Key insights from McKinsey’s The State of Fashion 2025

As we look toward 2025, the fashion industry remains in a precarious position, with economic uncertainty, technology, and shifting consumer priorities top of mind.

McKinsey’s latest report, The State of Fashion 2025, provides an insightful look into the challenges and opportunities shaping the industry.

Below, we summarise the key insights to help businesses prepare for the coming year.

Steadying the ship amid turbulence

The global fashion industry enters 2025 amidst subdued optimism. Revenue growth is projected to stabilise in the low single digits, marking a shift away from the luxury-led recovery of previous years.

For the first time in over a decade, non-luxury segments are driving profit growth, reflecting consumers’ growing preference for value-driven options.

However, only 20% of industry leaders expect improved consumer sentiment, citing high inflation, geopolitical tensions, and demographic shifts as key concerns.

Geographically, Asia’s role in fashion is diversifying. With China’s economic growth slowing, markets like India, Japan, and South Korea are stepping into the spotlight.

India, buoyed by projected GDP growth of 7%, represents a key opportunity for mid-market and luxury brands.

Price sensitivity and evolving preferences

Economic pressures are reshaping consumer behaviour. Shoppers are increasingly value-conscious, spurring growth in the resale and off-price markets.

Simultaneously, the return of in-store shopping highlights a desire for tactile experiences, pushing brands to invest in personalised, memorable retail environments.

For eCommerce, AI-driven product curation is becoming essential as consumers seek relief from choice fatigue.

Older consumers, or the “Silver Generation,” are another rising force.

By 2025, over-50s will account for a significant share of global spending growth. Fashion brands must cater to this demographic’s preference for quality, comfort, and functionality while balancing intergenerational appeal.

AI is boosting consumer engagement

Unsurprisingly, AI continues to redefine the fashion landscape. From personalised shopping experiences to demand forecasting, generative AI tools are driving efficiency and consumer engagement.

Leading examples include tools that match customers’ uploaded images to shoppable links and AI platforms enhancing contextual search accuracy. However, brands must tread carefully, ensuring AI solutions align with their identity and values.

Social commerce continues to rise, blending discovery and checkout into seamless experiences.

Platforms like TikTok are key drivers, with generative AI-powered content creating tailored shopping journeys.

To stay competitive, brands should prioritise flexible AI systems and staff training in digital literacy.

Is sustainability still a long-term priority?

Despite economic headwinds, sustainability remains essential for long-term competitiveness. Regulatory pressures, such as the EU’s Ecodesign for Sustainable Products Regulation, are pushing brands to adopt sustainable practices.

Fashion’s reliance on small and medium-sized suppliers complicates decarbonisation efforts, but collaborative initiatives – like renewable energy projects in Bangladesh – demonstrate the potential for progress.

Investment in sustainable materials and transparent supply chains is critical. Technologies like digital twins and traceability platforms are helping brands monitor emissions and waste reduction efforts.

To scale these initiatives, brands must foster long-term partnerships with suppliers and align on shared sustainability goals.

Regional shifts in sourcing and trade

The global trade landscape is undergoing a significant transformation. Rising costs and geopolitical tensions are driving diversification away from China toward markets like Vietnam, Bangladesh, and India.

Nearshoring continues to pick up significant steam, with Mexico and Turkey rising as key sourcing hubs due to their proximity and agility.

However, growing trade barriers and the need for resilience are prompting brands to rethink supply chain strategies and strengthen supplier relationships.

The Silver Generation – a new growth engine?

While brands look to capitalise on the Gen Z market, the over-50 demographic has emerged as another key opportunity.

With substantial wealth and a growing share of global spending, this cohort offers a high-potential market.

Brands must develop tailored product lines, blending timeless designs with modern comfort.

Marketing strategies should leverage data insights to resonate with their values while maintaining appeal across age groups.

Addressing inventory challenges

Excess stock and inventory mismatches remain significant issues, with overproduction valued at $70–140 billion annually.

Climate-driven demand fluctuations further complicate forecasting. To address these challenges, brands are adopting data-driven tools for accurate demand prediction and dynamic purchasing models that minimise waste.

Sustainability regulations add urgency, compelling brands to report excess stock and implement recycling initiatives.

Sportswear continues to dominate

Sportswear is touted to outpace broader fashion growth, driven by athleisure trends and health-conscious consumers.

Challenger brands like Hoka and On are leading the segment, leveraging innovation and niche marketing to outperform incumbents.

Their success highlights the importance of product differentiation and cultural resonance.

AI meets human creativity

The abundance of choice in online fashion often overwhelms consumers. AI-powered discovery tools are combating this “choice paralysis” by curating personalised shopping experiences.

Social media platforms like TikTok are also transforming brand discovery, merging entertainment with commerce. To succeed, brands must balance technological innovation with authentic storytelling that resonates with their audience.

Agility remains key

McKinsey’s report underscores the urgency for brands to keep their pulse on the latest trends and sourcing strategies, with agility being more crucial than ever.

By embracing innovation and focusing on customer-centric strategies, brands will be able to better navigate 2025’s challenges and come out the other side stronger.