McKinsey: the bullwhip-effect of the luxury industry puts the chain at risk

McKinsey: the bullwhip-effect of the luxury industry puts the chain at risk

Two forecasts for 2024. The first: production will not grow. Second: there will be an even more invasive and dangerous bullwhip-effect of the luxury industry on the chain. Brands will be called to invest in their supply chain. These are the main outcomes of The State of Fashion 2024, the annual report on the fashion industry elaborated by Business of Fashion and McKinsey & Company. According to the study, the fashion segment will grow between 2% and 4% and undergo a phase of deep uncertainty. The increment will be the result of price increments and not volume, which means it will have impacts on the supply chain.

Slight growth

The research The State of Fashion shows that the luxury industry will grow retail sales between 2% and 4% during 2024. A growth threatened by macroeconomic, geopolitical and environmental pressures, and one that will need to use the price lever, rather than the volume. Over 50% of directors interviewed said they planned on increasing prices to strengthen business. A necessary strategy, given it’s no longer possible to reduce costs.

The bullwhip-effect of the luxury industry

The report states that supply chains could be hit by a “bullwhip effect, given that small variations in sales cause high amounts of volatility, thus bringing the underutilization of plants, layoffs and delays in infrastructure investments. The effect is already present and is causing concern and damages. To face these challenges, luxury brands should consider investing to develop more transparent and collaborative relationships with suppliers”. Moreover, increased sustainability legislations will bring brands to maintain more control on their supply chains. This could potentially accelerate M&A operations with a vertical approach.

Growth opportunity

Generally speaking, managers interviewed expect additional negative winds and uncertainties during 2024. Yet, there are some growth opportunities tied to the role of AI, sustainability and travel. With regards to this, for the first time after the pandemic, it’s forecasted that the amount of travel in 2024 will surpass that of 2019.




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