The state of fashion: Trends that matter in 2025

The global fashion industry’s long-feared slowdown has arrived. While growth opportunities exist for nimble and innovative brands, 2025 could be a make-or-break year for many. During a McKinsey Live session, senior partners Gemma D’Auria and Anita Balchandani shared insights from the latest annual BoF-McKinsey State of Fashion Executive Survey.

Amid unprecedented economic uncertainty, luxury markets are struggling and the overall industry’s revenue growth is likely to continue languishing in the low single digits. Executives are pessimistic and consumer confidence is at an all-time low. Global trade patterns are unpredictable as trade restrictions proliferate. Industry talent shortages persist.

On the other hand, the industry’s margin structure has proved to be remarkably resilient and overall margins are up. Among the bright spots:

• So-called silver spenders—consumers over 50—are an increasing portion of the population and fashion spending.
• For the first time in a decade, revenue and profit margins are growing in the midmarket segment.
• In response to increasingly price-sensitive customers, the value segments of the industry are expanding.
• The sportswear category is generating growth for the first time in years. Often, it is newer, “challenger” brands, unburdened by historic conceptions about products, stores, and customers that are coming out on top.

Geographic propellers of revenue are undergoing a historic shift. The United States remains stable and China remains Asia’s center of gravity, but many brands will pivot to other Asian markets such as Japan, Korea, and India. The retail infrastructure has improved in India, which has a middle-class population of 430 million (larger than those of the United States and Europe combined) and will soon be the third-largest consumer market in the world. Dynamic smaller Asian markets such as Bangkok and Jakarta might also merit long-term investment.

Technology—advanced analytics and AI as well as generative AI—could transform companies by improving end-to-end value chains, worldwide digital communications, and “clienteling”—that is, in-store employees with inventory access engaging with customers who are shopping online.

Q&A from the session

1. How have fashion supply chains been affected by geopolitics?

Geopolitical tensions, rising labor costs, and trade restrictions have accelerated the shift away from China, with US apparel imports from China dropping six percentage points between 2019 and 2023. At the same time, rising tariffs—up fivefold since 2015—and supply chain disruptions, including a 165% spike in Asia-to-US shipping costs from December 2023 to February 2024, have reshaped sourcing strategies. To mitigate these risks, brands are diversifying, increasing production in countries like Vietnam, India, and Bangladesh while also nearshoring to Mexico, Turkey, and North Africa. Additionally, brands are looking to address pricing challenges as consumers continue to tire of price hikes and the uncertainty of consumer spend persists.

2. How will generative AI shape consumer behavior in fashion beyond 2025? What should companies prioritize now?

For 2025 and beyond, generative AI will likely play a decisive role in how consumers shop and to make product discovery more efficient, personalized, and predictive. Our research shows that 82% of consumers want AI to reduce research time, while 50% of fashion executives prioritize AI-driven discovery, driving the adoption of AI-powered search, recommendations, and virtual assistants. Companies should focus on personalization, improving search accuracy, and optimizing demand forecasting to meet evolving expectations. With 84% of organizations prioritizing hyper-personalization across customer touchpoints in the next year, AI is becoming a critical tool in shaping consumer engagement and decision-making.

3. Connected to the economic headwinds, what role do cyclical changes play in luxury brands?

The recent slowdown experienced by the luxury goods sector is a combination of cyclical and structural changes. The personal luxury goods market is coming out of a period of exceptional growth (+5% p.a. over 2019-2023, +9% p.a. over 2021-2023) and value creation, fueled by a combination of mainly price (~80% of growth) and in a minor way volume increases. Performance across players was contrasted over the period, with a handful of large brands – ‘mega brands (defined as brands generating more than €5Bn/year), growing twice as much as the rest of the market over 2019-23. The slowdown/ decline observed in 2024 appears to be primarily cyclical and linked to macroeconomic factors, with solid wealth indicators across regions suggesting a positive long-term outlook.

However, structural issues have contributed to the downturn. Luxury clients now have more alternatives to spend and increasingly favor experiences and wellness, sometimes at the expense of personal goods. While 70% of surveyed luxury shoppers remain excited about luxury fashion, clients also express concern over perceived value and price, relative lack of product innovation, and the persistence of certain friction points along the customer journey.

In light of these challenges, the current environment presents an opportunity for luxury brands to recalibrate and focus on several strategic imperatives to address structural challenges, including resetting their brand’s core values and differentiated proposition, restoring product excellence, rethinking customer engagement, bridging their talent gap, and futureproofing their portfolio.

4. As fashion brands navigate 2025’s trends, AI plays a bigger role in everything from design to marketing. Do you see brands adopting AI more for creative innovation, or do you think its primary role will remain in logistics and predictive analytics?

Based on a survey conducted for our 2025 State of Fashion report, 75% of fashion executives are prioritizing AI for demand forecasting, inventory optimization, and cost control, but 45% of fashion executives see AI-driven marketing as a major value driver in 2025. With the rapid rise of Gen-AI since 2023, use cases for AI adoption have grown significantly, and we are starting to see applications along the end-to-end value chain, including for creative innovation.

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For more on this topic, see the report The state of luxury: How to navigate a slowdown, the articles “What is fast fashion?,” “Generative AI: Unlocking the future of fashion,” and “Why courting aspirational luxury consumer still matters,” and the podcast “What tech innovation means for the business of fashion.”