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Karl-Hendrik Magnus, Senior Partner at McKinsey Germany
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Interview: Karl-Hendrik Magnus, Senior Partner at McKinsey Germany

Covid-19 accelerates systemic change

The coronavirus pandemic is having a devastating impact worldwide. Even the textile and clothing industries have not been spared. Karl-Hendrik Magnus, Senior Partner and leader of the Apparel, Fashion & Luxury Group at McKinsey in Germany, explains how the industry has already changed in a short space of time.

Lockdowns, shop closures and reduced purchasing power – the fashion industry too has been hit hard by the coronavirus crisis. In your view, are there any positive consequences of the current situation?

Yes. The coronavirus crisis, like every crisis, is accelerating systemic changes that are vital for the longer term. One example is the digitalisation of the fashion industry's supply chains. This has been on the agenda among fashion companies for almost ten years, but more progress has been made from necessity in the last few months than in all previous years.  For example, physical samples that prior to this were sent back and forth between manufacturers in Asia and the fashion industry in Europe suddenly had to be digitalised. This accelerates processes and reduces emissions. Now that the companies can see that it works, they will not revert to the "old normal".

Innovation is the key to success: What are the main challenges facing the industry when it comes to progress? 

One of the main challenges, which can only be met through innovation, is the essential transition from the current linear sales model to a circular economy. Our current study, "Fashion on Climate", shows that without taking this step, in the long term the industry cannot possibly stay on its self-imposed sustainability pathway, namely, to pursue efforts to limit global warming to 1.5 degrees as ratified in the Paris Agreement. The increase in emissions caused by the current volume growth in the linear model cannot be sufficiently lessened using all the known measures to reduce emissions. This calls for new circular provisions and solutions. These require technical innovations that, e.g. address how consumers return products to the cycle. The business model also needs innovation as regards, e.g. how fashion brands can obtain added value from the secondary market.

What kinds of incentives do companies need to reach the climate goals and implement the appropriate measures?

The most powerful incentives come from the customer through their purchasing decisions, and from investors through their demands for sustainable corporate strategies. In addition, other incentives and platforms are necessary in order to strengthen the collaboration between all industry stakeholders. The distribution of the current emissions across the supply chain show that a turnaround can only be achieved through close collaboration. In concrete terms, some investments that support a circular economy must be made, e.g. in renewable energies in production or in logistics solutions. Everyone benefits from these investments, but they can't be borne by individual companies alone. Government incentives can be very effective in overcoming these obstacles.

 

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