The Business of Fashion and McKinsey & Company have released a new update examining the effects of Covid-19 on the $2.5 trillion fashion industry. The findings, as one would expect, make for seriously grim reading, with millions of jobs put at risk.

The devastating impact of the virus has decimated the industry, leaving fashion businesses exposed or rudderless across the board. Previously planned strategies for 2020 have become redundant, as leaders try to control the fall-out from what is being described in some quarters as "the ultimate Black Swan event." This impacts everyone, from media planners in Philadelphia to factory workers in Phnom Penh. "Though the duration and ultimate severity of the pandemic remains unknown, it is apparent that the fashion industry is just at the beginning of its struggle," reads an ominous part of the introduction.

Store closures due to quarantine measures are already having disastrous consequences. If stores remain closed for two months, the report suggests that 80 percent of publicly listed fashion companies in Europe and North America will find themselves in financial distress. It doesn't window dress what that might entail, stating: "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, we expect a large number of global fashion companies to go bankrupt in the next 12 to 18 months."

McKinsey x BOF

The report predicts that revenues for the global fashion industry (apparel and footwear sectors) will contract by up to 30 percent in 2020 year-on-year, while the personal luxury goods industry (luxury fashion, luxury accessories, luxury watches, luxury jewelry, and high-end beauty), will contract up to 40 percent. As backed up in a Stackline report yesterday, this can be attributed to the discretionary nature of fashion and the fact that wealthy consumers have stopped traveling and shopping.

It then goes on to explain how the interconnectedness of the industry is causing it to suffer. Staff layoffs and wage cuts have become a reality, just as closed stores mean orders have been canceled, leaving garment workers in the developing world out of work. "For workers in low-cost sourcing and fashion-manufacturing hubs, such as Bangladesh, Cambodia, Ethiopia, Honduras, and India, extended periods of unemployment will mean hunger and disease," reads a particularly stark paragraph.

What next, then? BoF founder Imran Amed explains that "the crisis is a catalyst that will shock the industry into change," stressing the importance of collaboration and the fact that no company will be able to navigate the crisis alone. Achim Berg, Global Leader of the Apparel, Fashion & Luxury Group at McKinsey and Company, states the crisis will have a long-term impact, but caveats that by saying: "[it] gives us an opportunity to redesign the industry's value chain and to focus on the values by which we measure our actions."

On buying habits, it posits that in time, consumers will tear themselves away from hype products, instead focussing on heritage pieces with longevity: "Many consumers will be looking for so-called “investment” pieces — minimalist, last-forever items, that feel more responsible given the state of the world."

For those involved in the industry, it's worth taking half an hour out of your day to give the full report a look over, as the above only skims the surface.

You can find it here.