The ninth annual State of Fashion report by McKinsey & Company and BoF Insights, The Business of Fashion’s data and advisory team, reveals that economic and geopolitical challenges, combined with shifts in customer values, will define a turbulent year ahead.
Key insights
- In 2025, 80 percent of executives expect no improvement in the global fashion industry.
- Sustainability has fallen off the agenda, with only 18 percent of fashion executives citing it as a top-three risk for growth in 2025, down from 29 percent in 2024.
- Lack of consumer confidence and appetite to spend was cited by 70 percent of fashion executives as the biggest concern for the year ahead.
Though hard to predict even in the best of times, the fashion industry is in for a particularly tumultuous and uncertain 2025. A long-feared cyclical slowdown has arrived. Consumers, scarred by the recent period of high inflation, are increasingly price sensitive. There is also the surprising rise of dupes, the acceleration of climate change and the continued reshuffling of global trade. Regional differences, which came into focus in 2024, will become even starker in the coming year.
In short, the negative environment predicted by many in the fashion industry this time a year ago has now manifested. There is still growth to be found, but economic uncertainty, geographic disparities as well as shifting customer behaviour and preferences mean seizing it will require navigating a maze of compounding challenges at every turn.
Consequently, 2025 is likely to be a time of reckoning for many brands. The upshot is that there is still opportunity to be found for brands that move nimbly and are quick to adapt to upheavals in a chaotic marketplace.
Sluggish Growth Continues
Judged purely by the topline, the fashion industry’s outlook for 2025 appears to be a continuation of the sluggishness seen in 2024: revenue growth is expected to stabilise in the low single digits. While luxury has led in value creation in recent years, the McKinsey Global Fashion Index forecasts that in 2024, it is non-luxury that will drive the entirety of the increase in economic profit for the first time since 2010 (excluding Covid-19).
Fashion leaders polled in our annual BoF-McKinsey State of Fashion Executive Survey were just as pessimistic as last year. Just 20 percent expect improvements in consumer sentiment in 2025, while 39 percent see industry conditions worsening.
The geographic drivers of revenue and economic profit are also undergoing historic shifts. In particular, the industry will benefit from falling inflation and increased tourism in Europe, the resilience of high-net-worth individuals in the US and new growth engines in Asia to counteract uncertainty around consumer spending in China, which is still recovering from the pandemic. China will remain the region’s centre of gravity, but as the country is buffeted by macroeconomic headwinds, brands will pivot focus to other Asian markets, most notably Japan, Korea and India.
Acting on Opportunities
To reach these consumers, executives told us they will localise their go-to-market models, broaden their price ranges and focus on brand positioning to capture the attention of shoppers who are increasingly prioritising value. This impulse is also driving expansion of the resale and off-price segments. Brands that do not wish to play in these categories must demonstrate to customers why their products are worth the premium price.
One way to achieve this is by improving the shopping experience. Consumers are returning to in-store shopping at pre-pandemic levels across much of the world, but retailers need to remind shoppers what they love about the in-store experience. That starts with well-trained staff who are empowered to assist and inspire customers.
In the shift back to physical retail, pure-play luxury marketplaces have struggled. This coming year may see mass online marketplaces experience similar disruption; most have seen their share prices plummet from pandemic highs and have struggled to find an answer to falling demand and rising customer acquisition costs.
Next year, ongoing shifts in global trade must also be monitored and anticipated for their impact on sourcing. Retailers will accelerate their reconfiguration of supply chains to prioritise nearshoring and manufacturing in geopolitically aligned countries.
These supply chains will need to become more agile, with companies making efforts to reduce excess inventory and minimise the risk of shortfalls. Margin pressures, as well as pressures from governments around the world to reduce emissions and fashion waste, will drive advances in inventory management. New technology will aid these efforts.
Finally, the climate crisis will remain a potent force across fashion supply chains and in driving consumer behaviour. Even though shoppers have proven less willing than hoped to pay extra for planet-friendly products, making the business case for sustainability less obvious to executives among other competing priorities, the mounting cost of climate change, and government action to combat it, mean sustainability must remain at the top of the agenda. Those who choose to approach sustainability with a long-term mindset even while battling short-term problems will be rewarded with more efficient business operations and a competitive advantage.
Leaders who move quickly to identify the bright spots, whether they are geographic, demographic or technological, will be primed for success, but only if they’re able to evolve. The old playbook is now obsolete; the industry will need a new formula for differentiation and growth.
The 10 fashion industry themes that will set the agenda in 2025:
1. Trade Reconfigured
Global trade is shifting as major economies diversify and source from countries where they have more political alignment. This will accelerate in the fashion industry in 2025 due to rising costs, evolving trade policies and sustainability targets. As a result, fashion brands are likely to double down on diversifying their sourcing footprint in Asia and lay the foundations for nearshoring.
2. Asia’s New Growth Engines
China’s economic deceleration, changing consumer preferences and the return of international travel are making growth in the country highly challenging, leading international fashion brands to look to other Asian markets. India will be a focus, particularly for high-street players, while Japan’s luxury boom is expected to continue into 2025, fuelled by strong international and domestic spend.
3. Discovery Reinvented
Fashion shoppers are overwhelmed with choice, which negatively impacts their engagement and conversion rates with brands. However, a new era of brand and product discovery is on the horizon, underpinned by AI-powered curation across content and search.
4. Silver Spenders
Fashion brands have typically focused on youth, but in 2025 they may struggle to grow sales from younger shoppers alone. The “Silver Generation” aged over 50 represents a growing population with a high share of global spend. Brands that engage these previously overlooked shoppers while creating inter-generational appeal will unlock incremental growth.
Brands are also reevaluating which consumer cohorts to pursue. While the fashion industry has historically prioritised younger shoppers, the “Silver Generation” of over-50 customers is growing as a proportion of the overall population — and fashion spending. In 2025, brands will benefit from courting these oft-overlooked customers.
Not all brands are equally adept at making these pivots. Often, it is newer, “challenger” brands, unburdened by historic conceptions about products, stores and customers, that are coming out on top. This is especially true in the sportswear category, where incumbents are competing with a wave of smaller, but more innovative players that are rapidly capturing market share.
5. Value Shift
Macroeconomic pressures and rising prices have driven fashion shoppers to adopt cost-conscious behaviours. This is expected to persist, even as some economies begin showing signs of recovery. This dynamic is fuelling growth in segments with strong value-for-money perception, such as resale, off-price and dupes, among others. To capture customers’ share of wallet, brands will need to prove their value.
6. The Human Side of Sales
Differentiating the in-store experience is key to reigniting demand for in-person shopping. Brands can achieve that by empowering their store associates to reach their full potential, as sales staff have a central and valuable role to play in connecting with customers. The benefits will be sizeable, since customer and employee experience are inextricably linked.
7. Marketplaces Disrupted
Following a tumultuous period for luxury e-commerce platforms, online non-luxury marketplaces are facing challenges of their own. Share prices have dropped as much as 98 percent since Covid-19 peaks due to existential business model challenges and disruptions. Non-luxury marketplaces globally must carve out a clear role in the fashion ecosystem to survive.
8. Sportswear Showdown
Challenger brands are forecast to generate over half of the sportswear segment’s economic profit in 2024, up from 20 percent in 2020. This means the battle between challengers and incumbents in the growing sportswear market will likely intensify. To gain market share, brands will need to develop innovative products and use the right ambassadors and channels to activate unique brand stories.
9. Inventory Excellence
Inventory remains a challenge for the industry with both excess stock and stocks-outs impacting brands. In 2025, margin pressures and sustainability regulation will place greater emphasis on end-to-end planning excellence, with brands increasingly adopting tech tools and adjusting their operating model to support agile supply chains.
10. The Sustainability Collective
Fragmentation and complexity across the fashion value chain, coupled with consumer reluctance to pay for sustainable products, are inherent barriers to reaching sustainability goals. But with decarbonisation efforts falling short of targets and the climate crisis accelerating, inaction is not an option. The fashion sector must act collectively to drive impact.
Text by Imran Amed @imranamed
Illustration by Marie Victoire de Bascher for BoF. @mvdebascher
Credits: © Courtesy of The Business of Fashion
