McKinsey: Fashion 2025 Report

McKinsey has released its "Fashion 2025 Report". The long-feared cyclical slowdown has arrived. Consumers are increasingly price-sensitive, driven by the recent period of high inflation. Add to that the alarming increase in scams, the acceleration of climate change, and the continued reshuffle of global trade. The regional differences that came into focus in 2024 will become more pronounced next year.

Economic growth continues to be sluggish

Looking at revenues alone, the outlook for the fashion industry in 2025 appears to be a continuation of the sluggish 2024: revenue growth is expected to stabilize in the low single digits. While luxury goods have led value creation in recent years, the McKinsey Global Fashion Index predicts that in 2024 non-luxury goods will drive overall growth in economic profits for the first time since 2010 (excluding the COVID-19 pandemic).

Fashion leaders surveyed in the annual survey were just as pessimistic as last year, with only 20% expecting consumer confidence to improve by 2025, while 39% believed industry conditions would worsen.

Seize the opportunity to act

To attract these consumers, executives will localize their go-to-market models, expand their price ranges and focus on brand positioning to capture the attention of increasingly value-conscious shoppers.

Consumers are returning to pre-pandemic levels in much of the world, but retailers need to remind shoppers that they love shopping in-store.

The pure-play luxury market has struggled amid the shift to physical retail. The mass online market is likely to experience similar disruption over the coming year; most companies, whose share prices have plummeted from their pandemic highs, are struggling to find ways to cope with falling demand and rising customer acquisition costs.

Smart e-commerce players are focusing on new avenues for product discovery. Shoppers, once dazzled by the seemingly endless selection at many online retailers, now lament the difficulty in finding what they want.

Brands are also reassessing which consumer groups to pursue. While the fashion industry has historically prioritized younger consumers, the “silver generation” of people aged 50 and over is growing as a percentage of the total population and fashion consumption.

Not all brands are equally good at these key points. It’s often the newer “challenger” brands, unencumbered by historical perceptions of products, stores and customers, that are coming to the fore.

Over the next year, it will also be important to monitor and anticipate the impact of ongoing changes in global trade on sourcing. Retailers will accelerate the reconfiguration of their supply chains, prioritizing near-shoring and manufacturing in geopolitically aligned countries.

These supply chains need to become more flexible, and companies need to work to reduce excess inventory and minimize the risk of shortages.

Finally, the climate crisis will continue to be a powerful force across the fashion supply chain and driving consumer behavior. While consumers are proving less willing than hoped to pay a premium for earth-friendly products, making the business case for sustainability less obvious to executives amid other competing priorities, the rising costs of climate change and government action to combat it mean that sustainability must remain at the top of the agenda.

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