The Status of German Fashion 2021

In partnership with: Axl Jansen The Status of German Fashion 2021

TABLE OF CONTENTS

Foreword 4

Executive summary 6

1. Introduction 10 1.1 Objectives of this report 10

2. The state of the German fashion industry today 14 2.1 Germany’s place in the global fashion economy 14 2.2 The evolution of Germany’s fashion industry 15

3. The economic impact of the fashion industry 20 3.1 Introduction to our impact analysis 20 3.2 The direct impact of fashion manufacturing and distribution 22 3.3 Other direct impacts 25 3.4 The total impact of the fashion industry 26

4. Strengths, weaknesses, opportunities and threats 32 4.1 Strengths 33 4.2 Weaknesses 34 4.3 Opportunities 35 4.4 Threats 35 4.5 Conclusion of SWOT analysis 36

5. Long-term issues for the fashion industry 40 5.1 Sustainability 40 5.2 Technology and innovation 42

6. Recommendations and conclusions 46

Appendix 1: Interview participants 52

Appendix 2: Detailed modelling methodology 53

Appendix 3: Germany’s largest fashion companies 56

JANUARY 2021 3 The Status of German Fashion 2021

FOREWORD

In a European comparison of the 175 largest fashion brands, Germany ranks second in terms of both the number of companies and total sales revenue. Although these figures do not include the numerous independent designers and brands, they clearly show that Germany is a highly relevant nation as a fashion location.

Around 1.3 million people are employed in this country thanks to the fashion industry, which in 2019 contributed a total of around €66 billion to Germany’s gross domestic product—making the industry a force to be reckoned with in comparison to other German economic sectors. In international comparisons, Germany is one of the most important sales markets and, for international brands, one of the most important distribution channels. Nevertheless, there is a lack of political and social acceptance to classify fashion as a relevant economic and cultural asset.

Things are different in countries such as France or Italy, whose fashion industries are internationally renowned both for their economic power and as important cultural assets. Since its foundation, Fashion Council Germany has been strongly committed to political lobbying for the fashion industry, in addition to its mission to accompany the German fashion and design landscape into a visionary, technological and sustainable future. In recent years, we have had to register the fact that we in Germany lack an instrument to start a well-founded dialogue with government and business—with facts, analyses and recommendations for action. What was needed was a detailed industry analysis. We are pleased that this is now available with the “Status of German Fashion” and the support of the Federal Ministry for Economic Affairs and Energy.

Our dialogue with politicians, including a meeting with Chancellor Merkel in the Chancellery, has already had a notable effect as it underlines the fundamental importance of the German fashion industry as well as the relevance of dealing with its influence on the economy.

The “Status of German Fashion” is also the first of its kind: a study that covers the full sweep of the fashion industry’s significant components. There have been important studies in the past, for example on the German fashion retail trade or textile industry, but from Fashion Council Germany’s point of view a consideration of the entire fashion industry was always missing. So far, no study has done justice to the size and diversity of fashion in Germany. Fashion is a cross-sectional industry with complex value chains—the industry includes designers, fashion companies, manufacturers, retailers and wholesalers, as well as trade fairs, fashion magazines and fashion schools. They are all part of the cultural and economic power of fashion.

“Made in Germany” is still a globally accepted seal of quality: German fashion companies are internationally regarded as reliable partners. In addition, we are especially strong in the areas of sustainability, technology and innovation, and above all in textile development. The rethinking and conversion of business models in the direction of sustainability, which has long been necessary and will in future be

4 Axl Jansen The Status of German Fashion 2021

required by EU regulations, is moving into the fashion industry across the board— albeit with varying nuances. Germany also stands for innovative global sportswear brands like no other country—with industry giants like adidas and Puma, we are international leaders.

Despite our strengths, the study also shows that we are not always noticed on the world stage. As innovative as we are here in Germany in the field of technology, our experts emphasise our ability to expand in the international competition for trend-setting design.

Since the 1980s, local fashion production capacity has been declining. This is due to so-called “offshoring”, i.e. the outsourcing of operations to other countries. This has kept German fashion companies competitive, but it also means that there has been a systematic outsourcing of knowledge which, according to the study, is now lacking in the country today. In contrast to other important sectors of the economy, fashion is actually the only one that has not engaged in “re- shoring” in recent years. The challenges of the future are to revolutionise new sustainability requirements in the supply chain of the fashion industry.

From this and many other findings of the study, there is an urgent need to act so that Germany can retain and expand its status as an important fashion player in the near future and in the long term.

Worldwide, retail will continue to shift towards online. Across Europe, the share of retail sales from e-commerce has more than doubled over the past decade. Online sales growth has been even faster in Germany. Still, statistically speaking, e-commerce here appears to be less widespread than in other European countries. The Covid-19 pandemic caused a massive increase in online activity here in 2020. The need to be strong in terms of digitalisation and e-commerce has once again been highlighted by this year of the pandemic. We expect this will be seen in future statistics.

The year of the study, 2020, was an extremely challenging year for society and the economy as a whole with the pandemic, and has exposed existing “grievances” and accelerated negative effects. Today it is evident that the urgency to find solutions and answers have only become more visible as a result of the coronavirus crisis, including the example of e-commerce.

This study, the “Status of German Fashion” is therefore a basis, an appeal and a recommendation for action to shape the future of the German fashion industry together with all sections of the industry and the government.

Fashion Council Germany, January 2021

5 The Status of German Fashion 2021

EXECUTIVE SUMMARY

Germany is both one of the EU’s largest clothing producers and one of its largest markets for fashion products. €66 billion In this report, we estimate the fashion industry’s total contribution to the German economy through the employment, Total contribution GDP and tax that it supports. We also present key themes to German GDP of importance to the industry that have emerged from our of the fashion interviews with 44 industry experts and stakeholders selected industry in 2019. from across the fashion industry as a whole, including the strengths and weaknesses of the sector, how it can respond to opportunities and threats, and recommendations for the future.

The fashion industry is a broad collection of businesses across several different economic sectors. We define the industry, based on previous studies,1 to include: the manufacturing of textiles used for fashion products; the manufacturing of clothing and footwear; the wholesale and retail of fashion products; fashion magazines; fashion advertising, and fashion education. The products included in the definition are clothing, footwear, accessories, bags and jewellery.

THE FASHION INDUSTRY MAKES A SIGNIFICANT CONTRIBUTION TO THE GERMAN ECONOMY 1.3 million 1. We calculate that the fashion industry contributed a total of €66 billion to Germany’s GDP in 2019. Of this, €28 billion Total employment came from the industry’s direct operations. A further €20 supported in billion was supported by the industry’s purchases in the Germany by the supply chain, and €18 billion by industry and supply chain fashion industry workers spending their wages. This means that for every in 2019. €100 the industry contributes directly, a total of €235 is contributed to the German economy.

2. We also estimate that the industry supported employment of close to 1.3 million in the German labour market in 2019. Of these, 770,000 were employed directly by the industry, 260,000 within the fashion industry’s German supply chain and 240,000 by worker spending. This means that for every 100 jobs supported directly by the industry, a total of 160 are supported across the German economy as a whole.

3. We also find thatthe fashion industry generated €36 billion in tax revenues in 2019, with the majority coming from VAT payments and labour taxes.

6 1 British Fashion Council, The value of the UK fashion industry, 2010 The Status of German Fashion 2021

THE INDUSTRY’S STRENGTHS PLACE IT WELL TO TAKE ADVANTAGE OF GROWTH AREAS AHEAD… Federal Chancellor Angela Merkel herself asked Fashion The “Made in Germany” brand has an international reputation Council Germany for more for quality, reliability, and good value. This extends to fashion: facts and to analyse the status, the country is also noted for its high-technology approach to positioning and economic fashion, including technical textiles and the use of advanced power of the German Fashion manufacturing equipment for clothing and textiles. industry. With the results of the study we now have the Germany has a handful of globally recognised brands, proof that the German Fashion particularly its largest sportswear companies. However, outside Industry has impressive of this area, our interview respondents noted that the fashion economic power. industry generally has a low worldwide level of visibility and more could be done to promote Germany’s fashion brand. Marie-Louise Berg, FCG Executive The industry is well placed to respond to the trend towards Board Member and Founder Berg sustainable fashion: its quality workmanship ties in with Communications Berlin customers buying fewer, higher-quality items that will last a long time. Germany’s position as an innovator of new textiles and manufacturing processes may also mean it can capitalise on more sustainable techniques.

To maintain global market share, the German fashion industry will need to continue to invest to stay at the forefront of fashion technology, as emerging markets mature in this area. In particular, China is likely to become a strong competitor in technical fabrics and the production of textile manufacturing equipment over the medium term.

…BUT POLICY SUPPORT MAY BE NEEDED TO FULLY REALISE THESE OPPORTUNITIES

Stakeholders identified a number of areas where government policy could support the industry, including promotion of the German fashion brand on the world stage. Stakeholders felt that this, in combination with grass-roots promotion in schools of German fashion design opportunities, would enable the country to train, retain and attract design talent.

7 The Status of German Fashion 2021

Our interviewees also identified the need for support from The fashion industry is government for helping businesses to shift towards more a major but nevertheless sustainable business practices. German consumers tend to underestimated economic favour clothing at lower prices, while sustainable clothing tends factor in Germany. to be possible only at higher price points—financial support from the government may help to bridge this gap. Stakeholders also felt that there are actions that the industry could take Elgar Straub, Managing Director, itself to better navigate threats and opportunities ahead. This VDMA Textile Care, Fabric and includes greater use of digital technology, particularly among Leather Technologies retailers, where the use of the internet to sell products and engage with customers is not quite at the same level as some other major fashion markets.

The fashion industry is spread widely across Germany, but our interviewees believed that creating some industry clusters or “centres of excellence” may help the industry to build the critical mass needed to attract greater investment. These industry hubs may also be important for attracting and retaining design talent. Janine Sametzky Benjamin Glean

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9 Lehmann Vicky The Status of German Fashion 2021

1. INTRODUCTION

Germany has a “renowned This perception of quality 1.1 OBJECTIVES OF THIS history for manufacturing extends to fashion REPORT excellence”,2 with consumers manufacturing. We interviewed often citing “Made in Germany” experts on the Germany This report assesses the as the most positively fashion industry5 and a key contribution of the fashion influential international label theme identified was that the industry to Germany’s of origin that could be seen German fashion brand stands economy. We also identify on a product.3 In the US for high quality workmanship and discuss key trends in for instance, the German and timeless design at the industry, its strengths brand is outranked only by favourable price-quality ratios, and weaknesses, as well domestically-produced goods.4 with businesses in the sector as opportunities and being very reliable to work recommendations for the with. Germany is also seen as a support needed to sustain significant innovator in the field further growth. The textile and clothing of technical synthetic textiles,6 industry is one of Germany’s with a large proportion of We begin in Chapter 2 by most important consumer goods textile production being in demonstrating how the industries. We need to use this this area. industry has evolved over the powerful position much more past few decades and how actively. We need to highlight The sector is one of the it is placed internationally. and promote our German fashion largest producers of textiles In Chapter 3 we set out our design much more, nationally and clothing in both Europe estimates for the industry’s and internationally. and across the world, and economic footprint. In Chapter according to the Federal 4 we assess strengths, Foreign Office, the majority weaknesses, opportunities and Claudia Hofmann, FCG Executive of Europe’s fashion designers threats for the industry, and Board Member & Creative are trained in Germany’s 40 analyse how these interact to Fashion Consultant fashion schools.7 Our analysis suggest potential strategies provides evidence on the for the future. Chapter 5 takes extent of the industry’s impact a deeper look into two areas and reach, but despite its size of particular importance for and significance, our expert the industry: technological interviewees note that the innovation and the trend industry is not given as much towards sustainability. Lastly, support by the government in Chapter 6, we summarise as some other sectors of the stakeholders’ suggestions German economy. for how government and industry associations could We also include three best support the industry’s articles across the report development in the years from industry experts to ahead. share their perspectives and ideas on sustainability and digitalisation.

2 World Economic Forum, Policy recommendations for Germany 3 YouGov, “Made in Germany” is the best thing you can see stamped on your product, 2019. Survey of over 6,000 consumers across 10 23 countries. 4 Statista Made in Country Index, 2017. A poll of 43,000 consumers representing 90% of world population. 5 See Appendix 1 for list of participants. 6 Technical textiles are those manufactured primarily for their functional performance rather than aesthetics. 7 Deutschland.de, Study in Germany: Fashion, 2018 The Status of German Fashion 2021

DEFINING THE FASHION INDUSTRY

In this report, we define the fashion industry as To estimate the economic impact of the relating to the following products and services8: industry’s provision of the above products and services, we consider the economic impact Clothing (men’s, women’s and children’s wear) • of the following sectors, aligning as closely as • Bags & luggage possible to the standard industry classifications used in economic statistics9: • Footwear Textile manufacturing (focusing on where the Accessories • • output is used for fashion products) Jewellery & watches • • Manufacturing of clothing and footwear Fashion magazines • • Other fashion manufacturing (accessories, • Fashion education jewellery etc.) • Fashion advertising • Fashion wholesaling Fashion retailing Specific types of clothing such as sportswear • and workwear are included across the • Advertising and marketing services used by categories of menswear, womenswear, the fashion industry childrenswear, and footwear. • Magazine publishing (focusing on fashion magazines) • Higher education (focusing on fashion courses)

8 Reflecting previous work carried out by Oxford Economics & British Fashion Council in The Value of the UK Fashion Industry, 2012 9 Detailed descriptions of these industries and how they are used are given in Appendix 2. 11 The Status of German Fashion 2021

Max Menning 12 The Status of German Fashion 2021

13 The Status of German Fashion 2021

2. THE STATE OF THE GERMAN FASHION INDUSTRY TODAY 2.1 GERMANY’S PLACE IN THE GLOBAL FASHION ECONOMY

Germany is a major Beyond producing materials and fifth-largest importer for manufacturer, with the fourth- and finished garments, textiles. The country’s largest highest total manufacturing Germany specialises in export markets for German output in the world.10 This producing machinery for textiles and clothing include prominence extends to the textile, clothing and leather neighbours such as Poland, fashion industry, as Germany production. In 2018, this Austria, Switzerland, France is one of the largest producers sector’s output was worth €1.9 and the Netherlands, as well as of clothing in the EU. In billion, the highest in the EU27, Italy and the UK. The largest 2018, the country’s clothing and it employed more than import suppliers were China, manufacturing sector was 23,000 people. Bangladesh, Italy, Turkey and worth €2.3 billion in terms of Vietnam.14 gross value added (GVA),11 Germany’s fashion industry is behind Italy as the second highly integrated with world As one of the largest economies largest producer in the EU27. markets, with significant in the world, Germany has one On a global scale, however, imports and exports of fashion of the world’s most significant the major EU producers goods. For instance, in 2018 consumer markets for the sale manufacture significantly less Germany was the third largest of fashion products. In 2019 clothing than China, which exporter of textiles in the alone, consumers in Germany produced €66 billion of world by value, behind India spent €76 billion on clothing clothing in 2018. and China.13 Germany was also and footwear, just behind the the fifth largest exporter of UK as the highest spenders Germany is also a notable clothing, and the fourth largest in Europe, and sixth highest manufacturer of textiles, exporter of footwear. It was also in the world behind the larger producing €3.1bn worth of the second largest importer economies of the US, China, GVA in 2018, again the second of clothing and footwear India and Japan.15 largest in Europe behind Italy’s €5.5bn.12 Fig. 1: Gross value added by clothing manufacturing sector, 2018, five largest EU countries

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10 Oxford Economics Global Industry database 11 Gross value added is a measure of economic output. Eurostat, Structural Business Statistics database 12 This international comparison includes a significant amount of textile manufacturing that is unrelated to clothing and fashion, as suitable data do not exist to focus solely on that portion of the industry. However, we have excluded the following sub-sectors, which are are least likely to be related to clothing: manufacturing of rope/twine/nets; manufacturing of carpets/rugs; manufacturing of 14 articles such as towels, sheets, linen. 13 Oxford Economics Global Trade database 14 Destatis. 15 Figures from Oxford Economics’ Global Economics database The Status of German Fashion 2021

Fig. 2: Consumer spending on clothing, top 5 European countries, 2019

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010200000000 Soure urostat biions The manual work is 2.2 THE EVOLUTION OF GERMANY’S FASHION INDUSTRY disappearing more and more in Germany and is not being Germany continues to hold a terms of gross value added made attractive by politics. I position near the top of the (after adjusting for inflation), think people underestimate the world rankings for production and by 55% for textile necessity for this. despite manufacturing output manufacturing. This compares of clothing and footwear to growth of 46% over the declining in Germany by 91% same time period for the overall William Fan, Founder, William Fan between 1980 and 2020 in German manufacturing sector.

Fig. 3: Gross value added of the German clothing and textile16 manufacturing sectors versus total manufacturing industry, real terms Ine 10

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0 Teties manufaturin 0 othin manufaturin 20 Tota manufaturin 0 0 2 0 2 12 1 000 002 00 00 10 1 1 1 1 1 1 1 2 2 200 2 2 201 201 201 201 201 2020 Soure for onomis Goanustratenan

16 For this long-running time series comparison the data includes the entirety of the German textile manufacturing sector, with no exclusions. 15 The Status of German Fashion 2021

A key reason for this As Fig. 3 above shows, the 2010 and 2012, and did not downward trend is that size of the clothing and textile re-shore any production. This German textile and manufacturing sectors began is the largest net share of any clothing companies have to shrink around the early industry—17% of electronics relocated their operations to 1990s. This trend was fuelled manufacturers also offshored another country (known as in part by offshoring, and production during that “offshoring”), or outsourced even in the early 2010s, 17% of timeframe, but 2% reshored manufacturing to other German textile manufacturers operations. companies around the world. offshored production between

Fig. 4: Share of German manufacturers that offshored and re-shored production, by sector, 2010-201217 Textiles Electronics Elecrical equipment Motor vehicles Machinery and equipment Rubber and plastics Chemicals Metals O shoring Other Paper and printing Reshoring Food and beverages -10% -5% 0% 5% 10% 15% 20% Source: Zanker et al hare o anatrers

2.2.1 German fashion and online retail Although domestic production A worldwide trend in This means that the penetration of clothing has continued to consumption patterns over that of e-commerce in Germany was slowly decline since 2010, time period has been towards notably above the European fashion consumption in online retail sales, with the average and well ahead of Germany has held firm and global e-commerce market for the share of 3.7% in Italy, for even been slowly but steadily all products estimated to be instance. However, e-commerce increasing over the past worth nearly $3.5 trillion in 2019, penetration in 2019 was slightly decade: total expenditure on up from $2 trillion in 2016.19 greater in the US at 16.5%, and clothing and footwear rose Across Europe as a whole, the much greater in the UK, where by an annual average of 0.5% share of retail sales that comes e-commerce sales made up between 2010 and 2019 after from e-commerce more than 19.7% of retail sales. adjusting for inflation.18 doubled from 4.8% in 2012 to 10.1% by 2019. Growth in online sales was even faster in Germany, rising from a share of 5.9% in 2012 to 15.9% in 2019.20

17 Zanker et al, Globale Produktion von einer starken Heimatbasis aus, 2013 18 Eurostat, Final consumption expenditure of households by consumption purpose database 16 19 Digital Commerce 360, Global ecommerce sales to reach nearly $3.46 trillion in 2019, November 2019 20 Centre for Retail Research, Online: UK, Europe & N. America 2020 estimates The Status of German Fashion 2021

Fig. 5: Retail e-commerce sales as a proportion of total retail restrictions on the opening trade in selected countries, 2012 and 2019 of physical shops were put in place and advice on social oere share o tota retai distancing encouraged people 2 to go out less in public. 2012 201 Revenue in Germany for online 22 1 retailers grew year on year in real terms by over 30% in April, May and June 2020 as 10 restrictions took hold – much faster than the average annual growth of approximately 8% seen across 2017, 2018 and 2019. E-commerce typically sees a seasonal boost in 0 S German Frane uroe ta November and December each aerae year, but in 2020 revenue for Soure etai esearh online retailers climbed in April and remained high across the The adoption of online sales of retailers in the UK in 2019, year. This compares to the by retailers in Germany may 49% in the Netherlands and retail sector as a whole, which be less broad-based than in 61% in Denmark.21 saw revenue fall year on year in other European countries: in real terms in April 2020. Total 2019, 28% of German retailers While e-commerce has grown retail sales growth and revenue gained at least 1% of their rapidly in recent years, the recovered to typical levels after revenue from e-commerce. COVID-19 health crisis in 2020 that month, but did not see This puts Germany in 13th saw online retail revenue the rapid, sustained growth place in the EU28, behind 42% grow even more rapidly, as experienced by online retailers.

Fig. 6: Annual growth in Germany of total retail sales and sales by internet and mail order companies, real terms earonyear hane Tota retai trae nine mai orer 0 2 20 1 10 0 10 0 an1 u1 e1 ar1 r1 un1 u1 S t1 an20 a20 u20 e20 Fe1 a1 o1 e1 Fe20ar2 r20 un20 u20S Soure estatis

21 Eurostat, E-commerce sales database 22 Online retailers in this context refers purely to businesses whose main activity is selling online or through mail order, it does not include the online sales revenue of mainly physical retailers. 17 The Status of German Fashion 2021

GERMANY’S LARGEST FASHION COMPANIES

Germany’s sports clothing companies are prominent brands domestically and internationally. The adidas Group, whose major brands are adidas and Reebok, had €23.6 billion of sales in Germany in 2019, making it by far the largest German fashion company, followed by Puma with €5.5 billion. Other large fashion companies include German retailer Otto Group, the German subsidiary of Swedish retailer H&M and German luxury brand Hugo Boss.

Fig. 7: Germany’s 10 largest fashion brands by sales revenue in Germany, 201923

Rank Company Brands Sales, 2019, €bn 1 adidas Group adidas, Reebok etc. 23.6 2 Puma Puma, Cobra 5.5 3 Hugo Boss Boss, Hugo 2.9 4 C&A Deutschland C&A, Canda, Clockhouse, Yessica, Rodeo etc. 2.2 5 Kik Kik, Ergee 2.1 6 New Yorker New Yorker 1.9 7 S. Oliver Group S. Oliver, Comma, Liebeskind Berlin etc 1.3 8 Esprit Esprit 1.1 9 Takko Takko 1.1 10 Ernsting’s Family Ernsting’s Family 1.1

Fig. 8: Germany’s 10 largest fashion retailers by sales revenue in Germany, 201924

Rank Company Brands Sales, 2019, €bn 1 Otto Group Otto, Baur, Bonprix, Heine Schwab, About You etc. 4.7 2 H&M, Hamburg H&M, COS, Weekday, Monki etc. 3.2 3 C&A C&A stores and online 2.2 4 Zalando Online shops and outlets 2.0 5 Deichmann Deichmann, Snipes, Onygo, Soulbob, Ochsner 2.0 6 Schwarz Gruppe Lidl, Kaufland 1.5 7 Tengelmann Kik 1.5 8 P&C Düsseldorf P&C Modehäuser, Anson’s 1.4 9 HBC Kaufhof 1.2 10 TJX Deutschland TK Maxx 1.1

23 Textilwirtschaft Deutschland Die Grössten Deutschen Modemarken 2019. 18 24 Textilwirtschaft Deutschland Die Grössten Bekleidungseinzelhändler in Deutschland 2019. The Status of German Fashion 2021

19 Lisa Wassmann The Status of German Fashion 2021

3. THE ECONOMIC IMPACT OF THE FASHION INDUSTRY In this chapter, we present 3.1 INTRODUCTION TO OUR IMPACT ANALYSIS our estimates of the fashion industry’s contribution to the We assess the impact of the This approach enables us to German economy. German fashion industry using build a picture of the fashion a standard means of analysis industry’s total contribution to called an economic impact the German economy across I believe that one of our great assessment. This involves three key metrics:25 assets, which I always feel as a quantifying the industry’s GDP—more specifically, economic impact across three • retailer, is that we are the largest the fashion industry’s channels: and most relevant consumer “gross value added” (GVA) market in Europe. • Direct impact—this contribution to gross encompasses the economic domestic product (GDP). activity and employment In simple terms, GVA is the Michael Kliger, CEO, Mytheresa supported by the fashion sum of income generated industry’s own activities in by the industry in the form Germany. of employee compensation, business profits and taxes Indirect impact—this • on production. reflects the economic activity and employment • Employment—total supported in supply chains headcount of employment as the German fashion supported by the industry’s industry purchases goods activity. and services from other Tax—the amount of tax German businesses. • revenue generated by the • Induced impact—this industry for the German comprises the wider government, including VAT economic activity on fashion purchases, labour supported in Germany as taxes and corporation taxes. employees of the fashion industry, and those in the The modelling upon which industry’s domestic supply this report is based computes chains, spend their earnings, the economic footprint of the for example, in local retail fashion industry in Germany and leisure establishments. for 2019, based on the latest economic data available at the time of writing.

25 The impact results are presented on a “gross” basis. They therefore ignore any displacement of activity from other industries. Nor do they consider what the resources currently used by the fashion industry or stimulated by its expenditure could alternatively 20 produce in their second-most productive usage. Our economic impact analysis therefore estimates the actual economic footprint of the fashion industry in Germany each year, but does not estimate the extent to which the size of the German economy might differ if the fashion industry did not exist. The Status of German Fashion 2021

THE CHANNELS OF ECONOMIC IMPACT IN OUR MODEL

More detail on the methodology used to create these estimates can be found in Appendix 2.

The German fashion industry DIRECT employs sta, and its IMPACT operations generate GDP and tax for the authorities.

It also spends money with suppliers who employ sta, generate GDP and pay taxes, and support other suppliers in turn. INDIRECT IMPACT

Employees (including within suppliers) spend their earnings in the wider economy, generating more GDP, jobs and tax revenues. INDUCED IMPACT

Added together, these three eects—direct, indirect, induced— comprise the total economic impact of the fashion industry. TOTAL IMPACT

21 The Status of German Fashion 2021

3.2 THE DIRECT IMPACT OF FASHION MANUFACTURING AND DISTRIBUTION

The largest components of 3.2.1 Direct impact on GDP Of this €27 billion total, by the German fashion industry far the largest contribution We estimate that in 2019, are fashion wholesaling and came from fashion retail, at fashion manufacturing retailing (collectively referred 65% of the total, and fashion and distribution directly to here as “distribution”) wholesale contributed a contributed €27 billion to and manufacturing. These further 20%.26 This highlights German GDP in gross value sectors are the core of the the importance of the added terms, equivalent to industry and provide fashion distribution of fashion approximately 1% of Germany’s products to consumers, either products to the overall total €3.4 trillion GDP. This by manufacturing them or value of the German fashion means the core of the fashion importing them from overseas. industry, with manufacturing industry is slightly larger than contributing 15% to the total. the agriculture, forestry & fishing industry (€25 billion Breaking down the impact The German fashion industry GVA) and slightly smaller than of the fashion industry by has traditionally always been the telecommunications sector product type, womenswear very reliable, just as the Germans (€28 billion). For reference, and menswear were the are reliable. this compares to an estimated most important, together €122 billion contribution from accounting for over 60% of the the automotive manufacturing total direct GVA contribution Adrian Runhof, CEO, Talbot Runhof sector in 2019. in 2019.

Fig. 9: Direct GVA of the German fashion industry versus other German industries, 2019

Food, drink & tobacco manufacturing 49

Computer & electronics manufacturing 44

Arts, entertainment & recreation services 42

Telecommunications 28

Fashion manufacturing and distribution 27

Agriculture, forestry & fishing 25

Publishing activities 15

0102030405060 Source: Oxford Economics, OECD iion

26 Fashion companies are split into the different sectors used here mostly according to their primary activity. Statistics are then 22 recorded along these sector lines by Statistisches Bundesamt (“Destatis”), whose data we use for this analysis. The Status of German Fashion 2021

Fig. 10: Direct GVA impact of the Fig. 11: Direct GVA impact of the German German fashion industry by sector, 2019 fashion industry by product category, 2019 0.3 3% 2%

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3.2.2 Direct impact on employment In 2019, the German fashion Fig. 12: Direct employment impact of the German fashion industry employed a total of industry by segment, 2019 750,000 workers, nearly 2% 7,000 out of total employment in Germany of 45 million in 2019. By far the largest component 73,000 was the retail sector, with 596,000 or 79% of the 75,000 Fashion retai total—reflecting the relatively labour-intensive nature of anufaturin of this sector. Fashion wholesale fashion routs and manufacturing of fashion products each employed Fashion hoesae approximately another 10% of the total. 596,000 Fashion teties manufaturin

Soure urostat estatis for onomis

23 The Status of German Fashion 2021

Labour productivity, defined Fig. 13: Average labour productivity (GVA per worker), 2019 as GVA per worker, varied significantly between the Fashion hoesae 76 different segments of the German fashion industry. Workers in fashion wholesale German aerae 67 contributed an average of €76,000 a year to GDP, 13% more than the average Teties manufaturin 51 across the German economy. In contrast, productivity in anufaturin of 49 fashion retailing was €30,000 fashion routs on average, less than half the average across all sectors. Fashion inustr aerae 37

3.2.3 Direct impact on tax revenues Fashion retai 30 The fashion industry directly supported €22 billion in tax 02000 0 payments in 2019. Close to hosans per year 60% of this total came from the Soure urostat estatis for onomis value added tax (VAT) collected from the retail sale of fashion Fig. 14: Direct contribution to German tax revenue by type of goods. Taxes on labour, in the tax, 2019 form of employee and employer iion social security payments 1 and employee income tax, accounted for another 39% 12 13.3 of total tax payments by the industry. The remaining 2% 10 came from corporation tax.

I think the combination of 6.6 Made in Germany and real technical innovation coupled with digital innovation is the biggest opportunity in the industry. 2 1.9 0.5 0 T on Soia seurit aour ororation David Fischer, Founder, Highsnobiety routs aments inome ta ta Soure urostat estatis for onomis

24 The Status of German Fashion 2021

3.3 OTHER DIRECT IMPACTS

As well as the impacts arising In 2019 the advertising For this study, we have from fashion distribution sector’s activities within the estimated the economic and manufacturing, further fashion industry supported impact of the 11 most economic activity is €640 million in German important German fashion supported in sectors such as GDP. More than a third of publications identified by the fashion marketing, magazines this contribution came from German Fashion Council.27 and education. advertising for womenswear, Together, these magazines while advertising for menswear sold more than 36 million 3.3.1 The direct impact of and footwear accounted for copies in Germany in 2019, marketing and advertising 22% and 16% of the impact generating an estimated €364 respectively. Employment of million in sales and advertising By helping other segments of approximately 15,000 was also revenue. We estimated that the fashion industry market supported in the sector. this economic activity directly their products and build brand contributed €156 million to recognition, advertising plays 3.3.2 The direct impact of German GDP and supported an important role for many fashion magazines employment of 2,300. companies operating in the sector. Retailers, in particular, Fashion magazines are 3.3.3 The direct impact of are large users of advertising another facet of the industry, fashion education services, fuelling an estimated logistically separate from retail 76% of fashion advertising and production, but closely By training new designers and revenues. The remaining 24% linked in terms of the topics of other textiles and clothing of fashion advertising output written content produced. specialists, higher education comes from the wholesale and institutions also play an the manufacturing sectors. important role in the fashion industry. The quality and Fig. 15: Direct GVA impact of fashion advertising in Germany importance of Germany’s by product group, 2019 fashion schools is highlighted 15 10 by the Federal Foreign Office, who note that the majority of Europe’s fashion designers 48 omensear are trained in Germany’s 40 fashion schools.28 ensear 68 257 Footear

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27 The publications for which we’ve estimated an economic impact are Brigitte, Cosmopolitan, Elle, Glamour, GQ, Grazia, Harper’s 25 Bazaar, Icon, InStyle, Madame and Vogue. 28 Deutschland.de, Study in Germany: Fashion, 2018 The Status of German Fashion 2021

Fashion education’s economic 3.4 THE TOTAL IMPACT OF THE FASHION INDUSTRY contribution can be measured by the salaries of the staff The impact of the German manufacturing and distribution involved in teaching fashion fashion industry on the of fashion products (€27 subjects in German higher economy is not limited to its billion), as well as fashion education institutions. To direct contribution. To provide advertising, magazines and estimate this amount, we used a more complete picture, the education (a further €1 billion). higher education statistics for supply chain (“indirect”) impact The sector’s procurement the subjects Textile Design and the consumer spending spending supported a further and Textile and Clothing (“induced”) impact need to be €20 billion throughout its Technology/Industry as the considered. In this section, we supply chain. The wage courses most related to fashion present our estimates of the spending of the industry’s education. These higher total impact of the industry on workers, and of the workers it education subjects had nearly the German economy. supports throughout its supply 800 first-year students enrolled chain, contributed a further in 2019/20 (down from 1,200 3.4.1 Total impact on GDP €18 billion to German GDP. earlier in the decade), and Across the three impact nearly 6,000 students across This means that for every channels, the German all years and degree types.29 €100 contributed directly by fashion industry supported the industry, a total of €235 is €66 billion in GDP in 2019. Combining the total number supported across the economy. Out of this total, €28 billion of students on fashion degree was supported by the courses with estimates of industry directly through the average class size and average academic pay suggests that academic wages—i.e. the Fig. 16: Total GDP contribution by the German fashion value added of the fashion industry, 2019 education sectors—amounted iion to €17.9 million in 2019, across 0 66 300 academic jobs. 0 18 18

I believe that the German retail 0 sector is incredibly important for the inner-city environment, 0 more must certainly be done to 20 20 support it. 0

Dieter Holzer, CEO, Marc O’Polo 20 28 28 10

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26 29 Destatis, Institutions of higher education; statistics of students database The Status of German Fashion 2021

3.4.2 Total impact on Fig. 17: Total employment contribution by the German fashion employment industry, 2019 In 2019, the German hosans fashion industry supported 100 employment of close to 1.3 million. With 770,000 workers 1200 1,270 employed directly by the industry (750,000 across 240240 production and distribution, 1000 and close to a further 20,000 260 260 across fashion advertising, 00 magazines and education), the direct employment impact 00 represented more than 60% of the total. Another 00 260,000 individuals were 770 770 employed throughout the industry’s supply chain, 200 while 240,000 workers were in jobs supported by the 0 consumption spending of iret niret nue Tota direct and indirect employees. Soure for onomis

This means that for every 100 Fig. 18: Total contribution to German tax revenue by type of people employed directly by tax, 2019 the industry, total employment T on routs Soia seurit aments of 160 is supported across the economy. aour inome ta ororate ta iion 3.4.3 Total impact on tax 0 revenues The German fashion industry 2 supported a total of €36 billion 23 in tax revenue in 2019 across the direct, indirect and induced 20 channels. VAT paid by fashion consumers, and by workers across the sector and its supply 1 chain, accounted close to half of the total. Taxes on labour also 10 made an important contribution 8 to total tax payments, with social security and labour 6 income tax accounting for 36% and 13% of the total respectively. 0 iret niret nue Soure for onomis Totas o not sum ue to rounin

27 The Status of German Fashion 2021

WORLDWIDE SALES OF THE LARGEST GLOBAL FASHION BRANDS

Analysis from industry body TextilWirtschaft looks at the largest 175 European fashion brands and their worldwide revenue. We have grouped these companies by their country of origin in the table below. These statistics suggest that German fashion brands had the second-highest global sales of firms in the top 175, with 51 compared to France’s 17, the largest (adidas Group) contributed nearly a third to the total revenue for German brands.

Fig. 19: Worldwide sales revenue by 175 largest European fashion brands, grouped by country of origin, top 10 country results30

Rank Country Count of brands included Sum of sales revenue, 2019, €m 1 France 17 66.0 2 Germany 51 55.8 3 Spain 5 32.5 4 Italy 52 30.8 5 UK 20 22.7 6 Sweden 3 22.4 7 Ireland 1 8.9 8 Netherlands 7 6.6 9 Switzerland 8 5.7 10 Denmark 3 4.1

28 The Status of German Fashion 2021 Iain Brown

29 The Status of German Fashion 2021

CIRCULAR BUSINESS MODELS – FASHION’S NEW PARADIGM Provided by Karl-Hendrik Magnus, Senior Partner and leader of McKinsey’s apparel, fashion, and luxury group in Germany; Felix Rölkens, Associate Partner and core member of the group, and David Barrelet, Consultant and member of the group.

Amid rising pressure to operate more waste and volumes), recycling, refurbishing, sustainably, the fashion industry has started reselling, renting and repairing. Each of the six to engage with circular business models such “Rs” can help companies align more closely as resale and recycling. However, progress has with consumer—and increasingly investor— been slow. Today, less than 1% of the material expectations. In addition, loops of use and reuse in clothing is recycled, dwarfed by other can create a multiplier effect that can build industries such as paper, where recycling rates value, if used effectively. are up to 72%.31 The current situation presents a challenge for fashion companies but also offers Change rarely happens all at once though. an opportunity, both to engage more closely with This is apparent in fashion, with a few brands customers and to add value to the bottom line. pioneering or scaling up circular business models, while others hold back. One pioneering Europe produces around 2 million tonnes of example is adidas’s fully recyclable footwear due textile waste a year, or 5.5 kilos per person.32 for launch in 2021, which can be worn, returned, Germany alone is responsible for around and recycled into new running shoes. This 400,000 tonnes of waste annually, second only follows other innovations from the company, to Italy. Across Europe and the wider world, such as producing 11 million pairs of shoes in the vast majority of discarded clothes are 2019 from recycled ocean plastic. The company incinerated or go to landfill. One reason for the has also committed to using only recycled scale of this waste is that the fashion industry polyester in every product by 2024.35 uses a high-volume operating model that is arguably the antithesis of sustainability. Fashion Another company to embrace circularity consumers operate in a similar way, tending to is Berlin-based Zalando, a digital fashion favour either luxury items or disposable fashion. marketplace. Zalando announced a “pre- This in turn leads to overproduction and more owned” category in February 2020 that allows waste. Indeed, garment production volumes are customers to shop for pre-owned items or sell predicted to grow by 2.7% annually between their own articles to the company.36 To facilitate now and 2030.33 this, Zalando has set up a reverse logistics process, carrying out quality checks on pre- Despite high levels of production and owned products before then reselling them consumption, consumers increasingly wish to on the same terms as new clothes in terms of reflect their sustainability values in their fashion delivery, right of return and payment options.37 purchasing decisions. In a recent McKinsey survey, more than 60% of consumers said a Alongside the efforts of these large businesses, brand’s promotion of sustainability was an a wave of young German brands is shaking important factor in deciding whether or not up the status quo by putting sustainability at to buy.34 Consumers are concerned about all the center of their business models. Cologne- aspects of sustainability, from the supply chain based Airpaq, for example, produces upcycled to packaging, but their sharpest focus is on backpack and accessories from car airbags materials, which they want to see produced and seatbelts.38 Munich-based Bewoodz is a using sustainable processes. sustainable eyewear brand that uses natural materials and prioritises ethical production, The good news for fashion companies is that animal welfare, and eco dyes and printing. In the these dynamics can be effectively managed, and same vein, Friends That Rhyme manufactures potentially harnessed for commercial advantage. handbags from vintage fabrics. To get there, companies must embrace six principles of circularity: reducing (emissions,

31 Paper Mart, European Paper Recycling Rate Increased to 72 percent in 2019, July 2020 32 LABFRESH, based on data from 15 European countries 33 McKinsey & Co, Fashion on climate, 2020 30 34 McKinsey & Co, Consumer sentiment on sustainability in fashion, 2020 35 Adidas, Adidas Unlocks A Circular Future For Sports With Futurecraft.Loop, 2019 36 Zalando, Zalando announces pre-owned category, 2020 37 Die Welt, Mit der Secondhand-Idee will Zalando den Umwelt-Makel Loswerden, 2020. 38 Eco Lookbook, Ethical and Sustainable Fashion Labels in Germany, 2020 The Status of German Fashion 2021

Despite these examples, the industry as a whole more about extended lifespans and less about faces challenges in turning circular principles the norms of high-volume production. into workable strategies. One challenge relates to taking back used items, which At the same time, decision makers should remains a logistical stumbling block for many consider how to further engage and educate companies—particularly those with fragmented consumers. For younger consumers, born geographic footprints. One solution is to use into digital interactions and heightened specialist reverse logistics companies, which environmental awareness, circular fashion makes can recover items from disposal or secondary sense. However, many older consumers may resale. US clothing company Patagonia, for need encouragement and advice to make the instance, works with start-up Trove to buy switch. The onus, therefore, is on the industry back items and sell them at a reduced price. to meet the needs of the younger cohort and Trove handles purchasing, processing and to engage more closely with those needing a pricing so that second-hand items are ready helping hand. By enabling resale, recycling and to be sold alongside new collections. A similar repair—for example through in-store mending operating model can work for clothing rentals, stations—the industry can support consumers with third parties managing the entire process, in making circularity integral to their fashion from warehousing and cleaning garments to decisions. Alongside those efforts, fashion managing customer feedback. companies throughout the value chain should collaborate to make the necessary investment The root cause of circularity shortfalls often lies in automation and infrastructure needed for in the design process, which may fail to take into sustainable processes. In a time of change, it is account the durability or recyclability essential to often those that make the boldest commitments making circularity work. To obtain the maximum that realise the richest rewards. value from products, designers will need to think Vicky Lehmann Vicky

31 The Status of German Fashion 2021

4. STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS Our economic footprint list of interviewees). These The strength of the German analysis provides a static interviewees were selected so fashion industry is its technology, viewpoint; a picture of the as to cover as broad a range know-how and human capital. impact of the fashion industry of the different aspects of the at one point in time. To fashion industry as possible, to understand the industry from gain a thorough understanding Prof. Dr. Phil., Dipl.-Des Marina a more dynamic perspective, of the issues being faced. Wachs, Industrial Designer and we asked industry experts Professor, Hochschule Niederrhein about the outlook for We used these responses, in University of Applied Sciences the sector, drawing on its conjunction with findings from strengths and weaknesses. a literature review, to conduct We talked to 44 major figures an analysis of the industry’s within fashion brands, fashion strengths, weaknesses, fairs, retail, media and other opportunities and threats—also areas (see Appendix 1 for a known as a SWOT analysis.

OVERVIEW OF STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS • Strengths: The German fashion industry • Opportunities: Germany’s specialty of producing enjoys an international reputation for quality, quality workmanship and advanced technical reliability, and value. The country is also noted textiles provides it with a relatively unique for its technologically-advanced approach offering that it can take to new markets, including to fashion, including technical textiles and emerging economies. This may be particularly advanced clothing and textile manufacturing the case when it comes to the growing trend equipment. Its large home market is a positive towards sustainability, which means customers for German businesses as it is possible to buying fewer, higher quality items that will last achieve a high volume of sales domestically. a long time. Germany’s innovation includes development of “smart” textiles that can sense Weaknesses: Interviewees expressed concern • and react to environmental stimuli (such as that the German fashion industry suffers from changing colour or thermal properties)—this area a relatively low level of visibility on the world is predicted to be a major global growth area stage, despite its reputation for quality and over the medium term. value. Its sports brands and a few other labels are internationally recognisable companies, • Threats: to maintain global market share but overall, there are comparatively few world- Germany will need to continue to invest to stay famous German fashion brands. Stakeholders at the forefront of the fashion technologies noted that this may be in part because the in which it has its niche, as emerging markets country has its speciality in functional clothing, mature in this area. In particular, China is likely to with less of a modern tradition than other become a strong competitor in technical textiles countries have for the avant-garde designs and the production of textile manufacturing that draw attention at international shows. equipment over the medium term. Global crises These characteristics, combined with a greater (such as COVID-19) and trade wars that affect trend for outsourcing production than in Italy, supply chains are a threat to the German fashion say, contribute to the country’s difficulties in industry, which is one of the world’s largest retaining and attracting design talent. importers and exporters of clothing and textiles.

32 The Status of German Fashion 2021

ABOUT SWOT ANALYSIS

SWOT analysis provides a framework to assess current industry trends and gain insights into key future risks that are likely to shape market outcomes. Strengths and weaknesses refer to internal factors which are likely to influence the German fashion industry’s response to external threats and opportunities. An overview of the framework of SWOT analysis is provided in the figure below. Following identification of the themes that populate each area, it is possible to draw conclusions as to the best strategies for the industry.

Fig. 20: The SWOT analysis framework

Strengths (internal) Weaknesses (internal) How do I overcome the weaknesses Opportunities How do I use these strengths to take that prevent me taking advantage of (external) advantage of the opportunities? these opportunities? Threats How do I use my strengths to reduce the How do I address the weaknesses (external) likelihood and impact of these threats? that will make these threats a reality?

4.1 STRENGTHS as a producer of textile Well-known global sports manufacturing machines, brands: Germany’s global Reputation for quality and including innovations such as 3D sports brands, such as reliability: A high proportion knitting machines, and digital adidas and Puma, were seen of respondents referenced design techniques. The technical as strong ambassadors for the quality of German-made “know-how” of companies in the German fashion on the world clothing as one of the fashion industry was given as a strength stage. Other examples given industry’s core strengths. for the industry, with the depth of well-known German brands Reference was made to both of this knowledge setting the included Hugo Boss, as well as the quality of workmanship and German fashion industry apart Karl Lagerfeld and Jil Sander the materials used, with many from those of other countries, on the creative side of the noting that Germany is known particularly in the area of German industry. for providing good value for technical textiles. In part this is its clothing. Respondents also due to the country’s strong links noted that German companies between universities and textile Germany is very far ahead in in the sector are reliable research institutes.39 the world market for technical business partners in terms of textiles and technical fibers. delivering on time and to a Strong home market: The consistent level of quality. fact that Germany has one of the largest markets for Holger Max-Lang, President, Advanced technology: fashion in the world was Northern & Eastern Europe, Middle Germany’s textile research identified as a key strength East, Lectra Deutschland GmbH institutes and university for domestic companies. This departments were noted as an means there is a ready source example of how the country of potential demand to grow drives global innovation in a new company without the fashion and textiles. This challenges of having to look extends to Germany’s position outside the country’s borders.

39 Forschungskuratorium Textil, Perspektiven 2035, 2020 33 The Status of German Fashion 2021

4.2 WEAKNESSES

Lack of government support source of demand in Germany’s instance, offshoring means that and low international visibility: fashion industry: average spend it is much harder for a textile Despite Germany’s fashion and per year on clothing is lower engineer to work alongside a textiles industry being a large in Germany than other major tailor to develop new products. contributor to employment and European countries, and in fact In addition, outsourcing is to the economy, respondents Germany is the largest market contributing to skills shortages felt that it is not supported and for H&M (a lower price point in craftsmanship for those promoted in the same way clothing retailer).41 that do want to produce as some other industries, for domestically. example the automotive sector. Difficulty in retaining design Although Germany does have talent: There are many fashion Digitalisation: Respondents world-famous sports brands schools in Germany training a noted that many German to advertise the industry, large number of designers each fashion companies have not respondents believed that this year. However, there is no single yet engaged significantly with lack of government support school with as strong a brand the digitalisation of the fashion and promotion means that as the highest-ranking schools industry, including through the country’s fashion industry in some other countries, with online retail sales, with many generally has a low level of respondents citing Central firms struggling as a result. visibility on the world stage. Saint Martins in London However, respondents believed Furthermore, German brands as an example of a school that the COVID-19 health crisis may not even be celebrated brand that attracts future is forcing many companies to domestically: Vogue notes German designers to leave the evolve in this regard. that among the top 50 most- country. This is contributing to searched-for fashion brands something of an emerging skills There are difficulties in the in Germany on Lyst (a global shortage, as young designers digital marketplace specifically fashion search platform), only may be more inclined to study for small businesses in five are of domestic origin.40 and remain abroad. Similarly, Germany. Michael Kliger, chief for those that do study in executive of German luxury Design is more functional than Germany, the higher number of fashion retailer Mytheresa notes creative: While German fashion world-famous brands in other that German consumers prefer is seen as a leading example countries acts to draw domestic to shop on online “platforms” of quality and value for money, talent overseas. rather than individual mono- many respondents stated that brand websites.42 This raises it lags behind in the creativity Outsourced / offshored potential barriers to entry of its designs, and that the production: As previously for any small businesses and sector’s outputs do not have discussed, Germany has been start-ups that cannot get their the same level of creativity as outsourcing or offshoring products onto the popular that of other countries with the physical production of its platforms, such as Zalando. large fashion sectors. This factor designs for a long time. While German online shoppers also contributes to the previous using global procurement chains have the highest return rates point—the relatively limited is also a trend in other European in Europe, expect delivery international profile of German countries, Italy for instance within 3-5 days and expect free designers means there are fewer also has a larger share of local returns,43 again increasing costs stars to act as international production, and respondents that smaller retailers may find figureheads for the sector. believe that outsourcing has difficult to deal with. Functional design at a middle- now reached a level that is market price point is a key harmful to innovation. For

40 Vogue Business, Why Germany’s fashion market is hard to crack, 2019 41 Vogue Business, Germany’s eco-conscious shoppers are still addicted to fast fashion, 2019 34 42 Drapers magazine, Entering the sophisticated and stable German market, 2019 43 Essential Retail, Retail country in focus: Germany, 2016 The Status of German Fashion 2021

4.3 OPPORTUNITIES

Sustainable fashion: A definite use of digital platforms to sell trend towards sustainability is to overseas customers is seen In the exhibitor presentations emerging among consumers. as a strong opportunity to at our global textile trade Demand is shifting away from harness this growth. fairs, we see the highest level “fast fashion” and towards of innovation in the German buying fewer, higher quality textile industry: technology, pieces. Germany’s reputation 4.4 THREATS performance and quality. for quality means it is well placed to capitalise on this Competition from emerging trend. Respondents also markets: While emerging Olaf Schmidt, FCG Executive noted that Germany has a markets offer the opportunity Board Member and Vice President, well-developed recycling for a new source of demand Messe Frankfurt infrastructure and so may be in for German fashion products, a good position to effectively economic development in manage the end stage of each these countries also means garment’s life cycle. expansion and increased global fashion industry is one maturity of clothing and of the largest producers of Smart textiles: Textile industry textile design, manufacturing, greenhouse gas emissions, due forecasters agree that the and research industries. in part to its energy-intensive market for smart textiles is Respondents noted German production processes. The likely to see very strong growth companies will need to global trend of introducing in the short and medium continue innovating to avoid carbon pricing measures term, with average annual losing global market share. would impact the sector. growth rates projected of over China in particular is likely to For instance, carbon pricing 10%.44 Our respondents note become a key competitor with begins for the heating and that Germany is a driver of Germany in the production of transport sectors in Germany innovation in smart textiles, technical textiles and textile in 2021, with the price rising with universities in the process manufacturing equipment through the decade.46 of developing new technologies by 2035.45 in this area. As such, the Slowing growth at home: German fashion industry looks Trade restrictions: Germany has an ageing to be in a good position to Respondents noted that trade population and the UN’s capitalise on this trend. wars pose a potential threat medium-fertility forecast to German exports and supply expects the country’s total Expansion into growth chains. Brexit was also noted as population to peak at 83.9 markets: Respondents note likely to impact on demand for million in 2021,47 before good opportunities to sell to German products, as the UK is declining to 82.0 million by higher growth markets such in the top 10 largest markets 2040. As such, prospects for as China and Russia, and for German clothing exports. domestic growth in the fashion that there is room for growth industry may be relatively in Eastern Europe. South Rising cost of inputs: A rise limited over the long run for America and Africa are also in the price of energy and German firms. noted as being strong growth other inputs such as water opportunities as customers would put further pressure there may be more open to on the financial ability of trying new brands than in more German companies to produce established markets. Further clothing domestically. The

44 For example: Business Wire, Smart Textiles Market Trends and Growth Opportunities, 2020-2025 45 Forschungskuratorium Textil, Perspektiven 2035, 2020 46 Clean Energy Wire, Germany’s carbon pricing system for transport and buildings, 2019 35 47 United Nations population division, World Population Prospects 2019, medium-fertility variant forecast. The Status of German Fashion 2021

4.5 CONCLUSION OF SWOT ANALYSIS

Assessing how the strengths, However, to truly capitalise weaknesses, opportunities on export opportunities the and threats are interlinked industry will need to address enables us to draw out how the the identified weakness of industry can take advantage relatively low visibility in of opportunities and minimise the international fashion the risk from threats. These are marketplace, with support then translated into actionable from government and industry recommendations in Chapter 6. associations to establish a more recognisable global The strength of the German brand for German fashion. fashion industry’s reputation In part this may require for high quality, as well as the generating, attracting, and leading-edge output of its retaining more design talent textile research programmes, and producing more creative mean that it is well placed output to grab attention. to take advantage of the opportunity that emerging Moving further into markets present. Putting sustainable fashion also plays emphasis on this strategy to Germany’s strengths of would also allow it to mitigate developing and innovating the long-term risk of slowing new textile types. It may also growth in the domestic help to mitigate the risk of market. rising input prices, if research can produce less resource- intensive processes and materials uses. There is an opportunity for Germany to continue to position itself as one of the world’s top sources for sustainable fashion.

36 The Status of German Fashion 2021

37 Sonntag ODEEH Tim The Status of German Fashion 2021

HOW SUSTAINABLE AND DIGITAL TRANSFORMATION SUCCEED AT THE SAME TIME Provided by Nicole Stein, Tech Entrepreneur and Researcher, Virtual Fashion and Digital Value Creation at studioMM04

Sustainability and digitalisation have been In consequence, discussing sustainability widely identified as clear macro trends in the and digitalisation separately does not help fashion industry. However, digital innovations to achieve the long-term goals of the fashion are not necessarily inherently sustainable. industry, but widens the gap between Indeed, a lot of recognised activities in the economic efficiency and growth ambitions on context of sustainability, such as eco-fashion the one side and environmental impact and brands or upcycling movements, are often social concerns on the other. low-tech efforts. Conversely, many digital technologies actually require elevated resource Digital transformation and technological and energy demands and can even negatively innovation create opportunities for new affect waste management.48 sustainable business models based on circular economy principles.51 A circular economy is a Online shopping is a prime example of digital systemic approach that requires adaptation activity in the fashion industry, yet it is far from throughout the value chain to preserve natural sustainable. Germany’s fashion e-commerce resources, re-introduce waste via recycling, (clothes and shoes) achieved a staggering and initiate change in consumer behaviour.52 €18.7 billion revenue in 2019, outperforming Digital technologies serve as an enabler for categories like electronics.49 The ongoing the implementation of a circular economy as growth of eCommerce in the fashion segment they support the necessary data capture and and related technological innovations are a great analysis throughout the value chain.48 Data’s example of both evolving digital operations and relevance to sustainability is evident when the connected struggles for sustainability. Yet considering the complexities of value chains. the transportation phase alone in the textile Technologies such as AI can support logistics value chain is responsible for 5% of the fashion and the sorting of goods, for instance, but also industry’s emissions50—and rising with the predict demand by combining historical and accelerated growth of online shopping. real-time data.53 This predictive feature of AI karelnoppe/Shutterstock.com

48 ECERA, Digital circular economy – a cornerstone of a sustainable European industry transformation, 2020 49 Statista, Umsatz im Online-Modehandel in Deutschland in den Jahren 2006 bis 2019, 2020 38 50 Joint Research Centre (Ispra, Italy), Environmental improvement potential of textiles (IMPRO-Textiles), 2014 51 Futuring, Policy recommendations and strategy to re-industrialise Europe, 2018 52 European Environment Agency, Paving the way for a circular economy: insights on status and potentials, 2019 53 Banks et al, Artificial intelligence and the circular economy – AI as a tool to accelerate the transition, 2019 The Status of German Fashion 2021

can support the implementation of circular Virtual fashion has the potential to reduce economy principles and facilitate decision- textile production making processes regarding production, inventory, and waste management. One new area of the fashion industry is “virtual fashion” or “digital clothing”, which relates Sustainability and digitalisation must be to digital apparel design, material simulation, considered as symbiotic: this will help identify and creating garments for digital models or ways to make the digitalisation of fashion “avatars”.54 This new area is expected to grow sustainable, and for sustainable fashion to rapidly to ultimately reach 1% of the entire be successful in a digital world. The German fashion industry’s annual output.55 But virtual fashion industry is advised to make use of this fashion is more than a gimmick for gamers or excellent opportunity and position itself as a technology innovators: it has the potential to frontrunner at the intersection of sustainability support sustainability efforts. and digitalisation. More than half of the fashion industry’s harmful effects on the environment are attributed to textile production.50 In particular, energy used during the processing of raw materials and manufacturing of textiles is one of the largest environmental impacts of the production process56 and as such, virtual fashion is a promising technological opportunity to reduce the industry’s environmental impact. For instance, actual textiles are used in the existing garment prototyping process, resulting in supply and budget constraints. The fashion industry could overcome these by allowing designers and brands to test different fabrics

dpa picture alliance / Alamy Stock Photo Stock / Alamy alliance dpa picture virtually, reducing cost and waste in the early development process. Furthermore, it could use virtual fashion can be used to address overproduction by enabling the consumer to experience garments through realistic simulations using their individual measurements.57 This enables real-life stock to be minimised and production to reach on- demand efficiency. One major challenge remains the lack of an established notion of sustainability—not only in As researchers emphasize, merging virtual the fashion industry but also in academia and and real-life contexts is key to the successful political discussions. This lack of an accepted application of virtual reality.58 Virtual fashion definition hinders large-scale implementation can become a key trend to decrease both and reduces science-based targets to hardly- production volumes and the size of consumers’ enforceable theories. Neglected aspects such wardrobes, and offers various applications as social impact and cultural and artisan value in commerce and communication, such as are worth exploring and have the potential to on social media. Applying digital innovations influence the understanding of sustainability to the fashion industry is the perfect way and its acceptance in both industry and to harness its creativity and passion while civil society. In this context, the German securing its sustainable future by reducing both fashion industry can actively shape a refined waste and pollution. understanding of sustainability and to develop a competitive but relevant edge by educating a new generation of experts on the synergies of sustainable and digital fashion.

54 Sayem, Virtual fashion ID: a reality check, 2019 55 Now Fashion, Virtual fashion from gaming to the runway, 2020 56 European Environment Agency, Textiles and the environment in a circular economy, 2019 39 57 Volino et al, From early virtual garment simulation to interactive fashion design, 2004 58 Sherman and Craig, Understanding virtual reality – interface application and design, 2003 The Status of German Fashion 2021

5. LONG-TERM ISSUES FOR THE FASHION INDUSTRY Beyond the short-term flow 5.1 SUSTAINABILITY approximately €4 more, which of new trends in the fashion as Vogue puts it, “signals a industry, two fundamental Sustainable apparel sourcing lack of awareness around the trends are emerging: at a large scale is this season’s costs involved” in producing “must have” according sustainable garments.63 In fact, greater demand for • to fashion industry chief German fashion shopping sustainable apparel purchasing officers,59 with habits reveal a preference manufacturing and supply sustainable materials and for cheaper, “fast fashion” chain transparency; and supply chain transparency products: the country is the • a greater emphasis on ranked as the most important largest market for H&M, an innovative new materials and factors to consider. international fast fashion production technologies, retailer. including more eco-friendly Germany has a history in textiles and more energy- sustainable fashion. The There are signs however efficient processes. company Hess Natur is often that these shopping and cited as being a global pioneer consumption habits may be In this chapter, we look at these of organic cotton in the 1970s, changing, with the COVID-19 issues in more detail, using and as a spokesperson for health crisis appearing to evidence gathered from our the Confederation of the have a significant impact on interviews with industry experts German Textile and Fashion fashion purchasing behaviours. and from published literature. Industry noted, “the social and Nearly two thirds (64%) of ecological standards of the German and UK consumers German textile and fashion surveyed64 reported that they Innovation in sustainability industry are among the had decreased their spending concepts will be the future highest in the world.”60 on fashion as a result of the driver of success within the crisis, including 40% noting a sports wear industry. Compared German consumers “large” decrease in spending. to the past, sustainability and report being concerned Whether or not this change design need to go more hand about the impact that the in behaviour will continue for in hand as the consumer won’t fashion industry has on the the longer term remains to compromise on style. environment: in 2018, 82% be seen, but the intention is of those surveyed agreed there: once the crisis is over, that it is important that 57% expect to repair damaged Heiko Desens, Global Creative fashion brands tackle climate clothing rather than buying a Director & Innovation, Puma change, and 88% thought that replacement; 65% expect to fashion brands should tackle buy more high-quality items environmental protection.61 that last longer; and 71% However, that concern does expect to throw out fashion not necessarily translate items less often. into behaviour: only 33% Awareness of sustainability of Germans considered the issues is growing, but it comes environmental impact of a back to that point of how much clothing item before deciding we are willing to invest. whether or not to purchase it.62 In 2020, Germans reported that they would be willing to Inga Griese, Senior Editor Style, pay more for a sustainably- ICON magazine produced white cotton t-shirt than a basic one, but only

59 McKinsey & Co, Apparel CPO Survey, 2019 60 Die Welle, Fashion’s eco-sins: In search of sustainable clothing, 2018 40 61 Fashion Revolution, Consumer Survey Report, November 2018 62 Ibid. 63 Vogue Business, How much more would you pay for a sustainable T-shirt?, 2020 64 McKinsey & Co, Survey: Consumer sentiment on sustainability in fashion, 2020 The Status of German Fashion 2021

The stakeholders that we Respondents also discussed A further issue raised by our interviewed drew similar longer-term sustainability interview respondents was conclusions: German trends. These included the idea whether the globalised nature consumers say they want of on-demand manufacturing: of the fashion industry was more sustainable products rather than producing a large the best way forward, given but are unwilling to purchase amount of clothing and then the emissions caused by them unless they are trying to sell it, on-demand transporting heavy shipments attractive, desirable and manufacturing would allow over long distances. The reasonably priced. However, consumers to customise their question was raised about our respondents noted that purchases to a greater extent whether a trend towards attitudes to sustainability have than is now possible, at the supporting more localised started to change among expense of having to wait supply chains will start to businesses in the German longer for it to arrive. Currently emerge. fashion industry. This trend these production methods are is expected to continue as likely to be more expensive younger consumers, for than existing techniques, in whom sustainability may be part due to smaller production of greater concern, place batches, although this could additional pressure on the change if volumes increase. industry to transform. Some companies are already looking into this globally: Examples of sustainability- for instance, it was widely focused initiatives already reported in 2017 that Amazon being implemented by had a patent approved businesses include: for an on-demand apparel manufacturing warehouse.65 • using more sustainable materials, such as fabric Respondents also suggested made from recycled plastic that sustainability in the and organic cotton; fashion industry must mean • reducing waste by ensuring people buying much lower leftover textile is used for volumes of clothing. Designers other purposes rather than will need to respond to this being discarded; change to survive, potentially by reducing the number of magazines promoting • collections and changing sustainability through existing fashion cycles. Fashion articles on vintage fashion, industry analysts expect new recycling and repairing; business models to emerge in • companies producing their response to this trend, such own electricity and reducing as clothing rental services for water usage, and leisure and sportswear.66 • reducing the size of new collections and changing collections less frequently.

65 Fashion United, Future of Fashion: Production - sustainable, high-tech and on-demand, 2019 66 Forschungskuratorium Textil, Perspektiven 2035, 2020 41 The Status of German Fashion 2021

5.2 TECHNOLOGY AND INNOVATION

There are many ways in which In 2018, global fashion One particular sub-set of technological innovation industry executives identified fashion textile innovation is intersects with the fashion technology-related issues as in the area of “smart textiles” industry, whether through the most important factors or “electronic textiles”—an new design approaches they face,67 and some analysts area that is expected to enabled by the latest software; now expect the focus of global grow rapidly. There are three innovations in textile and fashion R&D to be increasingly commonly-used categories of material manufacturing on the materials science smart textiles: technology; or the way that required for developing new “passive smart”, which use fashion customers can interact fibres, textiles and finishes.68 • sensors to record data on with retailers. Each of these Germany is a significant the user’s environment, themes is growing increasingly contributor to global research with uses in sports clothing central to the industry, for in this area: in a review of for instance, or in medical instance as customers demand 31,000 scientific papers applications; a more digitally-integrated published between 2016 and sales experience, or as 2019 under the key word • “active smart”, which also trends towards sustainability “textiles”, Germany produced contains actuators to react necessitate new materials. more than any other European to stimuli, such as to change Our interviewees highlighted country, and was fourth in the colour, waterproofness, the most important drivers world behind China, the US or insulation and heating of innovation in the German and India.69 Breaking these properties; fashion industry as being “the results down by individual “ultra smart”, which react urgent need for sustainability”, organisation shows that while • and adapt, learning as consumer expectations, and the institutions with the five they go through artificial cost pressures. largest publication numbers intelligence.70 were all in mainland China or Hong Kong; RWTH Aachen A common theme that came University and Dresden Germany has an excellent up in our interviews was University of Technology reputation, especially for how Germany is already an were in 6th place and 7th technical fabrics and for fibres. innovator in this area and so is place respectively. well placed to benefit from this growth trend. John Cloppenburg, CEO, Peek und Cloppenburg

67 McKinsey & Co., The State of Fashion 2019 68 McKinsey & Co., The State of Fashion 2020 42 69 Forschungskuratorium Textil, Perspektiven 2035, 2020 70 International Journal of Engineering Technologies and Management Research, Smart Fabrics-Wearable Technology, 2017 The Status of German Fashion 2021

Another key technology 5.2.1 Fashion industry This began in the early 2000s trend noted by respondents technology spillovers with the rise of fashion blogs is that of 3D fashion design (Women’s Wear Daily declared There are examples of the and manufacturing. This is 2006 as the year “the blogs global fashion industry a trend that has started to took over” at New York Fashion pioneering new technology emerge over the last few Week),75 and grew much more that later gets taken up by years, brought to the world’s quickly once Instagram was other sectors. For instance, our attention at a 3D fashion launched in 2010. Today, the interview respondents noted show in 2016, which was influencer economy is a multi- that the global fashion industry part of that year’s Platform billion-dollar industry. However, made the shift towards online Fashion event in Düsseldorf. despite projections of brands retailing early on, with other The show, presented by car spending $15 billion (approx. industries following behind. manufacturer Lexus and local €12.5 billion) on influencer start-up Voxelworld, included marketing globally by 2022,76 Other examples include the pieces by designers from there are signs that influencer patenting in 1955 of hook around the world created engagement rates dropped and loop fasteners by Swiss with the use of computer- significantly in 2020.77 engineer George de Mestral aided design software and 3D under the trade name Velcro, printers.71 This new technology with the original vision for is expected to “revolutionise use in clothing. The product the fashion industry,”72 and technology are now used because of much more rapid in many applications across design, visualisation and industries around the world.73 prototyping of new pieces of clothing at lower prices. More recent innovations Ten years ago, a high-quality include the rise of the social 3D printer might have cost media influencer. Influencers close to €100,000; by 2018 are now used for advertising this cost had fallen to €5,000, by companies across a wide making it much more feasible range of consumer goods, for start-ups to produce but the fashion industry was prototypes in this way. 3D particularly suited to being printing at a commercial scale, an early adopter of this trend, otherwise known as “additive since it is a visual industry and manufacturing”, can help to has always been given direction reduce waste as products by “influencers” of all kinds. As are built up rather than being Dr. Natascha Radclyffe-Thomas cut out of existing material. at the British School of Fashion 3D technology can also puts it, “the advent of social translate into the consumer- media democratised fashion in facing side of the industry in several ways, including access the form of “virtual try-ons” to content creation and who and fit predictors, which may gets to be a fashion critic”.74 also help to reduce waste by helping customers to order the right size garment first time.

71 3Ders.org, Voxelworld’s 3D printed runway show takes German fashion event by storm, 2016 72 Forbes, 3-D Printing Poised To Revolutionize The Fashion Industry, 2018 73 Velcro Ltd, History of Velcro brand And George De Mestral 43 74 Vice.com, Goodbye to the Influencer Decade, and Thanks for Nothing, 2019 75 Emily Dean Hund, The Influencer Industry: Constructing & Commodifying Authenticity On Social Media, 2019 76 Business Insider, Influencer Marketing: State of the social media influencer market in 2020, 2019 77 Forbes, Is influencer marketing on the decline?, 2020 The Status of German Fashion 2021

DIGITALISATION IN THE FASHION INDUSTRY Provided by Marte Hentschel, CEO, Sqetch, Berlin

Despite its reputation for fast-changing styles, Two factors are required to ensure digitalisation the fashion industry itself suffers from an is implemented successfully. The first is aversion to systemic change after decades services, platforms, systems, and components of falling prices and increases in the speed of that can be used to provide sophisticated production cycles. new functions that can be accessed easily. The second is to ensure that IT systems are Today’s consumers demand products that are constantly developed and integrated into constantly being improved, which is why it is new and expanding digital infrastructures in fundamental for fashion companies to invest order to catalyse the modernisation of the in innovative technologies and to work closely core business. Good examples of this are the with their supply chains in times of profound way that the development of cloud solutions, change. This particularly applies to German such as Software as a Service and Platform as fashion companies where, for over three a Service, have changed the way we work in decades, the focus has largely been on cost the fashion industry over the past few years, reduction and streamlining processes instead of increasingly transforming fashion companies sustainable innovation. Being able to anticipate from retail to service businesses. changing customer needs and their impact on the textile value chain has therefore become a Digitalisation goes beyond the basics of defining competitive advantage. a homepage and the use of enterprise resource planning systems. Rather, it The good news is that uptake of digital describes business models based on digital technologies has enabled German fashion products and services that target their R&D companies to open up to new business resources towards the development of new opportunities, reform outdated processes, applications and business opportunities. and create new experiences for customers. This raises challenges that can often only be Innovations often enter the market as novelties mastered through collaboration, which makes with the potential of arousing new customer it necessary to use open source networks to interest, but can become state-of-the-art within exploit processes, data, and innovations. a few weeks. Wavebreakmedia Ltd UC82/Alamy Stock Photo Stock UC82/Alamy Ltd Wavebreakmedia

44 The Status of German Fashion 2021 MONOPOLY919/Shutterstock.com

Shortcomings in internet speed, IT security, The potential of virtual product development and employee IT skills are still central obstacles and sampling using augmented reality, micro- to further digitalisation in the German fashion factories, and the use of artificial intelligence industry. With regard to data protection, data and predictive analytics in the fashion industry security and liability risks, legal regulations as can play a pioneering role in sustainability, and well as measures that help to develop skills in become Germany’s distinguishing model for limiting risks are necessary. In the area of IT the future. New applications such as immersive skills, there is a need for action in the training of technologies can help bridge the gap to IT specialists but also the training and further transform corporate social responsibility into education of other employees, especially consumer experiences, increasing customer against the backdrop of changing qualification satisfaction and loyalty in this fast-moving requirements. business. The revolution will also attract talent, which together with training and qualification, Boosting sustainability can help reverse the brain drain and decline in German manufacturing since the 1980s. These days the consumer’s need for trust in the authenticity and creative originality of products Fashion companies need to innovate by plays a decisive role in purchasing decisions.78 offering profitable value-added services Technologies such as blockchain can offer and focus on new technologies, whether security and transparency here, and enable through acquisitions, investments or internal brands to communicate their values, but also R&D players who diversify their business optimise supply chains for sustainability. models. They need to invest in technology across the entire value chain with the aim of Automation and data analysis have enabled a increasing efficiency and streamlining the new generation of fashion players to achieve customer experience. Digitalisation is central to agile product development and contract achieving success across this broad range of IT manufacturing. The next step would see vertical upgrading, business management innovation, brands respond faster to trends and consumer and increased sustainability but increased habits to achieve just-in-time manufacturing corporate commitment and political action are and reduce overproduction. both needed to achieve it. In view of the great dependency on global commodity flows, short production cycles in small series would lead to moving product operations closer to consumer markets.

78 McKinsey & Company, State of Fashion, 2019 45 The Status of German Fashion 2021

6. RECOMMENDATIONS AND CONCLUSIONS During our interviews, 6.1 PROMOTE AND CELEBRATE THE GERMAN FASHION experts and stakeholders in INDUSTRY AT HOME AND ON THE WORLD STAGE the German fashion industry suggested a number of ways Interviewees felt that Germany’s • ministers attending fashion in which policymakers and fashion industry is under- industry trade fairs; industry associations could represented globally, with a low inviting fashion industry support the industry’s future level of visibility, especially given • representatives to join growth. We summarise these the relatively large size of the business delegations; recommendations in this final industry. In part, this is seen as section of the report. due to the fashion industry not • providing financial support being recognised as a cultural for German companies to asset and as such, lacking the visit trade fairs and fashion The fashion industry is an broad-based promotion that shows abroad; and other fashion locations such as enormous economic factor. better promoting German France, Italy and the UK have • Therefore, the need to set fashion week. economic and other positive had for decades. framework conditions for the These measures would Interviewees suggested that fashion industry must be taken raise awareness of the symbolic support and public seriously. What we have so German fashion industry commitment to the fashion far in this respect is the merit internationally and would industry could be given by: of the Fashion Council - and also help to celebrate the projects like this study are the • state officials, government industry domestically, as well way forward. ministers, or the current as promoting local brands to President and First Lady German consumers. highlighting German Dr Christian Ehler, Member of the brands by wearing them to European Parliament international events;

6.2 PROMOTE GERMAN FASHION SCHOOLS AND RAISE AWARENESS OF CAREERS IN THE FASHION INDUSTRY

Although around 1,000 Institute of Technology or They suggested that more students a year have been Paris’ ESMOD International. should be done to get them enrolling in Germany’s 40 or Linked to this was a interested and excited in design more fashion schools in recent suggestion that there should engineering and fine arts, in years,79 our respondents be a focus on making textile the same way that industrial suggested that further support courses at Germany’s biggest and automotive engineering is needed to make these technical universities more is promoted and highlighted institutions more attractive exciting and interesting for to school children. Such an to overseas students. Further, potential applicants. initiative could be carried out Germany would benefit from by both the government and the creation of a flagship Respondents also felt that the industry itself. global training brand on a young people were not par with London’s College aware of the spectrum of of Fashion or Central Saint possible careers available in Martins, New York’s Fashion Germany’s fashion industry.

46 79 Deutschland.de, Study in Germany: Fashion, 2018 and Destatis statistics on students dataset. The Status of German Fashion 2021

6.3 PROVIDE SUPPORT AND GUIDANCE FOR HELPING FASHION INDUSTRY BUSINESSES TO BECOME MORE SUSTAINABLE

As discussed in this report, can be applied to products • setting clearer requirements, increased requirements are meeting 26 social and similar to the proposed expected to be put on fashion environmental standards. Supply Chain Act (legislation industry businesses around Despite programmes like that would enforce good the world to become more these, our respondents almost working conditions for the sustainable, both through universally reported that global workforce of German government regulation and greater support and guidance companies). as consumers increasingly is required from the national favour brands who act in government in the area of sustainable ways. achieving sustainability.

There is the beginning of Respondents’ suggestions for a trend among German the type of help and support fashion businesses towards needed included: improving their sustainability financial incentives (such practices, and the • as through the tax system) government has introduced to produce sustainable some sustainability-related innovations and the projects. One example is the promotion of industry- Green Button, introduced academic collaborations in by the Federal Minister of this area; and Economic Co-operation and Development, which

6.4 INCREASE INTERDISCIPLINARY COOPERATION

Respondents noted that Suggestions for how this could By working together and aside from support from the be facilitated included the cooperating more in this way, government, the industry creation of a digital “platform respondents suggested that it could promote growth through of excellence” on which may be possible for Germany’s greater collaboration. At its businesses across different high number of small and most simple level, this would sectors of the fashion industry medium-sized companies to mean greater communication can gather and exchange compete more effectively with between different areas of the ideas. Such a platform could the larger global brands of industry. also be used to help incubate other countries. start-ups and drive innovation, acting as a central point to connect business with new ideas to potential investors.

47 The Status of German Fashion 2021

6.5 INCREASE SUPPORT FOR DOMESTIC FASHION MANUFACTURING

Respondents suggested Linked to this, as more of needed for these education that more could be done to the production of German- programmes to continue, promote Germany as a place designed clothing is including help with driving to manufacture clothing and outsourced or offshored, the demand for this education. textiles and support businesses education programmes that that choose to locate facilities in previous decades provided there—helping to slow or skilled German clothing reverse the trend of offshoring. manufacturing workers A variety of government have diminished. As a result, support mechanisms could companies suggested that it be useful here, including is harder for them to find the promotion of the Made in right workers within Germany. Germany brand with regards to To maintain the high status fashion and tax incentives for of items that are truly “Made locating production facilities in Germany”, respondents within Germany. felt that support may be

6.6 FOCUS ON FASHION INDUSTRY CLUSTERS OR CENTRES OF EXCELLENCE

Much has been written in The German fashion industry, Berlin is this great melting economic literature about the and textiles manufacturing pot of people who come from benefits of businesses in a in particular, is spread widely different cultures, from different particular industry clustering across the country. One countries. That is something that together in a geographical respondent noted that it feeds and inspires creativity. location. Lots of employers in may be beneficial for the Learning from each other, being one industry in one area create industry to focus resources part of a community, looking a critical mass that attracts the on a number of centres after each other. skilled workers necessary for where fashion technology that industry, since a range of research is strong (such as employment options exist. This Aachen, Berlin, Dresden, and Christiane Arp, FCG Chairwoman critical mass helps give the Munich) rather than spreading businesses greater strength investment across all 16 when seeking support or states. This could help to drive investment (including FDI, or further investment and FDI in foreign direct investment80), these areas and make them and creates competition, attractive and exciting places which can lead to greater to draw in fashion industry innovation.81 talent from around the world.

80 IMF, Clusters as a driving engine for FDI, 2005 48 81 British Council, Why do businesses cluster together?, 2017 The Status of German Fashion 2021

6.7 INCREASE USE OF DIGITAL TECHNOLOGY ACROSS THE INDUSTRY

As customers become more overall the sector lags behind demanding in terms of the that of some other countries. availability and efficiency Respondents note that of online retail, German Germany is rarely a first mover companies will need to invest in this space and is taking to avoid losing market share to time to catch up with existing foreign companies. digital retail technologies. Respondents suggested that A key theme among companies should make greater respondents was that while use of innovations such as there are examples of German virtual dressing rooms, and fashion retailers that have a improve online communications strong position in online retail, with customers.

6.8 CONCLUSION

Germany has a large and However, the industry must This report also highlights the successful fashion industry adapt to ensure it keeps up economic contribution that that boasts a strong reputation with opportunities in emerging the industry makes, supporting and whose products are markets and changing 770,000 workers and a €28 popular both in its domestic demands from consumers, billion contribution to GDP market and in countries particularly in relation to directly in 2019, equivalent around the world. It also has sustainability. This report to 2% of total employment an international reputation for has summarised a range of and 1% of economic output. quality, reliability, good value, measures proposed by industry Across the direct impact, the and a competitive advantage stakeholders to ensure that industry’s supply chains and in driving global innovation in German fashion sustains and the spending of its workers, fashion and textiles. further expands it economic the German fashion industry contribution in future. supports total employment of 1.3 million and a GDP contribution of €66 billion.

49 The Status of German Fashion 2021

Offenblende 50 The Status of German Fashion 2021

51 The Status of German Fashion 2021

APPENDIX 1: INTERVIEW PARTICIPANTS Fig. 21: List of interviewees by fashion industry area

Brands • Manuel Almeida Vergara, Editor & Columnist, Frankfurter Rundschau • Heiko Desens, Global Creative Director & Innovation, Puma • Inga Griese, Senior Editor Style, Icon Magazine • Ingo Wilts, Chief Brand Officer, Hugo Boss • Marie-Louise Berg, FCG Executive Board Member and Founder, Berg Communications Johanna Kühl, Co-Founder, Kaviar Gauche • Berlin Frederick Westermann, Managing Director, • Chris Stricker, CEO, Haebmau Communications Roy Robson • • Jürgen Leuthe, CEO, Luisa Cerano Retailers • Martina Buckenmaier, CEO, RIANI • André Maeder, CEO, KADEWE • Peter Gross, CEO, Création Gross GmbH & Co. • Jan Möller, Area Manager Beauty & Product KG Management, Otto • Nina Knaudt, Co-Founder, Rianna and Nina • Michael Kliger, CEO, Mytheresa • Annette Roeckl, Founder, Roeckl • Daniel Terberger, CEO, KATAG • Gerd Oliver Seidensticker, Managing Director, • John Cloppenburg, CEO, Peek und Seidensticker Group Cloppenburg • Adrian Runhof, CEO, Talbot Runhof Others • William Fan, Founder, William Fan • Dieter Holzer, CEO, Marc O’Polo • Elgar Straub, Managing Director, VDMA Textile Care, Fabric and Leather Technologies • Jörg Ehrlich, Owner and Creative Director, Odeeh • Claudia Hofmann, FCG Executive Board Member & Creative Fashion Consultant Fashion fairs • Sebastian Feges, Head of Sales and Marketing, • Jörg Arntz, CEO, Premium Group Efka Frankl & Kirchner Gmbh & Co KG • Olaf Schmidt, FCG Executive Board Member • Max Vögler, Vice President Global Strategic and Vice President, Messe Frankfurt Networks, Elsevier • Magdalena Schaffrin, Co-Founder, Neonyt • Marc W. Lorch, CEO, Dr. Zwissler Holding AG • Holger Max-Lang, President, Northern Media & PR agencies & Eastern Europe, Middle East, Lectra • Alfons Kaiser, Journalist, Frankfurter Deutschland GmbH Allgemeine • Karl-Hendrik Magnus, Senior Partner & Leader • Bianca Lang, Editorial Management, Operations in Apparel, Fashion & Luxury, Brookmedia McKinsey • David Fischer, Founder, Highsnobiety • Prof. Dr. Phil., Dipl.-Des. Marina-Elena Wachs, Industrial Designer and Professor, Hochschule Melissa Drier, Journalist and Consultant • Niederrhein University of Applied Sciences Christiane Arp, FCG Chairwoman • • Marte Hentschel, CEO, Sourcebook GmbH Mandie Bienek, FCG Executive Board • Jürgen Müller, Founder and CEO, SUITS Chairwoman and Founder, Press Factory • Executive Search • Grit Thönnissen, Editor, Tagesspiegel • Manuela Kampp-Wirtz, CEO, Burda Style

52 The Status of German Fashion 2021

APPENDIX 2: DETAILED MODELLING METHODOLOGY In this appendix we set out Estimating the direct GVA Estimating the direct GVA the detailed steps we took to and employment impacts of and employment impacts of estimate each impact given in fashion retail fashion wholesale and the this report. manufacturing of fashion Consumer spending on fashion products products, as estimated above, Estimating total spending on provides the input data for We took GVA and employment fashion products working out the direct impact figures from the SBS to The starting point for of fashion retail. We assumed estimate the direct impact of estimating the economic that consumer spending fashion manufacturing82 and impact of the German fashion on fashion was equivalent fashion wholesale.83 Because industry was estimating the to the revenue received by data disaggregated by amount spent by consumers fashion retailers. From that, industry do not provide detail on fashion products in we removed VAT, using the on product type, we used Germany. The main source of German VAT rate of 19%. our estimates of spending data for this was Eurostat’s by product to disaggregate annual final consumption We then applied assumptions these figures into the different expenditure of households taken from Eurostat’s product types. For example, by consumption purpose structural business statistics we applied the menswear’s dataset. This provides database (SBS) to this revenue share of clothing expenditure spending disaggregated into net of VAT to estimate the to the total GVA contribution high-level categories such as economic impact of retail. The of the wholesale of clothing overall clothing and footwear SBS contains information on and footwear sector to find for 2019, consistent with the the GVA contribution, revenue the direct wholesale GVA German national accounts. and employment of a detailed impact for menswear. range of industries in Germany. However, for this study we This information enabled us to The latest SBS data available wished to provide further calculate the ratio of revenue at the time of writing were for disaggregation of products to GVA in the retail sector 2018 and had to be adjusted than this. To do this, we (both physical and online), to reflect the industry in 2019. used data from the German as well as the ratio of GVA to To do so, we applied 2019 survey of income and employment headcount. By detailed sales and employment expenditure (known as the applying these ratios to our growth rates from Destatis for EVS), published by Destatis. revenue estimates, we were wholesale and manufacturing This dataset includes a able to find the direct GVA subsectors to our 2018 results. more detailed breakdown and employment impacts of German consumers’ of this segment of the weekly expenditure, using fashion industry. categories such as men’s clothing, women’s clothing, jewellery and watches, etc. We calculated the share of these detailed categories within the higher-level categories, and applied these shares to the higher-level figures used in the final consumption expenditure of households dataset.

82 We used the sectors “manufacture of wearing apparel” and “manufacture of footwear”, as well as portions of “manufacture of luggage, handbags and the like” and “manufacture of jewellery and related articles”. 83 We used the sectors “wholesale of clothing and footwear”, and “wholesale of jewellery and watches”. 53 The Status of German Fashion 2021

Estimating the direct GVA were equivalent to the total Estimating the direct impact and employment impacts fashion-related revenue coming of fashion education of the manufacturing of from the two segments being fashion textiles and fashion analysed. We then followed the Based on official data advertising steps described previously for collected by Destatis, in 2019, retail to estimate direct GVA there were 5,998 students in Similar to our approach for and employment. textile design and textile and retail, we used revenue to GVA clothing technology courses and employment headcount Estimating the direct impact in Germany.85 Through FCG ratios derived from the SBS of fashion magazines discussion with academics to estimate the economic and analysis of data on impact of the manufacturing Fashion Council Germany university class sizes, we make of fashion textiles and provided a list of the 11 the assumption that average fashion advertising segments. most important fashion class sizes are 20 students. However, we needed a magazines, for which we Using this data point allows different approach to calculate estimated the economic us to estimate that there were the revenues used as the first impact. We estimated sales 300 academic staff involved set of input data. revenue using data from IVW in teaching those courses (Informationgemeinschaft zur that year. We then used data To find the revenues of Feststellung der Verbreitung on average gross earnings these sectors, we first von Werbeträgern e.V.), which in the higher education estimated the procurement provides circulation estimates sector86 to find the total spending breakdown of the disaggregated by retail sales, earnings supported by fashion manufacturing of fashion subscription sales, electronic education, which we used as products and wholesale sales, as well as copies used in a our estimate of economic sectors using input-output reading circles. We multiplied contribution for the sector. (IO) tables from Eurostat. these circulation estimates by These detail how much listed prices for these different different domestic industries formats to estimate total sales purchase from each other, revenue. Fashion magazines as well as the size of their also gain a significant amount imports, exports and GVA of revenue from selling contributions. This made it advertising space. We used possible to estimate how data provided by Nielsen on much domestic and foreign advertising revenue for each of fashion product manufacturers these publications.84 and wholesalers purchase from textiles manufacturers. To estimate the economic It also made it possible to impact of this revenue, we estimate how much fashion applied revenue to GVA and manufacturers, wholesalers employment headcount ratios and retailers purchase from derived from the SBS for the advertising companies. publishing of journals and periodicals sector. Because the procurement spending of one industry is a proxy for the revenue of another, we assumed that these procurement numbers

84 Accessed via PZ-online.de 85 Destatis, Institutions of higher education; statistics of students database 54 86 Destatis, Gross earnings database The Status of German Fashion 2021

Estimating the indirect and The input-output tables also We estimated the tax impact induced impact of the fashion had information on each for other taxes such as industry industry’s employment costs corporation tax by calculating and on the types of products average effective tax rates To calculate the indirect and consumers spend their wages at the country level. By induced economic impact of on. This enabled us to estimate applying these ratios to the fashion industry, we first the total wage payment of the corresponding revenue estimated a breakdown of each of the fashion industry’s numbers we calculated in each segment’s procurement segments, and the wage previous steps, we found the spending using “input-output” spending breakdown of fashion industry’s indirect and tables for Germany, which the employees receiving induced tax contribution. detail how much each sector those wage payments. of the economy buys from Following the same method In this report, we also every other sector. In this case mentioned above to remove estimated VAT payments from however, we had to control fashion spending from total fashion consumers and from intra-industry expenditure to manufacturing and advertising the employment support by avoid double-counting. To do spending, we stripped out the fashion industry’s direct, so, we performed the following consumer fashion spending indirect and induced impacts. adjustments: from these breakdowns, to VAT on fashion products avoid double counting. was estimated using ratios we removed the value of • of VAT to revenue calculated goods purchased for resale The procurement and wage from the structural business by retailers and wholesalers spending breakdowns were statistics, which we applied from their total procurement then used as inputs into our to the revenue estimated for spending. This made sure global economic impact model fashion products. The share that we did not double- to calculate the indirect and of VAT paid by workers on count revenue for the same induced impacts of the fashion other consumer goods and item when it is purchased in industry. services (excluding fashion) turn by wholesalers, retailers was estimated using average and consumers; and Estimating total tax payments national rates. for each segment, we • We estimated labour taxes removed procurement (income tax and social security spending directed towards contributions) by estimating manufacturers (both of average salaries in the fashion fashion items and textiles) industry and applying German and advertisers operating in taxation rates to this income, the fashion industry. before multiplying by total employment. We used a similar approach for estimating the indirect and induced tax impact: we used official data on average wages by industry, applied the tax rates to these incomes, and multiplied by indirect and induced employment in each industry.

55 The Status of German Fashion 2021

APPENDIX 3: GERMANY’S LARGEST FASHION COMPANIES For reference, we include a list of the top 75 German fashion brands and retailers in 2019. This is an expansion of the tables given in Fig. 7 and Fig. 8 earlier in the report.

Fig. 22: Top 25 German fashion brands by revenue, 201987

Rank Company Brands Revenue, 2019, €bn 1 adidas Group adidas, Reebok etc. 23.6 2 Puma Puma, Cobra 5.5 3 Hugo Boss Boss, Hugo 2.9 4 C&A Deutschland C&A, Canda, Clockhouse, Yessica, Rodeo etc. 2.2 5 Kik Kik, Ergee 2.1 6 New Yorker New Yorker 1.9 7 S. Oliver Group S. Oliver, Comma, Liebeskind Berlin etc 1.3 8 Esprit Esprit 1.1 9 Takko Takko 1.1 10 Ernsting’s Family Ernsting’s Family 1.1 11 Tom Tailor Group Tom Tailor, Tom Tailor Denim, Bonita etc 0.8 12 Modern Creation Munich MCM 0.8 13 CBR Fashion Street One, Cecil 0.6 14 Gerry Weber International Gerry Weber, Taifun, Samoon 0.5 15 Marc O’Polo Marc O’Polo 0.4 16 Brax Leineweber Brax, Eurex, Raphaela etc 0.3 17 Jack Wolfskin Jack Wolfskin 0.3 18 Dr. Rehfeld Fashion Broadway, Multiblu, Tom Tomson etc 0.3 19 Olymp-Group Olymp, Maerz Muenchen 0.3 20 Mac Mode Mac, Cambio 0.3 21 Winter Holding Betty Barclay, Gil Bret, Vera Mont, Cartoon etc 0.3 22 Marc Cain Marc Cain 0.2 23 Falke Group Falke, Burlington 0.2 24 Schmidt Group Chiemsee, Kappa, Colorado, Teddy’s etc 0.2 25 Bugatti Holding Bugatti, Eduard Dressler, Wilvorst etc 0.2

87 Fashion Council Germany analysis of Textilwirtschaft Deutschland reports Textilwirtschaft Deutschland Die Grössten Deutschen 56 Modemarken 2019 and Die Grössten Bekleidungseinzelhändler in Deutschland 2019 The Status of German Fashion 2021

Fig. 23: Top 25 German fashion retailers by revenue, 201988

Rank Company Brands Revenue, 2019, €bn 1 Otto Group Otto, Baur, Bonprix, Heine Schwab, About You etc. 4.7 2 H&M H&M, COS, Weekday, Monki etc. 3.2 3 C&A C&A, Canda, Clockhouse, Yessica, Rodeo etc. 2.2 4 Zalando Online shops and outlets 2.0 5 Deichmann Deichmann, Snipes, Onygo, Soulbob, Ochsner 2.0 6 Schwarz Gruppe Lidl, Kaufland 1.5 7 Tengelmann Kik 1.5 8 P&C Düsseldorf P&C Modehäuser, Anson’s 1.4 9 HBC Kaufhof 1.2 10 TJX Deutschland TK Maxx 1.1 11 Karstadt Karstadt 1.0 12 Inditex Zara, Massimo Dutti, Zara Home, Pull&Bear and Bershka 1.0 13 Aldi Group Aldi 1.0 14 Ernsting’s family Ernsting’s family stores 0.9 15 Tchibo Tchibo 0.9 16 Primark Primark 0.8 17 Takko Takko 0.7 18 Amazon Online store 0.6 19 Breuninger Breuninger 0.6 20 Klingel Klingel 0.6 21 New Yorker New Yorker and Ann Christine 0.6 22 The KaDeWe Goup KaDeWe, Alsterhaus, Oberpollinger 0.4 23 Adler Modemarkt Adler Modemarkt, Adler Orange 0.4 24 Bestseller Jack & Jones, Vero Moda, Only etc 0.4 25 P&C Hamburg P&C 0.4

88 Fashion Council Germany analysis of Textilwirtschaft Deutschland reports Textilwirtschaft Deutschland Die Grössten Deutschen Modemarken 2019 and Die Grössten Bekleidungseinzelhändler in Deutschland 2019 57 The Status of German Fashion 2021

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