U.K. Will Lead Fashion, Luxury Rebound in 2021, Says McKinsey Report
LONDON — Fashion and luxury sales will recover more quickly in the U.K. than in Europe due to the country’s rapid and widespread vaccine rollout, according to the latest research by McKinsey & Co.
The consultancy said in its new Fashion & Luxury 2021 report that fashion net sales in the U.K. are set to be minus 8 to 12 percent this year, compared with 2019. Continental Europe’s recovery will be slower, with minus 12 to 24 percent in fashion net sales, compared with two years ago.
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While U.K. growth will outstrip that of its European neighbors, it won’t be as fast as China’s, which is expected to see a 4 to 6 percent surge in sales. The U.K. projections are roughly on a par with the U.S., which is poised to see a 10 to 12 percent decline in sales this year compared with 2019.
Although the U.K. was slow to lock down last year when COVID-19 first hit, the country was relatively quick to develop and distribute the Oxford-AstraZeneca COVID-19 vaccine, and to roll out the the Pfizer/BioNTech and Moderna ones, too.
According to government statistics, more than 25 million people in the U.K., almost 50 percent of all British adults, have received at least one dose of a COVID-19 vaccine. The rollout is ahead of schedule, and the country continues to be among those with the highest vaccination rates globally.
As reported, Britain is still in the midst of its third lockdown in 12 months, although schools are back, and nonessential retail and services, such as salons, are set to reopen on April 12.
According to a roadmap set out by Prime Minister Boris Johnson last month, all social restrictions will be lifted by June 21.
In the fourth quarter, McKinsey said a full and effective vaccine rollout and the avoidance of a third wave of COVID-19 in the fall and festive season in the U.K. “could enable solid growth, even ahead of 2019 levels.” Growth could be between 1 and 5 percent, the report said.
The successful vaccine rollout means that homebound Britons will be eager to entertain, socialize and shop once restrictions begin to lift after the Easter holiday.
“The big difference [in the U.K.] is the vaccine rollout and therefore the opportunity to go back to more normal operating. It not only opens the stores, it also opens up the number of occasions for which people dress and consume fashion,” said Anita Balchandani, partner, head of apparel, fashion and luxury for EMEA at McKinsey.
“When we’re back in a world of more hybrid working, with days in the office and days at home, there will be occasions for people to dress up. There will also be pent-up demand for special occasions and self-expression and events. As life goes back to normal, the big lift will really be tied to the vaccine rollout.”
During a briefing on Wednesday to discuss the new research, Balchandani talked about the various dynamics impacting the sale of fashion, footwear and jewelry across all categories and price points in major markets worldwide; the enduring popularity of online shopping, and the changing role of retail, online and offline.
She said 2020 had been “a devastating year” for the industry in terms of revenue and profit, and that there is much ground to recover. She said the first quarter has been “a write-off for the industry” overall, and worse than projected due to the store closures in Europe and the U.K.
Balchandani also argued that online shopping will remain popular even as physical stores start to reopen. In the second half of 2021, online sales penetration will rise from the current 36 percent to as much as 42 percent, before settling down to 37 to 38 percent by 2022-23.
She added that the physical retailers that did the most soul-searching — and auto-correcting — during the pandemic will emerge as the winners, post-pandemic. Stores with an omnichannel approach, digital services for clients, and speed to market capabilities will find themselves in a stronger position this year than their slower-moving peers.
In addition, physical stores and brands that know how to tune in to customers and create a “relevant experience” will also thrive, she said.
Asked about the fate of department stores, Balchandani said the winners will be those “who were investing in experience and really giving customers a reason to visit the store versus doing the transaction online.”
She believes that “people will go back to craving social shopping and experiences,” and that if a store “isn’t firing on all cylinders and understanding its customers” then it will be in a vulnerable position once lockdown lifts.
In online retail, Balchandani said she expects to see more concessions and alternatives to the traditional wholesale model emerging.
“Online concessions will become key and enable the brands to have a better oversight and ability to manage pricing and inventory on the [multibrand] online platforms,” she said.
With regard to supply chain and deliveries, Balchandani added the more flexible that online and physical retailers are, the better, and the race is on for retailers to get product onto the shop floor, website or consumer’s doorstep as quickly as possible.
During lockdown, she said the most flexible businesses “were really able to spot where the demand was, and to double down and buy more inventory in those areas. They were also able to pull out of inventory that would have ended up sitting in a warehouse. They realized that flexibility might indeed trump volume — and cost efficiency.”
Looking ahead, Balchandani said the survivors will be those “who are asking those hard questions, the ones that are taking this moment of dislocation and disruption to set the record straight. We hope the fashion industry takes this opportunity to reimagine itself for the next phase of growth and recovery.”
In separate report to be released on Thursday, McKinsey Global Institute elaborated on some of Balchandani’s themes.
Called “The consumer demand recovery and lasting effects of COVID-19,” the report said consumer recovery post-pandemic is likely to be “robust but uneven” with some lasting effects from COVID-19 on consumer behavior.
Jaana Remes, a partner at the McKinsey Global Institute and coauthor of the report, said that while “there is still a lot of uncertainty, an effective vaccine rollout…could restore consumer demand to pre-pandemic levels, fueled by rising consumer confidence, pent-up demand and accumulated savings.”
The report points out that, unlike in past recessions, the COVID-19 crisis involves “no consumer debt overhang, bursting asset price bubbles or long-term business cycle fluctuations.”
Instead, the sudden and deep drop in consumer spending in the initial months of the pandemic resulted mainly from cutbacks to in-person consumer services, especially travel, entertainment and dining.
The report noted that these categories had been growing over the long term, “and consumer surveys indicate a likely strong demand rebound after the pandemic.”
“The massive spike in the savings rate across the United States and Western Europe (amounting to a doubling of annual savings in the United States in 2020) left many households in a strong position to spend. China’s robust consumer spending recovery after gaining control of the COVID-19 virus is another reason for optimism for most countries,” the report said.
At the same time, it warned that in the U.S., young and low-income households, which have been “disproportionally working in hard-hit service-sector jobs and occupations with accelerated digitization and automation, are likely to face purchasing power constraints after stimulus support ends. A more uneven recovery could result in the widening polarization of consumer demand and an increase in inequality.”
In Europe, by contrast, the stronger social safety net (including more stable employment contracts and more expansive labor protection) as well as mechanisms to protect low-income segments, will support the recovery of discretionary consumption, according to McKinsey.
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