LONDON, United Kingdom — After a slowdown in 2016 marked by volatility and uncertainty, our analysis suggests a slight recovery in 2017, to a point where the industry may see 2.5-3.5 percent growth next year. This slight recovery stems from a range of sources. First, macroeconomic indicators, including global GDP growth forecasts, are projected at 3.4 percent compared with 3.1 for 2016; however, at the time of printing, these had not been adjusted to reflect the ongoing impact of political shifts in the United States and the United Kingdom.

Second, the investment community expects improvements across the entire fashion industry, particularly driven by the behemoths within these segments, which are reorganising and divesting non-performing, non-core brands. This is confirmed by the key executives in the BoF-McKinsey Global Fashion Survey, who also expect increasing growth across categories and sentiments: 40 percent of respondents expect conditions for the industry to improve in 2017. However, it is important to note that 37 percent of respondents expect conditions to get worse and a significant number of fashion heavyweights —especially in the high-end segments — do not foresee any kind of recovery in 2017.

In terms of sales, our analysis suggests that the fashion industry will grow 2.5-3.5 percent in 2017, up from 2.0-2.5 percent in 2016. While this represents a slight recovery, it is not yet at the historical 5.5 percent annual growth it enjoyed for many years. Driven by the factors above, and in particular a rebalancing environment in China and North America, growth in 2017 will likely be in line with GDP growth expectations. Given the ongoing impact of political changes across countries and recent election in the United States, world GDP forecasts and other macroeconomic indicators such as oil and commodity prices are highly speculative. Due to continuing global challenges, fashion will not again in 2017 outpace GDP growth by multiple percentage points, as it did over the past decade.

In 2017, we expect general growth improvements for all segments except discount. The probable winners will continue to be the value and affordable-luxury segments, which we believe will see 3.0-4.0 percent and 3.5-4.5 percent sales growth, respectively. Both segments should benefit from shifts from other segments, as more consumers trade down from luxury to affordable luxury and trade up from discount to value.

Although growth improvement is anticipated for the luxury and mid-market players, they are still expected to underperform in terms of both overall industry growth and their own historical growth. Anticipated growth rates in 2017 for the luxury and mid-market segments are 1.5-2.5 percent, approximately half the rate they achieved from 2005 to 2015 (6.0 percent CAGR for luxury, and 5.0 percent for mid-market). Nevertheless, this is still an improvement over 2016. Both segments should benefit from the rise of fast-growing e-commerce players, particularly in the mid-market. Growth could also be further impacted by new economic policy in the United States, including international trade and taxation.

However, we expect the discount segment to continue to grow at 2.0-3.0 percent for another year — the slowest-growing of all segments — and below historical growth levels. Some players will almost certainly struggle to grow and defend their market share against value players and discounters offering higher-quality products at low prices, adopting their offer to reach consumers through multiple channels. Others, nonetheless, will likely continue to grow by expanding their geographic footprint, store networks and channel offerings. Though growth between 2016 and 2017 will not improve, some players should be able to counter the pressures on the discount segment exerted by the growing value players.

Product category performance
We do not expect a single hero product category in 2017, as most will grow in line with the overall industry, increasing one or two percentage points from 2016. Athletic wear is expected to remain the absolute category winner next year, maintaining sales growth of 6.5-7.5 percent, but this represents a weaker pace than in 2016. Although double-digit growth for athletic wear overall appears to be a thing of the past, its sub-category of athleisure is expected to continue growing at that pace through 2017. Watches and jewellery will likely see a single-percentage-point increase in growth rate in 2017 to 2.0-3.0 percent. Although conditions will improve for high-end watches and jewellery, with projected growth of 1.0-2.0 percent, the main growth driver is projected to be mass (fine, costume/silver) jewellery. Overall, the homogeneity projected across product categories makes channel strategy and clear value propositions all the more important for companies to emerge as the winner among product categories.

Sources of growth
Though more positive about industry performance in 2017 than 2016, industry players remain aware of the challenges that lie ahead in 2017. According to survey respondents, the most pressing challenge next year will continue to be dealing with volatility, uncertainty and the shifts in the global economy, followed by growth in sales and profitability. In addition, fashion executives continue to see competition from online players as one of their top three challenges for next year.

Last, supply chain improvements, decreasing foot traffic and the speed of the fashion cycle weigh equally on their mind as challenges to face in 2017. On the one hand, this combination of challenges underlines the pressures executives will face from the global economy, changes in consumer behaviour and the internal workings of the fashion system. On the other hand, these challenges are countered by the opportunities they see to improve their performance through focusing on improving the customer experience, omnichannel integration and the digitisation of the value chain.

Interestingly, in 2017 the fashion industry plans to focus on organic growth over cost cutting. According to the BoF-McKinsey Global Fashion Survey, only 5 percent of business executives believe that cost alone — rather than sales — will be the key focus for increasing profits. The sentiment is that the potential to cut costs further is about to be exhausted: over recent years companies have deployed multiple levers to further reduce cost and have still had to find profits elsewhere. This seems likely to produce a renewed focus on top-line growth coupled with an emphasis on continuous performance management. Key investments for growth are expected to come from omnichannel integration, e-commerce and digital marketing.

Additionally, organic growth through improved consumer relationship management (CRM) and in-store experiences should remain key drivers in 2017. In an effort to improve profits, fashion companies will also rely on some cost-improvement levers that go beyond the low-hanging fruit, such as the standard sourcing optimisation. Instead, executives plan to focus on productivity and process improvements, which shows the maturity of sourcing as a lever for cost cutting.

In 2017, the fashion industry has the opportunity to stabilise and reset. Next year offers an opportunity for fashion companies to work hard to grow, learning from the lessons of 2016. The 10 key trends for next year reflect the complex yet exciting journey the fashion industry can expect. These are derived from a variety of qualitative and quantitative analyses, desk research, expert interviews, the BoF-McKinsey Fashion survey of industry executives and the foundation of existing BoF and McKinsey research.

1. Intensifying volatility

Every year, MGI asks over 1,600 senior executives across all industries around the globe what they think the macroeconomic and geopolitical environment will look like in the year ahead: for 2017, almost half of them predict that economic conditions will remain challenging and that the world will experience uneven and volatile growth. In addition, domestic conflicts and terrorism still cause concern for businesses in many regions, since, as we have seen, they have the potential to disrupt the entire fashion value chain. Indeed, a recent report by the US Senate Committee on Armed Services reflects the potential for an increase in activity from various terror organisations in the year ahead, perhaps to record levels.

Another source of uncertainty is the lingering issue of Brexit, with pending departure negotiations with the EU, thereby beginning departure negotiations with the EU. Anticipation of the impact of the United Kingdom potentially leaving the European Single Market has already caused the British pound to fall to 168-year lows, and it is impossible to say exactly how the negotiations will proceed or to what timetable. There is also some uncertainty about the future of existing and proposed trade agreements, including following the result of the US elections: from the African Continental Free Trade Area, currently bogged down in local legislatures, to the Trans-Pacific Partnership, suspended by Washington.

As volatility becomes the new normal in 2017, fashion companies could see all dimensions of their business affected: overall consumer demand, flows of tourism, price adjustments and exchange rate arbitrage and labour and resource costs. As a result, companies will likely need to adjust their strategies in four ways: 1) adopt a consumer-driven mindset that adjusts in real time to changes in consumer needs; 2) build agile supply chains that guarantee operational readiness; 3) diversify their brand, category and geographical portfolios: as a top executive of a global conglomerate advised, to balance performance, it is important to know how to take advantage of one region while another one is in a downturn; 4) safeguard their cash flow by managing costs. Finally, even the most successful strategy requires an agile organisational model to have impact.

2. China's comeback?

With China playing such a significant role in the global fashion business, and especially as it has been the source of so much growth over the past few years, the question on everyone’s mind is: will China come back in 2017?

Alibaba Singles' Day online shopping event | Source: Bloomberg/Getty Images

Fashion executives believe that the slowdown is temporary. Indeed, over the long term, the fundamentals of China’s fashion market are still sound: the increasing wealth of its middle class, the growth of mobile shopping and the increase in personal consumption. China is still expected to contribute 28 percent of the world’s new upper-middle and upper-class households between 2015 and 2025, versus the United States’ 3 percent.

In addition, China is expected to pull further macroeconomic levers in order to stimulate investment and consumption. For instance, rating agency Moody’s raised its forecast for China’s 2017 economic growth in the wake of “significant” fiscal and monetary stimulus policies in 2016. Chinese authorities have shored up the economy through cheap credit and policy support, including the central bank’s monetary easing and lowering banks’ reserve requirement ratios and cutting interest rates. Combined, these factors should offset the reduction in “gifting” consumption that was eliminated through policy changes in recent years.

Chinese consumers will also have increasing access to fashion in 2017. E-tailers such as Alibaba and Shangpin are making fashion more accessible for consumers across the country. Additionally, the growth of mobile has been one of the most significant developments for the fashion industry in China. Historically, consumption of fashion had been driven by travel and tourism: Chinese consumers had to travel to America and Europe, and consumers from third-tier cities had to travel to Beijing or Shanghai to seek out fashion goods. However, the emergence of mobile has made it easier for consumers to access global brands.

Global luxury goods will also become more attractive in 2017. This will be driven by products arriving in China without delays and at the same prices. The shortening of distances and concentration of information will lead to a consolidation of channels. With the growing integration of online-to-offline channels, Chinese consumers won’t need to worry about where to buy from and paying different prices.

Of course, there are also headwinds to contend with. While the internal macroeconomic foundation is solid, pending foreign and international economic policy in the United States due to the upcoming political transition can directly impact Chinese consumption. Further, an economic stimulus does not directly translate to the consumer buying more. For example, after years of rapid growth, brands will also have to reckon with the fact that people’s closets are full, customers are becoming more discerning and an increasing numbers of Chinese consumers are putting more effort into acquiring new experiences as well as learning, personal improvement and health.

3. Urban engines

For many years, forecasters have been highlighting urbanisation as a key trend. A new class of rapidly growing cities in newly influential markets is becoming wealthy enough to provide shopping hubs for consumers in a way that makes them for the first time central to the evolution of fashion. Over the last 30 years as many as 400 million Chinese citizens moved to cities, but the new wave of urbanisation taking hold now in China, India and other populous nations is focused this time on middle-weight cities, which are now beginning to reach key population thresholds, prompting the rise of urban centres that will provide continued growth opportunities for fashion companies.

Pune in India and Harbin in China, both middleweight cities in their respective countries, will have 7 million and 8 million citizens, respectively, in 2017 — almost as many as London or Paris. As these second-tier cities attract more and more residents, and workers and families continue to migrate from rural to urban settings, the opportunities for fashion companies expand accordingly. Over the next few years, growth will shift globally toward the east and south, and stem from the urbanisation of emerging cities, as identified by McKinsey’s FashionScope — a city-level growth forecasting tool for the fashion industry.

Kuwait City's skyline | Source: Yasser Al-Zayyat/Getty Images

In the global low-growth environment, what growth does exist will be highly granular and uneven when viewed by categories. It is important, therefore, to look at cities specifically through a category lens. For example, according to projections from FashionScope, between now and 2025 Hong Kong may be the number one city for jewellery sales and the number two for bags and luggage, yet it is not even in the top 10 fastest-growing cities for clothing or footwear. When making decisions in 2017, fashion companies need to refine the way they deploy their product assortment at a city level, and assess where to invest in future growth. Cities such as Tianjin in China and Delhi in India are among the fastest-growing jewellery markets, while one of the footwear hotspots is Mexico City. Winning in one city will not necessarily translate into winning across categories and vice versa.

The importance of cities suggests that designs will have to be aimed at specific cities and specific demographics within them. Kuwait City in the Middle East, Guadalajara in Mexico and fourth-tier Chinese cities are becoming hubs for creativity and product inspiration. More broadly, we should see fashion companies shifting from basing decisions at the national market level, which has become a blunt instrument, to instead monitoring, strategising and activating business on a city level. The challenge for global brands in the next year will be to nurture deeper local relationships with clients in the cities that matter for them.

In addition to tailoring their strategies to local clients and growing urban centres, fashion players that operate in emerging markets should expect increased competition from local brands stepping up their game and professionalising to take advantage of the same opportunity. In the Indian market, for example, overseas mid-market players such as H&M, Zara, Uniqlo and Mango are now facing competition from India's own largest retail groups, which are entering the fast-fashion space, aiming to compete not only on price, but on product offering and speed to market. Our analysis suggests that in the coming year more local competitors will try similar moves in Africa, the Middle East, China, Korea and other important growth markets.

4. Shrewder shoppers

In 2017 consumer needs and behaviours will likely become more sophisticated, more technology-driven and harder to predict than ever, with fashion companies striving to keep up.

VR shopping technology Buy+ | Source: VCG/ Getty Images

Today’s consumers are “always on” — better informed, better connected to others, more demanding and more conscious of values and authenticity — and yet perhaps more unpredictable. This is a new consumer altogether who chooses to blend elements from different brands and designers, and shops more broadly than was common in the past. The driving forces behind their behavioural changes are the availability of information and accessibility of brands, as well as the desire for personalisation and connection to deep-rooted values. With brand promiscuity on the rise and more consumers inclined to shop across market segments, the market is becoming increasingly complex for brands that have relied on traditionally loyal consumers buying from a particular segment of products.

The changing competitive landscape — more brands, more channels, more retailers — should further amplify the complexity of the consumer. Brands will likely need to rethink the future of the store and focus on a customer-experience redesign, particularly by leveraging the omnichannel consumer decision journey to create a seamless consumer experience. This may take the form of stores being reshaped to resemble the online experience more closely, or amplifying the mobile and digital connections available in-store, and introducing the notion of community-based retail.

As consumers engage with technology to enhance their shopping behaviour, brands can leverage this to their advantage and further gain insights into their consumers. Investment in CRM is crucial for 2017. More than ever, fashion brands need to have a global view of their consumers in order to understand what they want, what they like, what they don't like and where and how they shop. Consumers have so many choices that fashion companies need to leverage the information they have to segment and then segment again. Emerging brands have been founded on the realisation that there are many untapped consumers for whom today's fashion brands fail to cater. These emerging brands, such as Olivia von Halle, Cambridge Satchel Company, Mansur Gavriel and Common Projects, are scaling up niche businesses through best-in-class or best-in-category strategies, or building a business on the strength of a single best-selling product.

At the same time, new technologies are coming online, often with the promise of opening new sorts of connections with consumers. Virtual reality is a big theme, with some companies rolling out immersive fashion show access, while others are developing mobile payments infrastructure, such as Alibaba’s VR pay, which aims to allow customers to purchase items with simply the nod of a head for those connected to a brand show. The winners of 2017 will probably be those companies that invest in the right technology to help them understand and serve their consumers and tap into their currently unmet needs.

5. Generation correlation

Two key but contrasting consumer groups are about to grow exponentially: the elderly and retired, and the millennials. To succeed, fashion companies will likely need to focus the way they serve both these groups.

McKinsey’s analysis suggests that the number of retiring and elderly people in developed countries will grow by more than one-third over the next 15 years, from 164 million to 222 million; by 2025 the global population aged over 60 should reach 30 percent in advanced economies and 13 percent in emerging economies. This translates to 51 percent of urban consumption growth in developed markets, or $4.4 trillion, in the period to 2030.

Source: Kevin Schafer/ Getty Images

This is a significant opportunity for fashion, so brands should identify ways to reach and communicate with these valuable consumers. Part of the challenge will be to balance the call by some for an ageless approach, whereby brands are more fluid in their designs, rather than designing for a particular age group, with
the reality that there are others who are nevertheless conscious of age-appropriate fashion. In the words of fashion icon Iris Apfel, "I think a woman has her own style and knows who she is; she doesn't have to dress for being 60 or 20 or 90."

The second most important growing consumer segment is the millennial generation. As of spring 2016, millennials are the largest living generation in the United States; over the next decade their total income of $1 trillion is expected to grow to be 30 percent more than that of Generation X and 7.5 times that of the Baby Boomers. On a global scale, 85 percent of them live in emerging markets and have a spending power of approximately $2.5 trillion, which is expected to grow three times by 2025. However, capturing that opportunity requires engaging more effectively with millennials and responding more quickly to their needs.

Doing so depends on understanding the underlying attitudes and behaviours that drive millennial consumers to spend their money on fashion, starting with the fact that they should not be categorised as a single group but as distinct attitudinally driven segments of consumers. According to the 2016 McKinsey Millennial Survey of 11,000 US consumers, the key drivers for millennials can be divided into three: value, quality and image. Different segments of consumers emphasise some drivers more than others, creating niche segments – a segment that is motivated by price; a segment that cares less about the brand; a segment that makes controlled and thoughtful decisions; a segment driven by self-expression; and a segment willing to pay premiums, among others. Much more compelling for millennials than other age groups, according to McKinsey, is the idea that they are global citizens living in borderless environments with converging education and culture, and are values driven in search for meaning and a connection to brands.

In 2017 fashion companies should consider tailoring their strategies for the old and the young not by focusing on their age, but by identifying the distinct values that resonate with members of those two groups.

6. The wellness dividend

Nike + Run Club in Venice Beach, CA | Source: Brian Gove/Getty

Traditionally, wellness and fashion have not been allied industries, but the rise of the wellness movement leaves fashion players with the choice of either learning to profit from it or having to compete with it. Over the past couple of years, fashion companies have started to pay attention to new lifestyle trends founded on health and wellness — hence the rise of casualisation and athletic wear.

To take advantage of this opportunity, fashion brands have released their own athletic wear and activewear lines. An evolution of this product offering has been to present wellness experiences to customers, an approach that chimes with the younger and more active segments of the customer base. Examples include some of the Nike running clubs and Reebok’s mobile CrossFit gyms. These events and other experiences are important, as the consumer segment is interested in personal, transformative experiences, often on the journey to a “better you.” They also help create differentiation in segments such as running shoes that would otherwise be tending toward commodities.

Currently, fashion is responding to only some, and often isolated, layers of the wellness movement. It has focused predominantly on the physical component, responding to people’s desire to be more physically fit. Some brands have focused on storytelling and creating an emotional connection of wellbeing to consumers, while others have championed consciousness for the environment and the use of organic fabrics. However, our expert interviews indicate that this is a limited interpretation. Wellness extends to a more holistic sense of a person and appeals to mental, physical, spiritual, emotional and environmental attributes. The more of these attributes that a brand can reflect and connect to, the stronger it will be, and the deeper the relationship it can create with the consumer. Today, however, fashion’s offer is not sustainable because it does not connect to the whole person, but only a part.

Fashion companies can both benefit from the wellness movement and compete with the wellness industry by adopting a more holistic view of its consumers in 2017. The alternative for the consumer will be to spend a larger share of wallet on other products and services that do just that. The fashion industry can make that connection by extending its repertoire and value touch points, and by basing its proposition on making a person feel good beyond simply making a person look good.

7. Changing the system

In 2017, the fashion industry will await with baited breath the outcome of the recent disruptions to the fashion cycle. From the see-now, buy-now movement to joint menswear and womenswear presentations, 2016 was a truly disruptive year for the fashion cycle. Vertical retailers initially increased cycles mainly by implementing flash programmes and open-to-buy. Decisions in the higher-end segments to change the timing of the sell-in process will have ripple effects across the entire industry as all brands face the need to adjust to the best competitive model and number of product drops for their business.

Early results from the see-now, buy-now collections launched in September 2016 point to the possible evolution of this model. Beside its novelty factor, which has garnered media attention and served as a valuable marketing platform, the brands pioneering the model are reporting positive figures. For instance, straight after the Tommy x Gigi runway event, several of the under-$100 pieces were already sold out online. The day after Burberry's show, its Regent Street boutique sold out several styles from the collection before noon, and many key pieces appeared to be sold out on the brand's website within the week. Bergdorf Goodman declared that it had its largest Tom Ford day of the year following the New York show. For advocates of this change, the move to immediacy is a step in the right direction for the fashion industry as it gives more consumers access to the fashion shows, and it adapts to the way consumers want to shop and behave.

The official financial results will be seen over the course of 2017 as brands release the figures for their full retail seasons. At the moment it is not clear how many SKUs sold out after the see-now, buy-now collections were released, whether brands and retailers replenished those items after the show, and how accurately they forecasted demand for the remainder of the season. Even if the financial results are positive, there are questions surrounding the impact of this new model on production and manufacturing processes, and the investment required to get there. More importantly for high-end brands, there is uncertainty about how it may impact creativity.

The optimum model is not clear cut and the decision to adopt a new cycle will likely depend on the creative process, the brand, the product category and a company’s distribution, among other factors. That said, brands are prepared to adopt new models if the consumer forces ultimately trump the status quo.

8. Organic growth

2017 is expected to be a year of organic growth. Gone are the days of growth driven by store expansion; next year, we should see brands focusing on like-for-like sales, increasing domestic demand, and growing through value rather than volume. Indeed, the “race for space” is long over. The traditional means of fast growth — geographic, channel, and/or store network expansion — have been exhausted, as those few companies still stuck in the old paradigm are discovering to their cost. Further, a decline in retail space productivity and price increases offset by the use of promotions have also been threatening growth. As a result, we believe that in the next year successful companies will be those that focus more tightly than ever on organic growth, particularly through branding and developing their local clienteles.

There are several steps involved in this journey. To start, fashion players will redouble their focus on branding in order to escape the increasing commoditisation trap. To create value, brands need to be different and maintain clear, strong brand values. At the luxury end, this brand strengthening in 2017 will likely entail a reinvestment in creativity: creating unique products that encapsulate their USP. At the more affordable end of fashion, companies can be expected to emphasise their points of distinction by engaging more closely with the customer. Strong brands are also best placed to fight the promotion spiral that leads to a race to the bottom given the perceived negative correlation between the strength of the brand and its share of discounted sales.

Deepening relationships with local clienteles also offer an effective way to deal with regional headwinds and — especially for luxury brands — to reduce dependency on tourism, which is susceptible to economic and geopolitical volatility. Cultivating a local clientele can help global fashion players deal with volatility, as they can intensify their focus on one geography during a prosperous time, and shift to another when the first hits a low.

Technology plays a key role in activating brands and clientele. By exploiting developments in upstream technology, particularly predictive analytics, fashion companies can gather and analyse more data to tailor their branding strategy. More practically, this enables them to focus on creating products for their local clienteles, including limited-edition and specialised products, with reduced risk of overstock and markdowns.

9. Upstream technology

Placing big bets on technology in 2017 increases a company’s chances of being a future winner. Technology investments will have two rationales. First, the clear market trends — cycle acceleration, omnichannel, localisation and sustainability — pull in different directions: they cannot all be delivered simultaneously without a technological enhancement across the whole value chain. Second, technology will also be seen as the solution to addressing sourcing and supply-chain challenges in an effort to improve margins. Together, these pressures will likely make automation, robotics and the digital supply chain become more prevalent in the fashion industry. The International Labour Organisation estimates that within a few decades more than half of all salaried workers in emerging countries could be displaced by automation and advanced technologies, and that this disruption will be led by the textiles and clothing industry.

Adidas' first Speed factory in Germany | Source: Courtesy

Signs of transition to automated processes should already be visible in 2017. Global players have announced large-scale projects, such as the Adidas “speed factory” and the new Nike distribution centre in Belgium designed around a sustainable supply chain. In 2017, key themes for the fashion industry’s digital supply chain are expected to be prototyping, personalisation, end-to-end transparency, and inventory planning. Digitised inventory management and predictive analytics — aligned to investments in CRM — have the potential to allow fashion companies to link inventory around the world to a single view for the consumer. This in turn makes it possible to sell a product that could have lingered on a shelf to a consumer who wants it halfway around the world. Nonetheless, being too dazzled by data is a danger. If all brands replace the creative process with data analysis to predict what consumers want, a downward spiral in which they create too much of the same product could be difficult to avoid.

The need to adopt a digital process effectively will presumably place added pressure on creatives across all market segments to take up new tools — from virtual design to virtual sampling — to increase efficiency and integrate design-to-cost.

For one set of companies the natural choice will probably be to continue to look for new, cheaper sourcing countries, because their processes are not as sophisticated or they lack the capital to invest in automation and robotics. But others will likely push further into the digital realm.

10. Ownership shake-up

Lastly, we believe the pressures of 2017 may shake up ownership in the fashion industry. On the supply side, many fashion conglomerates are under pressure to perform, and may try to weather the storm by looking more closely at their brand portfolio and divesting non-core brands. This translates to a "powerbrand strategy," whereby groups look to focus on their performing brands. In 2016, the divestment of individual brands became apparent with the sale of Donna Karan by LVMH. As the first divestment by the group since 2005, it opened the door to further reorganisation within large conglomerates in future. The move to sell underperformers would allow these organisations to focus their attention on further propelling their better-performing brands, particularly the luxury segment, which commands higher margins.

While the supply of investment opportunities in fashion is increasing, so is demand. The private equity (PE) industry is facing its own pressures, particularly to deploy money. As of June 2016, according to the research firm Preqin, firms had a record $818 billion in "dry powder" — committed capital yet to be invested. Over the past few years various PE firms have gained experience in the fashion industry, including KKR with SMCP, Permira with Valentino, Clessidra with Cavalli, Carlyle with Moncler and Blackstone with Versace. Available capital, coupled with experience and success cases in the fashion industry over the past couple of years, means that private equity should have the capacity to take on the increasing number of brands that require investment and professionalisation.

The fashion industry also presents an interesting set of investment targets in 2017. While luxury is largely concentrated in the conglomerates, there are opportunities in the affordable luxury and premium/bridge space. As evidenced by the McKinsey Global Fashion Index, this space is fragmented and operating profit performance ranges widely between the best and worst-performing companies. Nonetheless, both affordable and premium are fast-growing segments with emerging brands. Therefore, two major trends are likely to emerge among investors: the first is finding tired or poorly operated, poorly managed brands to turn around; the other is finding brands that are scalable.

The State of Fashion 2017 is The Business of Fashion and McKinsey & Company's in-depth report on the global fashion industry in 2017, focusing on the themes, issues and opportunities impacting the sector and its performance.