Top 10 Fashion Industry Challenges in 2023

Michael Hickins | Content Strategist | May 30, 2023

The fashion industry has always faced a unique set of challenges. Adapting to fickle consumer tastes. Identifying which geographic and demographic segments will respond to particular marketing messages and channels. Sourcing apparel and footwear from faraway places cost-effectively and in a timely manner. Understanding ever-changing pop culture trends and their impact on consumer demand.

Now the industry faces a new set of issues. Customers increasingly demand more transparency about how fashion goods have been sourced and manufactured, and they’re more aware of the positions taken and statements made by brands and retailers. Supply chain disruptions have multiplied for various political, economic, social, and health reasons, forcing apparel makers to scramble to find new manufacturing facilities—sometimes in new locales—that meet fair labor and environmental requirements. Then there’s rampant inflation, causing customers to pare their discretionary spending while raising costs for fashion suppliers and retailers. Cyberattackers are finding opportunities to exploit online fashion retailers’ customer-friendly shopping and return policies.

Key Takeaways

  • Fashion brands and retailers are shoring up their supply chains by finding new manufacturing locations and suppliers for raw materials and finished goods. Their goal: diversify their access to labor and materials and meet appropriate sustainability standards.
  • The fashion industry is dealing with changing consumer behaviors for several reasons. Millennials and Generation Z—whose purchasing power is rising—are putting more of a premium on environmental sustainability and social justice than previous generations. Consumers are buying online, returning more often, and looking to technologies such as virtual reality to support their shopping.
  • Shoppers don’t want fashion retailers or the brands they buy from to tell them they’re going green or using labor that isn’t exploited—they want to be shown. This means adopting blockchain and other technologies that provide transparency across the entire swath of fashion industry transactions, encompassing the manufacture, shipment, and sale of goods.

Top 10 Fashion Retail Industry Challenges to Overcome in 2023

The fashion industry can be thankful that consumers still turn to retail therapy because the challenges never seem to end. Even Gen Z, a relatively new generation, has had its sense of security shaken by the COVID-19 pandemic. Climate change has become an unavoidable staple of doom-scrolling news feeds. Inflation has proved a tenacious beast and geopolitical unrest has risen. Already swimming upstream, the fashion industry faces consumers who are increasingly skeptical about what companies tell them and who are as demanding as older generations regarding quality and service. Below are the fashion industry's main challenges as we plow ever deeper into the new millennium.

1. Consumer distrust

Fool me once, shame on you. Fool me twice? No way—there are no second chances in the fashion industry. Consumers hate being taken for a fool, so whether a brand is cutting corners on quality or pretending to be sustainable, customers won’t put up with it. For example, some luxury brands have switched from using high-end Riri zippers on their apparel and accessories to lower-cost YKK zippers, hoping no one will be the wiser. But savvy customers can tell the difference. For those customers, it’s less about the specific zipper and more about expecting fashion labels and retailers to adhere to their brand promises consistently.

Fashion brands have much work to do to regain consumer trust. For example, just 20% of respondents to a recent survey by market research firm Centiment believe what brands say about their sustainability efforts.

2. Talent shortage

It may seem anomalous, but despite stubbornly persistent inflation and the threat of recession, businesses find that talent is in short supply. Exact numbers for the fashion industry, encompassing many businesses, including textile manufacturers and window trimmers, are hard to pin down. But some examples tell the story. According to estimates, the textile industry faces a 20% labor shortage—meaning that for every 100 workers needed, only 80 are available—driven in part by an offshoring trend that the industry is trying to unwind as consumers demand goods made by workers who are treated fairly. Meanwhile, retailers are increasing salaries to attract more workers (and offset for those workers the effects of inflation).

3. Sustainability

The fashion industry’s environmental sustainability challenges are daunting. The industry contributes about 10% of global greenhouse gas emissions, according to a European government study. In addition, the fast-fashion practice of manufacturing clothing cheaply and quickly has spurred brands to use inexpensive synthetic materials that aren’t biodegradable, as well as sweatshop labor. And consider that cotton growers require up to 10,000 liters of water to grow the fabric needed to make a single pair of denim jeans.

Increasingly, customers want to spend their money with fashion houses and retailers committed to sustainable business practices. It’s no longer enough to express support for sustainability or reduce wasteful packaging. Consumers want assurances that the goods they purchase haven’t been produced using exploited or slave labor, that they’re manufactured responsibly and locally sourced when possible, and that retailers and manufacturers make it possible for them to verify the provenance of the goods they’re buying (where blockchain technology comes into play). Retailers and luxury goods manufacturers that don’t respond to these demands will be decidedly passé.

4. Textile waste

Another aspect of sustainability is textile waste. Clothing production roughly doubled from 2000 to 2020, with people buying 60% more garments in 2014 than at the beginning of the millennium, according to data from the World Economic Forum. Predictably, this jump in production has led to vastly increased waste—85% of all textiles end up in a dump, the organization says. Many synthetic fabrics, such as polyester and nylon, don’t biodegrade fully and aren’t easy to recycle. During decomposition, some fabrics shed microplastics and emit harmful greenhouse gases. Meantime, the World Economic Forum says, washing clothes made from synthetic fabrics spews half a million tons of microfibers into oceans each year.

One of the ways the industry can reduce textile waste is by adjusting the design patterns used to make a piece of clothing so that there isn’t as much wasted cloth. This simple adjustment could produce an extra 100 polo shirts from a typical bolt of cotton that typically makes 500 such shirts, according to former Neiman Marcus executive Greg Flinn, who now works at Oracle. This thinking isn’t revolutionary, but it’s a departure for an industry that has focused more on ease of production than sustainability.

5. Diversity and inclusion initiatives

The fashion industry faces a diversity challenge: The vast majority of C-level executives at fashion houses and retailers are white men, to the exclusion of women and people of color. More than half of black employees at fashion companies believe their employers don’t make career opportunities available based on merit, according to a study by the Council of Fashion Designers of America and PVH, which owns brands such as Calvin Klein and Tommy Hilfiger.

Even when companies say they intend to focus on D&I, most of their workers don’t buy it. Only 44% of fashion industry employees who say their companies have taken steps to change the D&I status quo believe those actions will result in permanent change, according to a McKinsey report. Diversifying the leadership team is more than a strategy for placating customers, employees, and shareholders. It can also lead to higher profitability, McKinsey reported in a separate study involving a cross-section of industries.

Lack of diversity at fashion companies shows up in product mixes, underserving several demographic segments, including plus-size women and nonbinary people.

6. Supply chain disruptions

The term “supply chain disruption” became part of the vernacular at the height of the COVID-19 pandemic, when it became apparent that store shelves weren’t being replenished in a timely manner. Trade wars, economic sanctions, labor shortages, rising oil prices, and other factors have clogged once-fluid supply routes, making it difficult for fashion industry players to obtain raw materials and finished goods. About 50% of the total volumes of footwear and apparel sold in the US come from just two countries—China and Vietnam—with China becoming a particular concern due to labor conditions and other geopolitical factors in that country.

Apparel and footwear makers and retailers can alleviate their supply chain problems by simplifying their product portfolios, focusing on sourcing from locations that offer the best combination of available labor and materials, progressive sustainability practices, and geopolitical stability while not being subject to high tariffs. Using data analytics can help the industry make these kinds of decisions.

7. Consumer behavior

The buying behaviors of fashion consumers have changed of late, in some cases influenced by the pandemic. For example, the tendency to buy online and pick up in stores was already commonplace before 2020, but it took off during the pandemic. Even with the return to in-person shopping, many consumers still like buying online and picking up in stores as a fallback option.

Consumers learn about the latest fashions through different advertising and marketing channels. Postcards and circulars won’t cut it for younger generations who get cues from social media ads and influencers. Regarding the fashions themselves, labels and retailers are adjusting to an era when a jacket and tie for most men and covered shoulders for most women have given way to business casual at the office and even more casual apparel for working from home. Another trend the fashion industry must consider is gender-fluid fashion, whereby consumers increasingly view clothing or accessories as unisex. Other consumer behavior changes reflect their growing demand for sustainable fabrics and business practices.

Fashion industry stalwarts can use a range of new biometric and analytic tools to understand consumer behaviors and motivations and what messages resonate with target audiences.

8. Returns

Returns are a growing concern for retailers across the board amid higher rates of online shopping as consumers have learned they can easily send back items they buy online at no cost to themselves. This creates havoc on retailers’ inventory management, tightens their profit margins, and can lead to greater greenhouse gas emissions as package deliverers make countless visits to shoppers' homes.

The ease of returns has led to the increased frequency with which consumers buy multiple sizes of the same item and then return the ones that don’t fit properly, a practice known as bracketing. Return percentage rates are in the mid to high teens, according to the National Retail Federation’s most recent research, and retail industry maven Hitha Herzog says one fashion apparel retailer has acknowledged 25% return rates—and believes this retailer isn’t an isolated case.

Apparel and footwear makers can help consumers make better, more confident decisions, leading to fewer returns. For instance, in footwear, where shoe sizes can vary significantly from one brand to another, the website for one footwear maker asks consumers to list their shoe sizes for a range of different brands and, based on their responses, recommends the appropriate size. Many fashion retailers also use virtual reality to let consumers virtually “try on” eyeglasses, clothing, and accessories before they hit the “buy” button for multiple items.

Experts expect that many retailers will eventually end their unlimited free returns policies, either by capping the number of free returns or by offering them only to customers who have joined their loyalty program.

9. Cybersecurity

The large volume of transactions that retailers process, the large number of undertrained employees who handle those transactions, and customer-friendly policies (such as allowing returns without receipts) make it easy for cybercriminals to gain a foothold. Retailers can mitigate these threats by educating staff about phishing and other cyberattack techniques, embracing secure payment processes and technologies such as mobile wallets, and examining the cybersecurity preparedness of their vendors and partners.

10. Inflation

It seems unfair that on the heels of the deadliest pandemic since 1918, businesses would have to deal with the highest inflation since the 1970s.

The solutions for many fashion industry players lie in some of the above mentioned topics: Shore up the supply chain by working with fewer companies in more stable markets. Reduce waste and costs. Expand the customer base by catering to consumer demands for sustainable environmental practices and fair labor practices. Reduce costly returns by making it easier for online shoppers to select the right fashion products and sizes in the first place. Reduce losses due to cybersecurity breaches.

Overcome Industry Challenges with Oracle

From a talent shortage to excess textile waste, the fashion industry faces various challenges that might sink a less creative and resilient industry. Consumers are demanding changes to how products are sourced and how items are packaged, and they also want the ultimate freedom of trying on and returning items at no cost. Retailers are also pressured to increase profits and maintain margins despite macroeconomic headwinds and constant pressure from cyberattacks.

Oracle Retail’s inventory planning solutions help fashion manufacturers and retailers make informed decisions to overcome these challenges. Retailers can use data from various sources, including point-of-sale systems and customer and supplier transaction histories in ERP systems, to make sourcing, merchandising, marketing, and inventory management decisions.

Fashion Retail Challenges FAQs

What problems are caused by fast fashion?
Fast fashion, the practice of producing clothing and other fashion items as inexpensively and quickly as possible, isn’t sustainable because it encourages manufacturers to use environmentally unfriendly materials and exploited labor. In contrast, it encourages customers to overconsume, contributing to massive waste.

How can fashion retailers navigate changing consumer preferences and trends?
Fashion retailers can use data analytics with merchandising, marketing, inventory management, and other applications to track customer preferences, market to the right segments, and ensure they have enough stock on hand.

How can retailers effectively target and engage with Gen Z and millennial consumers?
Fashion retailers can target and engage with Gen Z and millennials by using social media channels and working with social media influencers while demonstrating their commitment to practices supporting those generations' sustainability and inclusion aspirations.

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