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Circularity and metaverse key to fashion businesses in 2022, State of Fashion reports 

Jeremy Lim
03 December 2021

While the global fashion industry is still finding its feet amid  supply chain disruption and recovery from the pandemic, businesses can look forward to an upturn in growth as changing category landscapes, new digital frontiers, and advances in sustainability continue to present opportunities next year.

This year's State of Fashion report, compiled by the Business of Fashion (Bof) and McKinsey and Company highlights the major themes shaping the fashion economy and assesses a range of responses based on interviews with top industry executives and an expansive industry survey.

Despite widespread operational disruptions, McKinsey indicates that the pandemic has done little to slow down the megatrends reshaping the industry. Instead, these have accelerated over the past year, with industry leaders investing in digital, taking action on environmental and social priorities and focusing more sharply on diversity, equity and inclusion.

With the fashion industry set to continue its rapid expansion the newly established metaverse, McKinsey relays the importance of digitally-forward communication methods, including augmented reality (AR) experimentations in shopping experiences to engage with young consumers. The BoF-McKinsey survey added that 81% of Gen-Z played video games in the past six months, averaging 7.3 hours per week. The report suggest that brands should tap into the potential of non-fungible tokens (NFTs), gaming "skins" and virtual fashion to encourage community building and commerce. Fashion executives are also looking to "digital" and "consumer engagement" as opportunities for 2022, cited by 32% and 11% of fashion executives respectively. 

As digitisation of the world reaches new heights , the threats of cyber-attacks and improper data handling becomes more evident. According to the report, 53% of fashion executives say it is likely or very likely their company will experience a significant cyber-attack in 2022. This figure indicates the urgent need to improve cyber defences and invest in digital security.

Circular textiles are one of the main megatrends emphasised in the report, with 60% of fashion executives surveyed stating that they have already invested or plan to invest in closed-loop recycling in 2022. As these technologies mature, companies will need to adopt them into the product development process for large-scale collection and sorting processes.

The value of transparency and authentication is key for both consumers and businesses, with more brands using a portfolio of technologies to tackle counterfeiting, share product information and build loyalty by enhancing consumer trust. McKinsey reported that approximately two out of five fashion executives plan to adopt product passports in 2022 or have already done so. The resulting rise in product QR codes and blockchain transparency tools has been prominent, giving customers access to merchandise life cycles and material providence.

Global fashion sales are set to pick up momentum in 2022, with consumers unleashing pent-up buying power and refreshing their wardrobes as social life begins to resume. McKinsey suggests that consumers are likely to move on from sportswear and loungewear as social restrictions ease.  Executives expect supply chain pressures, the rise of domestic luxury spend amid muted international travel and the continuing evolution of digital channels will have the biggest impact on their business in 2022.  McKinsey proposes that businesses should assess local conditions if they operate internationally, emphasising that nations with strong healthcare and economic resilience are likely to outperform others.

Nonetheless, logistics challenges could intensify with increased pressure on global supply chains and rising costs standing in the way of stable deliveries. 87% of fashion executives in the BoF-McKinsey survey expect supply chain disruptions to negatively impact margins in 2022. This will force companies to consider avenues to strengthen their supply chains and logistics networks, where a renewed focus on flexibility, sustainability, transparency and cost management will help them cope with growing consumer demand as well as new regulatory and trade hurdles.

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