD Professor Niccolò Pisani as a basis for class discussion rather than to illustrate
either effective or ineffective handling of a business situation.
Copyright © 2021 by IMD – Institute for Management Development, Lausanne, Switzerland (www.imd.org). No
part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means
without the prior written permission of IMD.
This document is authorized for use only by Seda Keshishyan in MGMT 385 International Business Summer 2024 taught by GREGORY THEYEL, California State University – East Bay from
May 2024 to Aug 2024.
For the exclusive use of S. Keshishyan, 2024.
IMD-7-2266
THE FUTURE OF THE FASHION INDUSTRY
It was late on a Saturday night in early January 2021; Emilie had not visited her family
for Christmas in 2020 because she, like many others, had decided to sacrifice seeing
her relatives over the holidays in order to avoid the risk of spreading the Coronavirus.
Stressed and fatigued by the COVID-19 crisis, the prolonged lockdown measures and
her demanding new position, Emilie was despondently staring at a blank PowerPoint
template on her laptop. She had been asked to prepare a proposal on the future of the
fashion industry in the post-pandemic era. She was due to present her proposal the
following Monday to the board. The chairman had already recommended multiple times
that she should be very clear on formulating relevant projections and recommendations
for the board members. Emilie was fully aware this was a crucial deliverable and
presentation for her career trajectory within the company.
She had already done extensive research over the past week, but she needed to
structure her findings into a concrete presentation. The year 2020 had been extremely
tumultuous for the global fashion industry, which had contended with major system
shocks on both the supply and demand sides, and it was facing an ever-mounting
barrage of public criticism around social and environmental issues. Going through all her
research notes, Emilie began formulating key questions and expectations for the fashion
industry in the aftermath of the COVID-19 pandemic.
THE GLOBAL FASHION INDUSTRY’S EXISTENTIAL
CHALLENGES
The global fashion industry, worth $2.5 trillion by 2020, was one of those hit hardest by
the COVID-19 crisis, suffering both demand and supply shocks as never before. 1 The
average market capitalization of apparel, fashion and luxury players decreased by 40%
from the beginning of January to March 24 (a steeper decline than the total stock market),
and revenues for the global fashion industry were expected to contract by 27–30% in
2020. A McKinsey report projected that just two months of store closures could put 80%
of publicly listed fashion companies in Europe in financial distress and a large number of
global fashion companies would face bankruptcy throughout 2020 and 2021. 2 The fact
was, however, that the fashion industry was in distress before the pandemic, and even
without the events of COVID-19, it was facing a slowdown in growth in 2020. Additionally,
in the last decade the industry had come under intensifying scrutiny for being exploitative,
environmentally damaging, and unsustainable.
By the end of 2019, consumers were buying nearly 100 billion new clothing items
worldwide each year, nearly 400% more than in 2000. 3 Fashion companies in Europe
had gone from offering an average of two collections per year in 2000 to five in 2011,
and fast fashion players offered even more. H&M was releasing between 12 and 16 per
year, while Zara was offering as many as 24 collections a year. 4 Along with the rise in
rapid consumption, however, had come a shift in consumer attitudes toward clothes; fast
fashion had become synonymous with disposable fashion as people were both buying
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THE FUTURE OF THE FASHION INDUSTRY
and discarding clothes at increasingly higher rates. Retailers were dealing with growing
amounts of “deadstock” as new collections were going out of fashion ever faster. Certain
brands incinerated unsold stock to artificially preserve product scarcity and brand
exclusivity; Burberry, for instance, had burned £28.6 million of unsold merchandise in
2018. 5 Globally, over 92 million tons of textile waste were being generated by the fashion
industry, with over 85% ending up in landfills or being incinerated. The fashion industry
was also one of the highest polluting and most resource-intensive industries in the world.
Fashion production was responsible for 10% of global anthropogenic carbon emissions,
generating a carbon footprint that outweighed international flights and maritime shipping
combined. 6 It was the world’s second-largest consumer of the world’s water supply, using
around 93 million cubic meters of fresh water annually and accounting for 20% of water
waste and industrial water pollution through textile dyeing and treatment. It was also
responsible for 20–35%, or around half a million tons, of plastic microfibers (the
equivalent of 50 billion plastic bottles) flowing into the ocean, which could not be
extracted from water and could spread throughout the food chain. 7
The fashion industry was also highly labor intensive, with around 300 million people
working in the industry, and the explosion of fast fashion was largely made possible by
companies chasing the lowest labor costs around the world. 8 In order to meet the rising
demand for cheap clothing at an increasingly faster rate, fashion brands outsourced
production to developing countries, predominantly in Asia; more recently, Africa had
become a new hotspot for cheap labor. As supply chains became longer and more
complex, they also became opaquer and more difficult to regulate. In Bangladesh, a
garment manufacturing hub, contactors found themselves needing to use subcontractors themselves in order to meet their customers’ demands. Many of these
smaller sub-contractors were not in compliance with international labor standards and
local labor laws regarding, for instance, working hours and wages, as they were
pressured to keep costs low in order to satisfy customers looking to buy cheap. This
disregard for workers’ rights, living standards and safety led to one of the most infamous
casualties of the fashion industry – the 2013 collapse of the Rana Plaza building, which
housed five garment factories. 9 The incident, which killed 1,138 people, sparked public
outrage as it was widely perceived that it could have been prevented had adequate
safety measures been taken in time. Deep cracks had been detected in the cheaply
constructed eight-story building the day before the collapse, but warnings not to use the
facility were ignored by garment factory owners on the upper floors who were pressured
to fulfil production orders and avoid losing business. Nervous garment workers were
ordered to continue working under threat of termination, putting productivity before safety
and human lives. The Rana Plaza case garnered international media attention and
generated critical debates over the responsibilities of fashion brands, suppliers, subcontractors, governments and consumers.
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THE FUTURE OF THE FASHION INDUSTRY
THE COVID-19 CRISIS
In 2020, the Bangladeshi garment industry, which accounted for 85% of the nation’s
exports in 2019, was back in the spotlight of international news. 10 Consumer demand for
apparel began plummeting in staggered stages across different countries throughout Q1
and Q2 2020, as governments enacted lockdown measures and consumer confidence
in the economy decreased. Clothing sales fell by 34.8% from February to March in the
UK 11 and by 73.5% from March to April in the US. 12 Apparel consumption was projected
to drop by 40% in the US and 45% in the EU in 2020, amounting to a total decline of
$308 billion. 13
In the economic fallout, many buyers, including major American and European brands
such as Primark, began cancelling orders and deferring payments with garment factories
in Bangladesh, invoking force majeure clauses in their contracts. Since buyers typically
paid their suppliers weeks after delivery, suppliers usually paid upfront for the materials
used to produce orders, making large cancellations by brands financially devastating for
garment manufacturers. By the end of March 2020, as many as 1,089 Bangladeshi
garment factories had had orders canceled, including orders for which production had
already begun or was complete, amounting to a $1.5 billion loss, with exports plummeting
by 84% in April. 14 By October, the Bangladeshi garment manufacturing sector had
incurred a loss of $3.5 billion in cancelled or suspended orders, with at least 70,000
people estimated to have lost their jobs.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) warned
that the livelihoods of over 2 million Bangladeshi garment workers were severely
impacted, as they were facing risks of unemployment, hunger and an increased
vulnerability to the Coronavirus. 15 Brands working with suppliers in Bangladesh included
H&M, Adidas, C&A, Marks and Spencer, Target and PVH. 16 While not all Western brands
were bailing out of order and payment commitments, the industry as a whole was once
again scrutinized over the issue of ethical sourcing. Other garment manufacturing hubs,
such as Cambodia and Myanmar, suffered the same fate. Globally, garment factories
lost approximately $16.2 billion in cancelled orders, leaving many small suppliers in ruin
and costing textile workers $1.6 billion in wages – putting not only livelihoods but also
lives at risk. 17 As with the Rana Plaza incident of 2013, the people at the bottom of the
value chain were the most vulnerable and ultimately paid the highest price for fast
fashion.
SUPPLY CHAIN DISRUPTION
In addition to the sharp decrease in demand, supply chains began facing serious
challenges early on during the pandemic, in part due to vulnerabilities that stemmed from
a high reliance on cheap labor and sourcing, as well as the interconnectedness between
supply chain links. The clothing industry, which accounted for 43 million jobs in Asia
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THE FUTURE OF THE FASHION INDUSTRY
alone, 18 was characterized by complex value chains with multiple suppliers in different
countries and long shipping times between continents. A piece of clothing may be
manufactured in Bangladesh, but its production could rely on essential components,
such as buttons and zippers, sourced from China, as well as raw materials, such as
cotton, sourced from India. 19 Therefore, factory closures and shipping restrictions
mandated in China during the pandemic held up final assembly in garment factories in
Bangladesh. A disruptive event in any country from which a company was sourcing an
essential component could disrupt the entire supply chain, and planning for such
contingencies was challenging due to the unpredictability of COVID-19. Both consumer
demand and production capacity in different countries was highly dependent on
governments’ abilities to manage the virus within their national borders.
As supply chains contended with disruptions on both ends, brands and retailers were
additionally faced with mounting piles of unsold inventory, filling up stockrooms and
warehouses. H&M, for instance, was sitting on £3.4 billion in unsold merchandise by
April 2020. 20 Apparel companies scrambled to pivot toward online sales, and many
brands had no choice but to resort to deep discounting strategies, as well as internal
staff sales, but this was not nearly enough to clear the rising mounds of so-called
deadstock. Much of this unsold inventory continued to overburden landfills or it was
incinerated – a controversial approach to textile waste as it produced more carbon
dioxide than burning coal. 21 The fashion industry’s global waste problem was the product
of a culture of excess, resulting of both overconsumption and overproduction, enabled
by cheap overseas labor.
SUSTAINABILITY IN FASHION POST-COVID-19
According to a McKinsey US cohort survey, 66% of respondents (and 75% of millennial
respondents) said they considered sustainability when making a luxury purchase. 22 To
feel more responsible, an increasing number of consumers preferred to buy “investment”
pieces that were long-lasting. According to the BoF–McKinsey State of Fashion 2020
senior executive survey, the majority of participants identified sustainability as both the
biggest challenge and the biggest opportunity for the fashion industry in 2020. 23 The
BoF–McKinsey State of Fashion 2020 report warned that the fashion industry had not
been taking its environmental responsibilities seriously enough and brands needed to
replace “platitudes and promotional noise” with “meaningful action and regulatory
compliance while facing up to consumer demand for transformational change.” 24
News stories about the social casualties of the fashion industry, such as communities of
garment factory workers in developing countries losing their livelihoods and food security
due to Western brands cancelling orders or deferring payments during the pandemic, or
the Black Lives Matter movement in the US, were making issues such as social justice
and equal representation more salient with consumers. Global leaders in fashion were
feeling the pressure and many responded. To name a few: Nike committed to powering
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THE FUTURE OF THE FASHION INDUSTRY
its plants with 100% renewable energy by 2025, Zara pledged to use only organic,
sustainably sourced materials for its clothing by 2050 and Wrangler aimed to halve its
water usage by 2030. 25 Fashion companies were also directing increasingly more
investments toward innovation around sustainability, for instance, in revolutionary,
sustainable materials and fabric dyes. 26 Sustainability was likely to play a more
fundamental role than ever in the aftermath of the pandemic – presenting great
challenges as well as opportunities. 27
WHAT WILL THE FUTURE OF THE FASHION INDUSTRY
HOLD?
The fashion industry was, without a doubt, facing an existential crisis in 2020. 28 Arguably,
however, it had long since become unsustainable and was headed toward fundamental
change with or without the pandemic, albeit at a slower pace. The COVID-19 crisis
brought to light complex problems throughout global fashion value chains, from the
power disparity between Western brands and their suppliers in developing countries, to
the negative environmental impacts of waste, pollution and resource overuse by the
industry, fashion companies’ inability to respond quickly to supply chain disruptions and
sudden shifts in consumer behaviors.
The pieces were coming together for Emilie, though her presentation was still menacingly
empty. She cracked her fingers and went to work, starting with the global fashion
industry’s most urgent questions for 2021 and beyond: Which threats and opportunities
did fashion and apparel companies needed to consider for their post-pandemic
strategies? What global changes, from demand to supply, would affect the fashion
industry’s value chain? What role did business sustainability have to play in futureproofing companies in the fashion industry?
© 2021 by IMD
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THE FUTURE OF THE FASHION INDUSTRY
References
1 DeMarco, Anthony. “McKinsey Issues Dismal Post-Pandemic Forecast For $2.5 Trillion Fashion
Industry.” Forbes, May 2020. (accessed 16 December 2020).
2 “The State of Fashion 2020: Coronavirus Update.” McKinsey & Company and BoF, 1 April 2020,
(accessed 13 November 2020).
3 Maiti, Rashmila. “Fast Fashion: Its Detrimental Effect on the Environment.” Earth.Org, 29
January
2020.
(accessed 16 December 2020).
4 Remy, Nathalie, Eveline Speelman, and Steven Swartz. “Style that’s Sustainable: A New Fast-
fashion
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5 Cook, Grace. “What Will Happen to All the Unsold Clothes?” Financial Times, 13 August 2020.
(accessed 16 December
2020).
“Measuring Fashion: Environmental Impact of the Global Apparel and Footwear Industries
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(accessed
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December 2020).
6
7 Ibid.
8 “The State of Fashion 2019: An ‘Urgent Awakening’ for the Industry.” McKinsey & Company and
BoF,
20
September
2018.
(accessed 16 December 2020).
9 Ali Manik, Julfikar and Jim Yardley. “Building Collapse in Bangladesh Leaves Scores Dead.”
The
New
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24
April
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(accessed 16 December 2020).
10 Alam, Julhas. “Bangladesh Garment Workers Seek Unpaid Wages as Orders Stop.” Associated
Press, 17 April 2020.
(accessed 16 December 2020).
11 Office for National Statistics. “Retail sales, Great Britain: March 2020.” ONS, 24 April 2020.
(accessed 16 December 2020).
US Census Bureau. “Advance Monthly Sales for Retail and Food Services: April 2020.”
Business & Industry Time Series, 17 February 2021.< https://www.census.gov/econ/currentdata/ dbsearch?program=MARTS&startYear=2020&endYear=2020&categories%5B%5D=448&dataT ype=MPCSM&geoLevel=US&adjusted=1¬Adjusted=1&submit=GET+DATA&releaseSchedul eId=> (accessed 20 February 2021).
12
13 Preuss, Simone. “Outlook: EU and US Apparel Consumption Could Fall by 300 Billion US
Dollars in 2020.” Fashion United, 13 April 2020.
(accessed 16 December 2020).
14 Devnath, Arun. “European Retailers Scrap $1.5 Billion of Bangladesh Orders.” Bloomberg, 23
March 2020. (accessed 16 December 2020).
15 Hossain, Akbar. “Coronavirus: Two Million Bangladesh Jobs ‘At Risk’ as Clothes Orders Dry
Up.” BBC, 28 April 2020. (accessed 16
December 2020).
16 Roberts-Islam, Brooke. “The True Cost of Brands Not Paying for Orders During the COVID-19
Crisis.”
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(accessed 17 December 2020).
17 Dean, Grace, “Fashion Companies have Canceled or Refused to Pay for $16.2 Billion of Orders
During the Pandemic, Costing Textile Workers $1.6 Billion in Wages, A Report Found.” Business
Insider, 9 October 2020. (accessed 16 December 2020).
18 Huynh, Phu. “Developing Asia’s Garment and Footwear Industry: Recent Employment and
Wage Trends.” International Labour Organization, October 2017. (accessed 16 December
2020).
19 “From obligation to opportunity: A market systems analysis of working conditions in Asia’s
garment export industry.” International Labour Organization, September 2017.
(accessed 16 December 2020).
20 Cook, Grace. “What Will Happen to All the Unsold Clothes?” Financial Times, 13 August 2020.
(accessed 16 December
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21 Segran, Elizabeth. “Your H&M Addiction is Wreaking Havoc on the Environment. Here’s How
to Break it.” Fast Company, 2 March 2019. (accessed 16 December 2020).
22 Granskog, Anna, Libbi Lee, Karl-Hendrik Magnus, and Corinne Sawers. “Survey: Consumer
Sentiment on Sustainability in Fashion.” McKinsey & Company, 17 July 2020.
(accessed 17 December 2020).
“The State of Fashion 2020: In Troubled Times, Fortune Favours the Bold.” McKinsey &
Company
and
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(accessed 17 December
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23
24 Ibid.
25 Boon, Kev. “What are Brands Doing about Sustainability?” REAL Sustainability Centre, 15
January
2019.
(accessed 17 December 2020).
© 2021 by IMD
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This document is authorized for use only by Seda Keshishyan in MGMT 385 International Business Summer 2024 taught by GREGORY THEYEL, California State University – East Bay from
May 2024 to Aug 2024.
For the exclusive use of S. Keshishyan, 2024.
IMD-7-2266
THE FUTURE OF THE FASHION INDUSTRY
26 “The Year Ahead: Welcome to the Materials Revolution.” BoF and McKinsey & Company, 2
January
2020.
(accessed 17 December 2020).
27 “The State of Fashion 2020: Coronavirus Update.” McKinsey & Company and BoF, 1 April
2020,
(accessed
13
November 2020).
28 McIntosh, Steven, “Coronavirus: Why the Fashion Industry Faces an ‘Existential Crisis.’” BBC,
29 April 2020. (accessed 16
December 2020).
© 2021 by IMD
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This document is authorized for use only by Seda Keshishyan in MGMT 385 International Business Summer 2024 taught by GREGORY THEYEL, California State University – East Bay from
May 2024 to Aug 2024.