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PESTEL/PESTLE Analysis of the Fashion retail industry

         Fashion Industry PESTEL/PESTLE Analysis

2016 proved to be a tough year full of difficulties for the fashion industry caused by several disruptive events like terrorist attacks on France, Brexit and volatility in the Chinese stock market. However, all the reasons that kept disturbing the fashion industry are not external and there were internal sources too destroying the peace of mind of the fashion brands.  Still, after a disturbing 2016, the fashion industry is expected to make a strong comeback in 2017.  During the past decade it has remained one of the fastest growing industry segments. This segment has grown at a rate of 5.5 percent over that period and as per the McKinsey Fashion Index, its estimated worth is around $2.4 trillion. If ranked alongside the economies of the world, it would be ranked the seventh largest economy. Apart from it, consumer taste has also changed and they have become more discerning.

Technology is playing a stronger role than ever in influencing consumer taste. The fast fashion segment of the industry has also shown faster growth and it is mainly because of affordable luxury brands in the fast fashion segment. Consumers have shown an inclination towards these brands that are selling good quality fashion products at affordable prices. Overall, 2017 is expected to be a better year for fashion industry. This is a pestle analysis evaluating how the various political, economic, social technological, environmental and legal factors affect the fashion industry.

Political factors:

The political factors can be the biggest source of uncertainty for the fashion industry. Several geopolitical events have rocked the fashion industry in 2016 and in 2017 things are expected to change, however, uncertainty still prevails. Volatility due to political factors is not unexpected. As per the McKinsey report on fashion industry, “Geopolitical instability, terrorism, Brexit, and stalled trade deals will all increase a pervasive sense of uncertainty in the global economy” (McK-BOF, 2017 report). Apart from terrorism, other kinds of political tensions have also kept affecting the world and raising the level of uncertainty before the fashion industry. The reason that the Russian economy has kept suffering is because apart from low oil prices, tensions with the West have also rocked it. Apart from economic decline, consumer confidence in Russia also fell owing to these factors.   The ongoing political shifts in US and UK have also affected the state of the fashion industry.  The recent US elections also had a deep impact on it. There are several political issues and events that have remained unresolved and will continue to cause volatility and uncertainty in 2017. Even the fast fashion brands have felt the challenge in the Middle Eastern countries where political instability and terrorism continue to pose a threat to business. In this way, the higher the level of geopolitical instability, the higher will be the level of uncertainty in the fashion industry.

Economic Factors:

Economic factors too have a deep impact on the fashion retail industry. While it is itself a very large part of the global economy, it is affected by the economic fluctuations worldwide. Economic volatility can affect sales and profits. It is considered one of the key industries in the global economy and in terms of GDP if it was a nation would have been the seventh largest economy in the world. Since the recession, while there has been a lot of recovery, there is more to unfold in 2017. Last year, volatility in the Chinese market had a deep effect on it and for economic fluctuations in other key economies like Russia and demonetization in India, the situation till now has been tough for it. Still, the industry is hopeful about 2017. The slowdown in the Chinese economy in 2016 was bad news, but the situation has improved since then. With the recession gone, the situation of employment globally has grown better globally. Consumers’ buying power has increased and that is some good news. However, fashion industry adds to the economy too since it is one of the biggest employers as well. In this way, the fashion industry affects and is affected by the economic factors. The level of competition in the industry has also affected individual brands and their sales and profits.

Social factors:

Socio-cultural factors also have an important role in the growth of the fashion retail industry. Major social changes have occurred in the last ten years that have affected the demand for fashion products. While the millennial generation is now the main target of the fashion marketers, its preferences are very different from the previous generations. A number of changes on the socio cultural level have affected how people shop and make their shopping decisions or which brands they prefer to shop from. Millenials do not just want convenience but also low prices and great quality. The demographic makeup of global population has changed a lot during the recent decade. This has affected several important changes leaving marketing toying with several options and opportunities as well as faced with new challenges. Now, they are catering to different needs where they do not just have to push sales, but to attract and engage customers. The fashion industry has felt the push and the rise of fast fashion is a proof. Fast fashion brands like Zara have brought affordable but good quality fashion to the customers. High class fashion is no more the privilege of upper end consumers because, it has been made affordable using technology and new techniques. Even if the quality of fabric is not as great as the luxury brands, it is good enough and in terms of style and design, these fast fashion brands are hardly behind. The result is consumes are flocking to fast fashion avenues. Not just taste but other things have also changed about the consumers. They have grown more discerning and make decisions based on information which they can acquire easily from several resources. They rely on feedback and not on advertising or marketing campaigns. In light of these changes the fashion retail environment has grown challenging.

Technological:

Technology is also a very important factor affecting the growth of the fashion retail industry. A large part o the 21st century growth story of fashion retail can be attributed to the technological developments that have happened in this era. Globalization, IT, internet and increased use of mobile devices for shopping all these are affecting sales, marketing and consumer choices. Today consumers are well ignored and make choices after researching everything. They discuss their choices with the others and also share their views.  The millennial generation mostly likes to shop online and likes a personalized experience in terms of shopping and customer service. Technology has disrupted several things and apart from improved production and supply chain, it has also brought greater effectiveness to the sales and marketing of fashion products.  Another area where technology has benefitted the fashion brands is in terms of overseas expansion. Ecommerce has helped them go past borders and sell to a larger customer segment.

Environmental:

Environment and sustainability are just as important in terms of the fashion retail industry as in any other. Even the fashion brands are careful about their carbon footprint and are marketing themselves as more environment friendly brands. They are investing in environment and sustainability and using more environment friendly raw materials, packaging and operations. As per the McKinsey report, fashion brands have prioritized sustainable fashion and this is working to transform product design and manufacturing. In the emerging markets more than 65% of the consumers are seeking sustainable fashion actively. In the mature markets this figure is 32% or less. The report also highlights that sustainability has become a key influencer of the consumers’ purchasing decisions. Several large fashion br ands like Nike or H&M have formulated sustainability goals and are working actively to achieve them. They are working in the direction of maximization of productivity and minimization of carbon footprint.

Legal:

Legal challenges also abound in the fashion retail industry. Ethics and compliance are important focus areas for the big brands and they are working actively in his direction. The fashion industry is a large employer and apart from the labor laws the other common laws applicable in business also apply on it. Environmental laws have also grown tough and need to be complied with. There are other laws related to international trade too that require compliance. However, legal compliance and an ethical image can be beneficial for a fashion brand’s business.

Sources:

https://www.mckinsey.com/industries/retail/our-insights/the-state-of-fashion

 

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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