Wunderlabel Logo



Published: 2023-09-06

Challenges of the Fashion Industry in 2023

The fashion industry is facing profound challenges, not least due to the COVID-19 pandemic, armed conflicts and economic crises, which are leading to a rethink and will in some cases result in significant restructuring in the coming years. In addition, trends such as digitalization, the call for greater sustainability and emancipated consumers are having an impact on the market success of individual companies. This article summarizes the key challenges and trends in the fashion industry.

Weighing various challenges in 2023

Data source: The State of Fashion 2023 [PDF] - McKinsey

The consequences are not only felt by consumers, but also the production countries sometimes suffer severely from the loss of exports, so the planned transformations of fashion companies are very diverse.

Data source: Revamping fashion sourcing: Speed and flexibility to the fore [PDF] - McKinsey

Impact of the COVID-19 pandemic

According to the McKinsey Global Fashion Index (MGFI), the fashion industry experienced negative growth in 2020 for the first time in at least 10 years. Sixty-nine percent of companies reported negative economic profit in 2021, 80 percent of fashion companies canceled orders and 90 percent planned to buy less fashion from their suppliers. Sales slumped by about 40 percent.

This is also accompanied by a streamlining of the product range. One-third of companies plan to reduce by 5 to 10 percent over the next four years, and another fifth by as much as 10 to 20 percent.

Some regions are recovering from the crisis faster than others: In China, the luxury division is around 70-90 percent ahead of 2019 levels at the end of 2021, while Europe in particular is lagging behind developments. Nevertheless, around half of all companies have recognized that far-reaching change is necessary at all levels.

Consequences for the manufacturing countries

For low-wage countries, which generate a significant proportion of their GDP from apparel production, production stoppages mean an economic crisis. The consequences are felt above all by the workers, as social security systems are lacking, as is statutory health care, and wages are no longer paid, as workers are often paid by the piece. The Workers Rights Consortium has identified 210 factories in 18 countries with 160,000 workers who have already had to forgo about $171.5 million in wages in Covid's first year.

Price increases due to inflation

Global inflation is driving transportation costs higher for the first time in about a decade, followed by commodity prices, and is the biggest challenge facing businesses since 2022.

Data source: The State of Fashion 2023 [PDF] - McKinsey

Freight costs, for example, have risen four- to fivefold in some cases, and raw material prices and also wages have increased worldwide.

Data source: Revamping fashion sourcing: Speed and flexibility to the fore [PDF] - McKinsey

It is not foreseeable that prices will fall again: Capacities remain limited, and CO2 emissions are likely to become even more expensive in the future. Raw material prices have also risen by up to 30 percent by 2020.

However, the increase was recently preceded by a drop in prices, so that prices have not yet reached their historical level. Purchasing managers are therefore facing major challenges, but they cannot completely decouple themselves from price increases either.

Supply chain problems and production downtime

The COVID-19 pandemic has particularly highlighted the vulnerability of global supply chains. Transportation bottlenecks have led to material shortages in many places, and transportation costs have increased, leading to higher consumer prices. Some 49 percent of companies fear an impact on their own supply chains in 2022, while three-quarters of all companies again see supply bottlenecks as a problem for flexibility and speed.

Overall, it is evident that supply chains are directly linked to political and social developments and that price developments also depend on weather events, among other factors. If, for example, a flood destroys a large part of the cotton harvest, raw material prices rise significantly. Strikes, on the other hand, lead to production losses, while economic crises, such as those currently emerging for the Chinese market, can have a massive impact on sales markets.

Data source: Revamping fashion sourcing: Speed and flexibility to the fore [PDF] - McKinsey

Shortage of skilled workers due to demographic change

The shortage of skilled workers is noticeable throughout the EU, but is particularly pronounced in Germany. In 2022, just under 43 percent in this country will complain of a shortage of qualified specialists - the highest figure in the entire EU. At the same time, the fashion and textile industry in Germany is a significant economic factor with sales of 66.8 billion euros (2021) and 1.3 million employees, so securing qualified young talent appears essential for long-term success.

Sustainability issues are also becoming increasingly important in the competition for qualified employees. Around 45 percent of employees attach importance to meaningful work when choosing their employer. In addition to environmental and climate protection, this also applies to corporate culture, which must offer nothing less than a flexible, modern and diverse working environment.

Sustainability trend

The fashion industry has a lot of catching up to do when it comes to sustainability. It is responsible for around 20 percent of global wastewater, 85 percent of discarded clothing ends up in landfills, and the industry consumes more energy than air and sea transport combined. Fast fashion is responsible for much of the 100 billion garments produced each year, at the same time that $450 billion worth of textiles are destroyed annually. The average consumer buys about 60 percent more fashion than they did in 2000. At the same time, consumer awareness is rising and purchasing decisions are increasingly being made according to sustainability criteria. Companies must face up to these demands and adapt their strategies accordingly to be successful on the market in the long term.

Transparency requirements

In addition to the demand for greater sustainability, another challenge facing supply chains is the increasing requirements for transparency. For example, since the German Supply Chain Sourcing Obligations Act (LkSG) came into force in January 2023 and with the ongoing development of the Corporate Sustainability Due Diligence Directive (CSDDD) in the EU, supply chains are increasingly becoming a matter of public awareness.

Fragmented digitization as a challenge

Digitization is not stopping at the fashion industry. Virtual worlds are developing into an important sales channel not only for luxury fashion brands and at the same time offer potential for new target groups. In addition, digitization can increase flexibility through new process structures and agile forms of action, which is of great importance in the fashion industry with its short seasonal cycles.

To date, however, the fashion industry has been dominated by fragmented digitization strategies that only affect individual business areas. The opportunities for a holistic customer approach, data security and digital process structures have so far remained untapped. The lack of digital tools is thus a major reason for the lack of flexibility.

Data source: Revamping fashion sourcing: Speed and flexibility to the fore [PDF] - McKinsey

Be it industrial espionage or the protection of consumer data: As digitization increases, so does cybercrime, requiring companies to invest in their security architecture. 53 percent of companies expect a significant attack on their own cybersecurity by 2022. In the future, data protection and data security must be an integral part of the strategic orientation of companies.

Consumer trends in the fashion industry

One consequence of the COVID-19 pandemic is the continuing consumer trend toward wellness and health. The home office trend has also boosted sales of comfortable and functional leisurewear and will continue to do so. However, the price of the merchandise remains the deciding factor in purchasing.

Data source: Global Fashion Industry: Trends, Consumer Shifts, and Outlook

Desire for more sustainability

The desire for greater sustainability has also deepened as a consumer demand in the wake of the COVID-19 pandemic:

However, surveys also show that consumers have different priorities when it comes to sustainability.

Data source: German Fashion Consumer Panel 2022 [PDF]

First and foremost, consumers lack certificates and seals to prove sustainable production. But the cost of sustainable materials and other factors also act as barriers to buying sustainable fashion.

Data source: The State of Fashion 2023 [PDF] - McKinsey

For some consumers, there are barriers to buying sustainable fashion.

Data source: Studie Fashion 2030 [PDF] - KPMG

Fluid fashion as an expression of gender identity

The more important the expression of one's own (gender) identity becomes, the more important fashion that meets this need for expression also becomes. Generation Z in particular is increasingly looking for terms like “genderless” or “gender-neutral” - and the trend is rising. For more and more brands, this means rethinking design, marketing and the shopping experience to accommodate the fluid gender boundaries.

Data source: The State of Fashion 2023 [PDF] - McKinsey

Influence of influencers and social media

The influence of social media influencers has grown significantly in recent years. Their influence on active followers is great, and purchase recommendations quickly lead to a noticeable increase in sales of the advertised products. Social media influence the purchase decisions of 20 percent of consumers.

Data source: German Fashion Consumer Panel 2022 [PDF]

It is not uncommon for consumers to develop an emotional attachment to these hip fashionistas. As a result, companies face the challenge of identifying key influencers and engaging them as brand ambassadors or other collaborators. In return, they benefit from the influencers' reach and proximity to their followers. It is no coincidence that marketing spending on influencers grew from $1.7 billion in 2016 to $13.8 billion in 2021.

Live shopping, which is similar to classic teleshopping, is particularly popular at the moment. The only difference is that influencers present the latest brand products and the followers are supposed to buy them. During the live session, there is also the opportunity for direct interaction, which increases customer loyalty and provides an interactive shopping experience.

Second hand clothing is in

More consumers are turning to used clothing: about 34 percent buy used clothing, and another 28 percent can imagine doing so. The market share of used clothing is expected to rise to 20 percent in the next few years.

Data source: 2020 Resale Report - ThredUp

Apparel resale profits will grow from $15 billion in 2022 to $47 billion in 2025. This will grow 11 times faster than the apparel sector as a whole.

Data source: 2020 Resale Report - ThredUp

Gen Z in particular is responsible for sales increases in the second-hand sector.

Data source: 2020 Resale Report - ThredUp

For companies in the fashion industry, this means lost sales or the need to develop new business models to participate in this new business segment.

Smart clothing

Smart clothing is on the rise. In the U.S., about 25 percent of adults wore wearable devices in 2017. These include not only smart watches, but also Ralph Lauren nylon shirts that measure your heartbeat, handbags that charge your smartphone, and smart workout shirts that can be worn underneath your regular clothes as well as at the gym.

Data source: Fashion Study 2030 [PDF] - KPMG

Social Commerce

Social shopping refers to the seamless shopping experience from finding information to purchasing a product. In-App checkout solutions, live streaming and augmented reality are just a few keywords that will be important here. Gen Z and Millennial shoppers want companies to be more digital in the future. For example, 71 percent would increasingly turn to brands that integrate augmented reality into the customer journey.

In 2021, 37 percent of companies say social commerce will be one of the top three issues impacting their business.

Most importantly, all sales and marketing channels, from Instagram and Facebook to the company's own web store and in-store offerings, are connected.

Online trade vs. stationary trade

The importance of online retail will continue to grow in the coming years. KMPG forecasts a 50 percent share of stationary retail by 2030. This will be accompanied by a reduction in the amount of retail space available in city centers, which in turn will require far-reaching changes in urban development concepts in order to prevent the extinction of the city center shopping experience.

However, not all online stores are growing at the same rate.

Data source: German Fashion Consumer Panel 2022 [PDF]

Since the COVID-19 pandemic, the number of fast-fashion retailers has increased, especially in the online segment. Companies such as Shein have long since become market leaders in the USA. These direct-to-customer (D2C) fashion brands dispense with retail and wholesale and sell their products directly via their own websites, social media and dedicated apps. One-third of companies rank D2C among the top three issues impacting their business. Seventy-nine percent of companies prefer retail networks and the metaverse to other marketing channels.

57.5 percent of consumers prefer e-commerce sites when shopping online, while 42.5 percent use branded apps.

Data source: German Fashion Consumer Panel 2022 [PDF]

The problem of returns

As online retailing grows, so does the problem of returns. During the COVID-19 pandemic, the number of online purchases skyrocketed - and so did the number of returns. To reduce the rate of returns, brand owners need to analyze their returns data much more closely to gain insight into customer behavior. Often, there is simply a lack of clarity in product descriptions, as most returns are due to fit or style. Solutions are already available with tools that combine computer vision, 3D matching technologies and machine learning to enable virtual try-ons and reduce returns by up to 40 percent.

Current trends in the fashion industry

Digitization has changed the role of consumers from passive to active. They no longer just buy products, they want to interact with, influence and shape brands. They are well-informed, discerning and responsible, and like to share their experiences with brands and products via social networks. A major challenge for brands is to meet these expectations, i.e. to create digital brands and engage individual consumers with the brand through interactive shopping experiences across multiple channels. This places new demands on service and special experiences that are simultaneously customer-centric, personalized and contextual. But the impact of pandemics, inflation and geopolitical uncertainties are also driving change.

Nearshoring and local production

The challenge for companies is to adapt their sourcing strategies and integrate new processes into their supply chain management. In terms of procurement, this means a shift to nearshoring, i.e. companies are planning to increasingly source fashion from nearby foreign countries. Three-quarters of companies currently plan to do so. 24 percent are also considering moving production back to their own country. At the same time, 47 percent of companies plan to reduce the number of suppliers and rely on fewer large, reliable manufacturers. This will also have an impact on manufacturing countries.

Data source: Revamping fashion sourcing: Speed and flexibility to the fore [PDF] - McKinsey

Price increases and cost optimization

Another consequence of supply constraints and production disruptions is price increases. As a result, 72 percent of companies plan to raise prices themselves in 2023, while 37 percent are turning to cost optimization due to global economic uncertainties.

Data source: The State of Fashion [PDF] - McKinsey

Recycling and more sustainability

For 16 percent of companies, sustainability is the biggest opportunity for the fashion industry:

Data source: The State of Fashion 2023 [PDF] - McKinsey

A third of companies plan to make 90 products from sustainable fibers by 2025, and 24 percent plan to make at least half.

Buzzwords such as circular economy and closed-loop recycling are becoming increasingly important as only about 10 percent of companies use recyclable materials in production, only one percent actually recycle, and about 40 million tons of textile waste are generated annually. This trend includes, for example, the take-back of used articles, sorting processes and their re-processing. Other sources put the figure at close to 100 million tons. This trend includes, for example, the take-back of used articles, sorting processes and their re-processing.

Data source: The State of Fashion [PDF] - McKinsey

Integrated digital strategies as an opportunity

Digitization offers companies a number of opportunities to successfully manage structural change. Integrated strategies that go beyond individual measures appear to be particularly important. Initial approaches were recently reinforced by the COVID-19 pandemic, when digital methods were the only option for smooth process continuation.

Datennquelle: Time for change - How to use the crisis to make fashion sourcing more agile and sustainable - McKinsey

Blockchain technology for product passports

More and more companies are responding to the demand for greater supply chain transparency with product passports. However, there are only a few international standards that actually ensure better authentication and sustainability.

With blockchain technology, it is possible to record every step in the supply chain permanently and retrievably, ensuring traceability of each step. Once data is stored, it cannot be altered, creating a high level of transparency and trust in the accuracy of the data. For brand owners, this provides an opportunity to meet their own sustainability goals and optimize their supply chains. In addition, the technology lends itself to the fight against product counterfeiting, as production sites and locations can be clearly identified via the blockchain.

Data source: The State of Fashion [PDF] - McKinsey

Non-fungible tokens (NFTs) allow gamers to buy and trade virtual fashion items. Approximately 81 percent of Generation Z play video games regularly. The Virtual Fashion Metaverse plays a crucial role in this, and other marketplaces have also specialized in NFTs. For example, RTFKT sold 600 pairs of digital sneakers worth $3.1 million in just seven minutes in February 2021.

VVirtual fashion for digital identity

There are now companies that focus entirely on the digital market, allowing consumers to shop the latest fashions digitally. They can upload photos and videos of their latest purchases and stay on trend without their closets bursting at the seams. The COVID-19 pandemic has already produced the first interactive sweaters and pajama suits to help employees look their best virtually during Zoom conferences. This contribution to sustainability was worth $2 million to investors in a recent funding round. Virtual clothing could be on the way.

Data analytics, machine learning and AI

Networked management systems calculate the most favorable trade routes and modes of transportation, and help fashion companies comply with local regulations, sanctions, or embargoes. At the same time, intelligent systems can optimize inventory levels to match supply and demand, reduce surpluses, and avoid shortages.

The use of data analytics enables a detailed evaluation of customer behavior - and thus a more intelligent and customer-oriented product design. The use of AI is already enabling predictive statements that forecast customer behavior. This creates a win-win situation for all parties involved: customers receive products that are optimally tailored to them, companies produce less surplus and can sell their collections at full price, and the environment is relieved by less surplus and waste. Machine learning algorithms calculate supplier failure probabilities to predict their reliability, allowing companies to proactively respond to these risks. AI can incorporate external data, such as weather forecasts, to account for crop failures, and use intelligent platforms to optimize performance across the supply chain and reduce costs. The applications are many and varied.

Data source: Fashion Study 2030 [PDF] - KPMG

However, the handling of customer data is a sensitive issue, as privacy and security are becoming increasingly important around the world. Surveys have shown that users are more likely to share their data if they receive value in return - an important factor for companies in the customer journey.

Virtual Studios

Virtual studios not only reduce time-to-market, but also cut costs. Eliminating the need to send teams of photographers on location, innovative virtual photo studios photograph models in front of green screens. Even during the shoot, the client can follow the model's position in space live - whether on a dreamy South African beach, in the mountains of Alaska, or during an interactive interaction in the background. The sometimes imaginative backgrounds can be reused later, and the eco-balance for companies is positive across the board due to the elimination of air travel.

Virtual sampling is also growing in importance. Although these virtual product samples require a high level of trust in suppliers, they contribute to greater sustainability and speed in product development.

Data source: Revamping fashion sourcing: Speed and flexibility to the fore [PDF] - McKinsey

3D technology in product development

Digital workflows can simplify virtually every step of the traditional supply chain and improve business agility. 3D designs reduce time-to-market, streamline decision-making and planning across departments, and improve the quality of creative processes. Physical samples of initial designs become obsolete; fit adjustments are possible in real time, as are different fabrics and textures. Ultimately, photorealistic images serve as the basis for the marketing department, so 3D has the potential to become the new standard in the fashion industry.


The fashion industry has been and continues to be subject to profound changes that pose numerous challenges. In addition to inflation and the aftermath of the pandemic, geopolitical changes also harbor risks that affect supply chains and pricing. But consumers' calls for greater mindfulness and digitization are also influencing current developments in the fashion industry - and harbor not only threats but also opportunities for change that can lead to greater sustainability, more conscious purchasing decisions and innovative strategies for success.

Weitere Quellen

Fashion 4.0: How the fashion industry succeeds in the digital transformation How CLO Virtual Fashion optimizes the entire fashion supply chain through 3D Supply chain problems in fashion industry: 71% of companies rely on nearshoring Study on the future of the fashion industry in Germany - KPMG Germany Fashion Supply Chain: Everything You Need to Know Digital transformation in the fashion industry Textile and garment supply chains in times of COVID-19 Three Key Trends That Will Shape the Future of Fashion How blockchain could make fashion more sustainable From Blockchain To Content, New Industries Will Lead Fashion And Style