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-By Ankita Dutta

According to McKinsey, fashion enterprises that adjust to changes in the merchandising scheme of the industry are able to gain a competitive advantage. The organisation’s recent insight note explains that, given the prevailing economic environment and unprecedented uncertainty, it is even more critical to get merchandising strategy correct. For this reason, many companies are seeking new approaches to maximise efficiency, and incorporating advanced digital tools into their operations.

Approximately 97% of fashion executives anticipate that their cost of goods sold and selling, general, and administrative expenses will rise in 2023, sparking a desire across the sector to streamline assortments and manage expense. This trend aligns with the longer-term thinking of many executives, according to McKinsey.

With inflation at a 40-year high in numerous markets, the cost of operating a fashion company is increasing rapidly. During periods of economic uncertainty, firms must adopt leaner business models to ensure each dollar earned, and saved, stretches further, according to the report.

Sustainability is rapidly climbing the agenda, driven by shifting consumer attitudes, and regulatory intent is solidifying; necessitating that the industry cleans up its practices. Companies must focus on reducing waste, prioritising sustainable materials, creating designs for circularity, and maintaining an environmentally-friendly and responsive supply chain.

To expand, brands are likely to need to diversify their channel mix, including third-party marketplaces and wholesale options, alongside direct-to-consumer approaches. McKinsey’s analysts, associate partners David Barrelet, Matthew Chapman, and Erik Eklöw based in Munich, London, and Stockholm correspondingly; consultant Julia Huang in the New Jersey office; partner Felix Rölkens in the Berlin office; and partner Hannah Yankelevich in the Minneapolis office, say that fashion brands can reduce margin pressure by rethinking promotions and discounting.