Economic and geopolitical challenges, combined with shifts in customer values, will define a turbulent year ahead for the global $2.5 trillion fashion industry, according to The State of Fashion 2025, the highly-anticipated annual report by McKinsey & Company and BoF Insights, The Business of Fashion’s data and advisory team.
Unsurprisingly, a deep sense of uncertainty persists amongst fashion industry executives. Looking ahead to 2025, just 20% of executives expect conditions to improve versus 2024, 41% think conditions will remain the same and 39% predict conditions to worsen. 70% of fashion executives cited lack of consumer confidence and appetite to spend as the biggest concern for the year ahead, with over 80% of shoppers planning to spend the same or less on fashion in 2025.
Fashion brands will need to adapt to the rapidly changing context, or risk falling behind. With industry growth predicted to stabilise in the low single digits, brands will need to fight for market share by reevaluating their relationship with customers, prioritising overlooked demographics and demonstrating their products are worth paying for.
Yet the report also highlights a few bright spots of opportunity, such as the rise of challenger brands which are projected to make up the majority of economic profit in the sportswear segment in 2025. The rise of AI could also empower shoppers and change discovery journeys, helping customers to combat ‘choice paralysis’ when shopping online.
The report identifies 10 key focus areas for the fashion industry in the year ahead, supported by proprietary data from a global survey of fashion executives, as well as a consumer survey conducted in the US, UK, France and China.
Cost conscious shoppers fuelling value-for-money segments
Inflation and economic pressures have created a value shift, causing customers to adopt cost-conscious behaviours and resulting in growth for segments with strong ‘value for money’ perceptions.
The report found that 41% of consumers look to secondhand outlets when seeking apparel deals. While ‘dupe’ culture has previously been taboo, the purchasing of cheaper replicas has grown in popularity thanks to Gen-Z. Among UK shoppers, 11% say they buy a dupe at least once every few months. Half do so for the savings, but 17% consider dupes a great alternative even if they can afford the original.
Scaling back on sustainability
As the industry continues to chase growth in a challenging climate, the report has found sustainability has fallen off the agenda for fashion executives. Despite growing regulation, 63% of brands are behind on 2030 decarbonisation targets and just 18% of fashion executives consider sustainability a top risk for 2025, compared to 29% in 2024.
Fragmentation across the fashion value chain and negative consumer sentiment towards spending has meant brands are deprioritising sustainability and scaling back their commitments. This is exacerbated by customers’ unwillingness to pay a premium for more sustainable goods.
Apparel consumption is projected to rise by 63% to 102 million tonnes by 2030, and if the industry continues its current trajectory, by 2050 it would consume more than one quarter of the world’s carbon budget.
Fashion’s middle market is growing and online e-commerce platforms are battling to recapture momentum
The report predicts fashion’s middle market will generate record-high margins in 2024. Players that showed improved performance during the period include mall brands that are starting to see the outcome of their transformation efforts, as well as challenger sportswear brands.
Following a boom in e-commerce shopping during the pandemic, online fashion marketplaces are now facing business model challenges at an existential level which will require a fundamental restructuring. Share prices of online fashion marketplaces declined by 77% between 2021 and 2024. In Europe especially, online marketplaces are increasingly challenged by high-growth players such as Shein and Temu.
Volume of choice alienates consumers, with brands looking to AI as a solution
Choice paralysis has been impacting online conversion rates and brands are racing to address it, as consumers are deterred from purchase due to an abundance of options. Half of fashion executives surveyed see customer product discovery as the key use case for AI in 2025. Emerging AI solutions have introduced a new level of curation in fashion product search, offering hyper personalised suggestions that reduce barriers to purchase.
Imran Amed, founder and CEO of The Business of Fashion, said: “From high-street to luxury, from independent fashion businesses to luxury megabrands, from manufacturers to retailers, from the US to China to Europe, our industry is searching for a new normal in a post-Covid world that is more uncertain and unstable than ever. The State of Fashion 2025 shows us that the old playbook is now obsolete. The fashion industry needs new formulas for success. ”
Gemma D’Auria, senior partner and global leader of McKinsey’s Apparel, Fashion and Luxury sector, said: “While 2025 will be filled with challenges for the fashion industry, there is an opportunity for companies to adapt. Fashion executives are more focused than ever on differentiation, whether through new designs, customer experiences or finding new customer niches. This year’s State of Fashion report will deep dive into how fashion leaders can navigate the changing landscape and succeed by embracing new technologies, creating agile supply chains, and focusing on new regions, to name a few.”
The 10 themes outlined in The State of Fashion 2025 report are:
- Trade Reconfigured: Global trade will shift in 2025 as major economies diversify and source from countries with more political alignment.
- Trade barriers have multiplied by five since 2015, with around 3,000 trade restrictions imposed in 2023.
- Asia’s New Growth Engines: Challenges to China’s economic growth are leading international fashion brands to look to other Asian markets.
- India will be a focus with 67% of fashion executives citing promising growth prospects in the country in 2025, while Japan’s luxury boom is expected to continue into 2025, fuelled by strong international and domestic spending.
- Discovery Reinvented: Shoppers face choice paralysis when shopping online, which is negatively impacting brands’ engagement and conversion rates. Reinventing product discovery will be a key focus in 2025, underpinned by AI-powered curation across content and search.
- 82% of customers want AI to assist in reducing the time they spend researching what to buy, with 74% walking away from online purchases due to volume of choice.
- Silver Spenders: The “Silver Generation” aged over 50 represents a growing population with a high share of global spend. In 2025 brands need to create inter-generational appeal and unlock growth with this demographic.
- In 2025, people aged 50 and older will drive 48% of incremental growth in global spending.
- Value Shift: Macroeconomic pressures and rising prices have driven shoppers to adopt cost-conscious behaviours, fuelling growth in segments with strong value for money perception, such as resale and discount, as well as for dupes.
- The biggest risk cited by fashion executives in 2025 is consumer confidence and appetite to spend.
- The Human Side of Sales: To satisfy the appetite for in-person shopping, brands need to differentiate their in-store experience. The best way to achieve that is through empowering sales associates, who are central to connecting with customers.
- 75% of shoppers are likely to spend more after receiving high-quality service from store staff.
- Marketplaces Disrupted: Following a turbulent period for luxury e-commerce platforms, their non-luxury equivalents are now suffering the same fate.
- Share prices of online fashion marketplaces have declined 77% on average between January 2021 and September 2024.
- Sportswear Showdown: The battle between challengers and incumbents in the growing sportswear market will likely intensify.
- Fast-growing challenger brands are now expected to make up 57% of the sportswear segment’s economic profit, nearly tripling since 2020.
- 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 a greater emphasis on end-to-end planning.
- The fashion industry produced between an estimated 2.5 billion and 5 billion items of excess stock in 2023, worth between $70 billion and $140 billion in sales.
- The Sustainability Collective: As decarbonisation efforts fall short of targets and consumers have shown their unwillingness to spend more on sustainable products, fashion brands and suppliers must act collectively to increase efforts to address climate change.
- Only 18% of fashion executives rank sustainability as a top three risk to growth in 2025, compared to 29% for 2024.
The State of Fashion 2025 will be presented on Wednesday 13 November during BoF VOICES 2024, The Business of Fashion’s annual gathering of big thinkers, exploring the critical forces at the intersection of fashion, business, technology and culture. Across five sessions, over three days, BoF will convene more than 40 expert speakers including fashion designers Alessandro Michele and Simon Porte Jacquemus; top CEOs including H&M’s Daniel Ervér, Valentino’s Jacopo Venturini, Mytheresa’s Michael Kliger, Skims’ Jens Grede and On’s David Allemann; as well as pioneering entrepreneurs like Daydream’s Julie Bornstein and Sojo’s Josephine Philips.
