STATE OF THE INDUSTRY
By nature, luxury is durable – defined by high-standards and long-lasting trends.
However, the industry has been responsible for some of the worst social and environmental impact across the globe.
In parallel, it faces rapidly-changing consumer attitudes and increasing demand for new products and practices:
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Digital adoption: “71% of fashion executives expect their online business to grow by 20% or more in 2021”
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Security and justice to workers: “55% of consumers expect fashion brands to care for the health of employees in times of crisis”
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Increased engagement with local consumers and strategic investments in markets with stronger recovery: “66% of fashion executives expect travel retail sales to recover their former growth levels only within 2 or 3 years” (McKinsey, 2020)
These trends are even stronger among millennials: 1 out of 2 young customers has already turned their back on a brand because it was not in line with their values (McKinsey, 2020). This represents a critical challenge and opportunity for D&G, as new generations will provide the majority of growth in the luxury market (Bain, 2018).
THE SECOND MOST POLLUTING INDUSTRY IN THE WORLD
The fashion industry is considered the second most polluting industry worldwide (UNCTAD). It accounts for ~4% of emissions globally, outweighing the footprint of international flights and shopping combined. More than 70% of these emissions come from upstream activities, and around 60% of emissions savings are possible, according to McKinsey & Company. Thus, upstream activities constitute a key focus for accelerated abatement.
A few figures:
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The industry accounts for about 35% of microplastic pollution in the ocean (Reuters, 2020).
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It is the third most water-consuming sector and emits 1.2 billion tonnes of greenhouse gases each year (ADEME, 2020).
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Pesticides and fertilisers used to grow conventional cotton threaten the health of local communities and diminish water and soil quality (WWF, 2020).
AN URGENT NEED TO REDESIGN PRODUCTION CHAINS AND IMPROVE TRANSPARENCY
Incredibly complex and globalised production chains often make it difficult to fully trace the materials used and production conditions. While audits and regulations exist, the proliferation of sub-contractors and the unwillingness of brands to invest in reliable information collection obstruct international social and environmental standards. In 2013, the collapse of the Rana Plaza building in Bangladesh killed 1,129 people and injured 2,500 others. For some brands, it took weeks to determine why their labels were found in the ruins and identify the purchasing agreements they had with those suppliers.
SUSTAINABILITY RISKS AND RESILIENCE
Firms face physical, reputational, and legal risks, among others; these risks may eventually intertwine and result in significant financial losses.
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Excessive use of harmful chemicals alters biodiversity and the quality of the raw materials used.
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The over-exploitation of non-renewable resources inevitably leads to their gradual disappearance and, with it, the disappearance of some luxury products.
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Climate change represents a major physical risk of supply chain disruption.
The industry cannot afford to greenwash – D&G must go beyond marketing and adopt major sustainability initiatives to build resilience throughout its supply chain.
AN INDUSTRY ON THE MOVE: LEADERS AND LAGGARDS
A pioneer in eco-responsible fashion, Stella McCartney has anchored her brand in her ecological convictions, making a crazy bet that has raised awareness in the fashion industry.
Some others are following, either by certifying their materials (Tiffany has certified its diamonds as “conflict free”), shifting to renewables (L’Oréal set goal to 100% renewable power by 2025), or engaging with communities (Chanel committed $35M to install solar panels on the roof of low-income families in California - and achieved carbon neutral status the same year).
Many others are still lagging behind: a majority of the luxury brands are not reporting their ESG performance. Many, like Dolce & Gabbana, are known for using harmful and highly polluting materials. Others, like Burberry and Louboutin, have been under the spotlight for destroying huge quantities of unsold products. In 2018, Burberry burnt $37 million worth of its stock (The New York Times, 2018).
CHALLENGES AND OPPORTUNITIES TO SEIZE
McKinsey’s industry outlook for 2021 predicts two scenarios. The optimistic one forecasts that global fashion sales will decline by between 0 and 5% in 2021 compared to 2019. The pessimistic one would see sales growth decline by 10 to 15%. In any case, the sector can expect tough trading conditions to persist. Meanwhile, the industry is still playing catch-up as the challenges in terms of digitisation and sustainability become more complex.
But there will also be opportunities to capture. Among them, pooling innovations could be at the service of several firms and help increase transparency. Brands will have to find innovative ways to reduce complexity and inventory levels, while improving circularity from the design to their e-commerce search filters. Overall, successful sustainability strategies could support brands in renewing their supply chain’s resilience and efficiency, while modernising their image to customers and young talents.
