Winners take all in global apparel, fashion, and luxury

Luxury and sportswear have delivered consistently high returns through turbulent years. But outliers from other categories offer insights into outperformance in a volatile global apparel market.

The events of the past few years have inspired many consumers to engage in retail therapy for a reprieve. But new research by McKinsey shows that company performance across the apparel, fashion, and luxury (AF&L) sector has been quite fragmented, with some companies gaining an upper hand over the past few years. In short, whether a company can outperform its competitors in the global apparel market relies largely on the segment in which it operates (see sidebar, “Fashion category definitions”), though, of course, strategic and operational choices can also make an impact.

This article examines the success of the luxury and sportswear segments since 2020 and compares the shared characteristics of companies in nonluxury fashion segments that—despite all odds—have delivered strong returns to shareholders. By fostering innovation and making smart cost control decisions to align with revenue shifts, brands that are currently performing only moderately—or losing ground—can bolster their performance in the global apparel market.

The AF&L industry has delivered a strong performance over the past decade, with 70 percent of the world’s largest AF&L companies generating returns upward of 10 percent since 2016. As of our analysis in December 2021, the global apparel market was faring favorably compared with most other sectors, with AF&L shareholder returns exceeding those of the S&P 500, technology sector, retail sector, and MSCI World Index (Exhibit 1).

While the overall market has been strong, individual AF&L players have (predictably) experienced mixed results (Exhibit 2). Cost pressures, the accelerated shift to e-commerce,2 supply chain disruptions, and pandemic-driven changes in consumer patterns3 are contributing to these varied performance results. We are seeing the greatest successes from legacy players focused on luxury and sportswear products and from companies that have invested in bold strategic and operational initiatives to drive top-line sales and protect margins.

At the opposite end of the spectrum, the most challenged retailers have been traditional value and mass players, which are much more dependent on competitive pricing and in-person shopping. These players have typically had a more difficult time adapting to both the changing needs of their customers and macroeconomic pressures, and they have delivered significantly lower returns to their shareholders as a result.

Sportswear brands and retailers have thrived in recent years, with upward of 20.3 percent returns from 2019 to 2021 compared with 4.5 percent among traditional apparel players (Exhibit 3). Indeed, sportswear (together with its buzzword cousin, “athleisure”) has been a strong industry category with a long history of sustained performance and momentum. The category strengthened further during the pandemic as many customers shifted to a “work from home” wardrobe, reflecting a focus on personal health and wellness.