Challenges facing fashion brands and retailers in 2024 are set to persist over the next year with a predicted slowdown coming into play as consumers become increasingly price sensitive, McKinsey’s State of Fashion 2025 report suggests.

The annual report, intended to guide fashion executives sourcing and business decisions over the coming year, indicates while there are still pockets of growth to be found in 2025, 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”.

“2025 is likely to be a time of reckoning for many [fashion] 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,” reads the report.

Industry executives are all too aware sluggish growth is likely to continue.

Revenue growth is expected to stabilise in the low single digits.

A fifth (20%) of fashion leaders polled in the executive survey expect improvements in consumer sentiment in 2025 with 39% seeing industry conditions worsening.

Among the biggest concerns are consumer sentiment with the economic outlook looking bleak and sluggishness displayed across markets. Seven out of 10 fashion leaders cited consumer confidence as the top risk for 2025.

Geopolitical instability and economic volatility remain key concerns and are expected to impact the fashion landscape in the year ahead.

Inflation is less of a concern through 2025 whereas it featured top of the list of concerns for fashion executives in 2023 and third on the list last year.

McKinsey’s State of Fashion 2025 report – key takeaways

1. Industry to benefit from falling inflation and increased tourism in Europe

2. Resilience of big spenders in US and new growth engines in Asia to counteract consumer spending in China which is still recovering post-pandemic

3. China will remain the region’s centre of gravity, but as the country is buffeted by macroeconomic headwinds, brands will change focus to other Asian markets, most notably Japan, Korea and India.

How can fashion brands and retailers seize growth in 2025?

• Localise go-to-market models

• Broaden price ranges

• Focus on brand positioning to capture value-driven shoppers. Premium brands will need to demonstrate why they are worth the hefty price-tag

• Target generation of over-50 consumers who will have more spending power in 2025

• Online slowdown: Pureplays must harness the power of AI for product curation, content and search to help customers discover brands and products more effectively.

What of fashion supply chains?

• Ongoing shifts in global trade will continue and brands must anticipate their sourcing impact

• Retailers must accelerate the reconfiguration of supply chains to prioritise nearshoring and manufacturing in geopolitically aligned countries

• Supply chain agility is key; reducing excess inventory and minimising risk of shortfalls.

Sustainability pressure will continue and inventory management must align in accordance with this. Harnessing technology to assist this will be key.

Elsewhere, with regards to sustainability, the report finds it remains a bone of contention. On the one hand shoppers seem less inclined to pay extra for earth-friendly products. But it warns this should not deter brands and retailers from taking steps to become more sustainable.

“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.”

Ultimately it calls upon the industry to work quickly to adapt to new requirements in capturing growth.

“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.”