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80 percent of fashion businesses could fall in financial distress, says report

By Don-Alvin Adegeest

21 Apr 2020

Fashion

McKinsey has published new revenue estimates for the global fashion industry gripped by the coronavirus crisis.

While even before the pandemic fashion leaders were on high alert with disrupted financial markets, upended supply chains, and crushed consumer demand across the globe, Covid-19 has accelerated the blow to both supply and demand.

McKinsey estimates revenues for the global fashion industry (apparel and footwear sectors) will contract by –27 to –30 percent in 2020 year-on-year, although the industry could regain positive growth of 2 to 4 percent in 2021 (compared with the 2019 baseline figure).

For the personal luxury goods industry (luxury fashion, luxury accessories, luxury watches, luxury jewelry, and high-end beauty), McKinsey estimates a global revenue contraction of –35 to –39 percent in 2020 year-on-year, but positive growth of 1 to 4 percent in 2021 (compared with the 2019 baseline figure).

80 percent of fashion companies could fall in financial distress

If stores remain closed for two months, McKinsey analysis approximates that 80 percent of publicly listed fashion companies in Europe and North America will be in financial distress.

Combined with the McKinsey Global Fashion Index (MGFI) analysis, which found that 56 percent of global fashion companies were not earning their cost of capital in 2018, McKinsey expects a large number of global fashion companies to go bankrupt in the next 12 to 18 months.

The interconnectedness of the industry is making it harder for businesses to plan ahead. Just as China inched through recovery, outbreaks worsened in Europe and the United States. But it is in the developing world, where healthcare systems are often inadequate and poverty is rife, that people will be hit the hardest.

For more information and to read the full report visit www.mckinsey.com.

Image: Selfridges Oxford Street, courtesy; article source McKinsey.com.