Insights from The State of Fashion 2025 report show fashion executives brace for economic, environmental, and technological shifts shaping the future as more than half of major brands miss their decarbonization targets.
The global fashion industry, a $2.5 trillion powerhouse, braces for a turbulent year ahead, according to “The State of Fashion 2025,” an annual report by McKinsey & Company in collaboration with BoF Insights, the research and advisory division of The Business of Fashion. Economic instability and shifting consumer priorities will dictate the industry’s course, with just 20 percent of executives predicting improved conditions in 2025, 41 percent anticipating stability, and 39 percent expecting a downturn. Notably, 70 percent of fashion executives identify dwindling consumer confidence and spending as the foremost challenges, aligning with findings that more than 80 percent of consumers plan to maintain or reduce their fashion spending.
To survive in this climate, brands must adapt quickly or risk becoming irrelevant. With industry growth expected to stabilize in the low single digits, competition for market share will intensify. Companies are reevaluating their customer relationships, focusing on underrepresented demographics, and emphasizing value — a shift necessary to justify their price points and retain consumer loyalty.
Despite the somber outlook, the report identifies pockets of growth potential, especially for challenger brands within the sportswear segment, which are projected to account for most of the category’s profit in 2025. Another bright spot is the growing role of artificial intelligence in e-commerce. Brands are increasingly deploying AI to counter ‘choice paralysis,’ a phenomenon where consumers face overwhelming options, particularly online. AI-driven product discovery, tailored suggestions, and streamlined search functions are helping customers navigate the digital retail space, potentially boosting conversions.
Cost-conscious consumers are driving the rise in value-for-money segments, according to survey data from the United States, United Kingdom, France, and China. Economic pressures have prompted many shoppers to seek bargains, with 41 percent reporting they look to secondhand outlets for apparel. Among Gen Z consumers, ‘dupe culture’ — where less expensive, often imitation products, gain popularity — has transformed from a taboo to a norm. In the U.K., 11 percent of shoppers report buying dupes at least every few months, with half citing cost savings as the motivation and 17 percent choosing dupes as a viable alternative even when the original is affordable.
Meanwhile, sustainability is slipping down the agenda for many fashion brands. Even with increasing regulations, 63 percent of companies are lagging behind their 2030 decarbonization goals, and only 18 percent of executives consider sustainability a top risk, a significant drop from 29 percent in 2024. Fragmentation across the value chain and consumer resistance to premium pricing for sustainable goods have contributed to this decline. Yet, the industry’s environmental footprint continues to grow. Apparel consumption is projected to rise by 63 percent, reaching 102 million tons by 2030. If this trend persists, the industry could consume over one-quarter of the world’s carbon budget by 2050.
In the mid-market, transformation efforts are paying off as mall brands and challenger sportswear companies benefit from changing consumer behavior. However, online fashion marketplaces are now grappling with post-pandemic declines, facing what the report calls “existential business model challenges.” Share prices for online fashion platforms have plummeted by 77 percent between 2021 and 2024, largely driven by competition from high-growth brands like Shein and Temu, particularly in the European market.
The issue of choice paralysis continues to affect consumers’ online shopping habits, and brands are looking to artificial intelligence to address this. Approximately half of fashion executives surveyed see product discovery as the primary application for AI in 2025. New AI-driven solutions are improving the fashion shopping experience by offering hyper-personalized product suggestions, reducing the decision-making barriers that can prevent purchases.
Imran Amed, founder and CEO of The Business of Fashion, highlighted the industry’s shifting landscape, saying, “From high-street to luxury, from independent fashion businesses to luxury megabrands, from manufacturers to retailers, from the U.S. 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.”
Similarly, Gemma D’Auria, Senior Partner and Global Leader of McKinsey’s Apparel, Fashion, and Luxury sector, remarked, “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.”
Global trade, especially, is shifting as major economies seek more politically aligned partners for sourcing. Since 2015, trade barriers have multiplied fivefold, with approximately 3,000 restrictions enacted in 2023 alone. Brands are now reorienting their supply chains in response, driven not only by political motivations but also by sustainability pressures, consumer expectations, and the need for resilience against future disruptions.
Meanwhile, challenges in China are prompting international fashion brands to explore new markets across Asia, particularly India and Japan. According to the report, 67 percent of fashion executives see India as a high-growth market, and Japan’s luxury boom, driven by both international and domestic demand, shows no signs of slowing.
As the “Silver Generation” grows in influence, people aged 50 and older are forecasted to contribute 48 percent of the increase in global spending in 2025. Fashion brands seeking to capitalize on this trend must cultivate intergenerational appeal and provide offerings that resonate with this demographic, who hold significant purchasing power but have historically been underserved by fashion marketers.
The pandemic’s legacy has highlighted the importance of the in-store shopping experience, with 75 percent of shoppers reportedly willing to spend more after receiving quality service from store associates. This trend underscores the potential of a human-centric retail strategy where knowledgeable staff enhance the shopping experience, providing a personalized touch that online platforms struggle to replicate.
With a tumultuous path ahead, the fashion industry is also navigating intensifying competition within the sportswear sector. Challenger brands are on track to make up 57 percent of the economic profit in the segment by 2025, nearly tripling their share since 2020. Inventory challenges remain another hurdle for the industry; both excess stock and shortages have impacted brands, and the 2025 outlook emphasizes the importance of comprehensive planning in an environment of margin pressures and sustainability regulations.
Only 18 percent of fashion executives see sustainability as one of their top three risks, marking a decrease from 2024. The report emphasizes that to meet 2030 climate targets, brands must increase collective action, but this shift is challenging amid fragmented supply chains and uneven consumer demand for sustainable products. With decarbonization efforts falling short, brands and suppliers must prioritize climate action if they hope to address the fashion industry’s extensive carbon footprint.
As fashion’s role in global culture continues to evolve, industry leaders from around the world are set to discuss these challenges at BoF Voices 2024 on November 13. The conference, organized by The Business of Fashion, will bring together over 40 experts to explore the critical forces shaping the industry.
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