The Future of Fashion & Sustainability | 19 The Financial Challenges of Ethical Clothing

2023 and 2024 have been financially challenging for the global fashion industry, with the sector projected to grow only 2-4% in year-on-year sales in 2024.[1] After strong post-Covid growth ushered by luxury, the global fashion industry navigates turbulent waters. The global slowdown in fashion sales may be attributed to macroeconomic and geopolitical challenges, and some sectors feel more pain than others.

After a strong post-Covid recovery for the luxury market – growing almost 30% over the past four years - year-on-year sales growth missed expectations last year.[2] The segment is expected to grow between 3 to 5 percent in 2024, as opposed to 5 to 7 percent in 2023.[3] In luxury’s two biggest target markets, mainland China and the United States, sales steadily decelerated throughout 2023, and only two-thirds as opposed to 95% of luxury brands saw sales growth.[4]  While shareholders are concerned, luxury has proven itself resilient, if sometimes volatile. Meanwhile, ultra-fast fashion brand SHEIN and legacy fast fashion brand Zara continued to post strong profits. Competition is ripe in fast fashion, with H&M struggling to retain its market share against an upstart SHEIN and long-time competitor and owner of Zara, Inditex. However, sectors outside of fast fashion and luxury have been struggling, none more so than slow fashion.

Aptly dubbed the “Slow Fashion Recession” by the Business of Fashion magazine, smaller labels across slow fashion are struggling to stay afloat and keep their doors open in 2023 and 2024.[5] It's common for brands to close or for designers to change direction. Still, the disproportionate impact on slow fashion brands raises fresh questions about the viability of sustainable business models within the current fashion framework.

How do you define slow fashion? Fast fashion engages in the overproduction and waste of poor-quality products, using synthetic, plastic-based materials at the expense of the environment and labor rights. In contrast, slow fashion is a subset of sustainable fashion, and brands adopting a slow fashion philosophy produce “clothes with trendless designs and premium, long-lasting quality” with sustainably sourced fabrics, meant to last a long time.[6] As opposed to dirt-cheap fast fashion products, slow fashion passes along a green premium. Investing in fair trade-certified natural and organic materials, innovative technologies, and traceability, adds significant expenses.

Several notable slow fashion brands have closed shop or have indicated that they’re operating in the red. Evening wear brand Selva Negra, maternity line Hera California, British brand New Standard, and Mara Hoffman’s eponymous brand are just a few recent casualties. The closure of Mara Hoffman in particular raised alarm bells considering the brand has been in existence for more than two decades and only shifted to a slow fashion business model in 2015.  

Why are these brands struggling? A mix of current market conditions, consumer sentiment on affordability, and geopolitical factors have hindered fashion’s strong growth these past two years. Fashion executives consider geopolitics their primary concern, followed by economic volatility and inflation.[7] Today’s economic landscape impacts affordability and operational costs, applying supply and demand-side pressures and rendering some slow fashion business models financially unsustainable. Sustainability and profitability are not mutually exclusive, Patagonia being a case in point, but slow fashion adds additional layers of complexity.

The current state of slow fashion brands today can be attributed to a few supply-side and demand-side factors. Competition within the slow fashion segment continues to grow. After a new crop of sustainable fashion brands emerged during strong economic growth and low prices, and more established brands began to espouse sustainability credentials, slow fashion labels must deal with stiff competition and reduced market share. Larger, established brands also have the marketing savvy and budget to compete for eyeballs. 71% of polled fashion executives in “The State of Fashion 2024” report from Business of Fashion and McKinsey & Co. aim to increase marketing spend in 2024 with a focus on brand marketing.[8]

Inflationary market conditions mean reduced consumer purchasing power and simultaneously higher supply-side costs. While more consumers today are prioritizing sustainability and the environment, there are real questions among industry personnel about whether consumers will spend according to their values. Brands have a harder time convincing consumers with less disposable income to buy into higher priced ethical, sustainable labels. With the rise of dirt-cheap clothing from fast-fashion brands and Prime shipping, consumers today have an unhealthy relationship with their clothing.

Slow fashion labels invest in fair trade-certified, high-quality, natural, and organic materials. Inflation has driven manufacturing, logistics, and material sourcing costs even higher. With consumer sentiment being where it is, some brands have little maneuverability unless it means sacrificing their values to drive costs down. Many slow fashion brands run a made-to-order production model, focusing on high-quality design and production standards. However, made-to-order is more expensive per unit than traditional, cost-effective mass production. While made-to-order is rightfully touted as the antithesis of fast fashion, some brands are forced to cut made-to-order, including Romania-based size-inclusive label Loud Bodies.[9]

While the larger fashion industry is poised to deal with slowing sales growth in 2024, some sectors have more reprieve. The short-term future of sustainable fashion - slow fashion specifically - looks unclear, but in the next few years, the sustainable fashion segment is poised for growth. Some reports estimate it will reach “33.05 billion dollars by 2030” from the estimated 7.8 billion dollars in 2023.[10] More brands may continue to call it quits, and the short-term trajectory of these brands seems murky. Upcoming designers with slow fashion brands may even believe they are set up to fail. Despite projected growth, the examples cited above raise important questions about whether the segment will be dominated by one or two major brands or a plurality.

Pending regulation mixed with the financial impact of climate-related incidents disrupting traditional supply chain models will test just how long brands will stick to the status quo before the take-make-dispose model becomes financially unsustainable. Fashion executives realize the importance of sustainability. Just look back at the Business of Fashion report. However, time is of the essence, and consumers, governing bodies, and fellow brands will have to put pressure on not only fast fashion but all brands engaged in the fashion industry’s take-make-dispose model. Without financial pressure, brands have little incentive to shift their behaviors in the short term.

[1] https://www.businessoffashion.com/reports/news-analysis/the-state-of-fashion-2024-report-bof-mckinsey/

[2] https://www.forbes.com/sites/pamdanziger/2024/02/19/387-billion-luxury-market-remain-turbulent-here-are-the-bright-spots/

[3] https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion

[4] https://www.forbes.com/sites/pamdanziger/2024/02/19/387-billion-luxury-market-remain-turbulent-here-are-the-bright-spots/

[5] https://www.businessoffashion.com/articles/sustainability/whats-behind-the-slow-fashion-recession/

[6] https://www.forbes.com./sites/christophermarquis/2021/05/14/what-does-slow-fashion-actually-mean/

[7] https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion

[8] https://www.mckinsey.com/industries/retail/our-insights/state-of-fashion#/

[9] https://www.businessoffashion.com/articles/sustainability/whats-behind-the-slow-fashion-recession/

[10] https://fashionunited.com/news/fashion/global-sustainable-fashion-market-to-hit-33-billion-dollars-by-2030/2024040859305