Who is the AI shopper? What does consumers’ rising interest in health and well-being mean for brands? How can companies attract Gen Zers, who seem to be simultaneously frugal and indulgent? These were among the questions discussed in a recent webinar on The State of Fashion 2026, the tenth edition of an annual report published by McKinsey and the Business of Fashion. The report describes the primary themes shaping the future of the fashion industry and executive priorities for the year ahead.
In these webinar excerpts, three of the report’s authors—McKinsey Senior Partners Anita Balchandani, Colleen Baum, and Gemma D’Auria—highlight some of the major themes and their implications for fashion players. The following is an edited transcript.
The AI shopper
Anita Balchandani: Who is the AI shopper, and where is this all headed? It’s helpful to think about the role of AI and agentic commerce in a few different horizons.
The first is the role that AI plays in discovery. If the past was about search engine optimization, we’re increasingly seeing generative engine optimization as the key dimension that brands need to think about in order to be discovered, because a lot of the conversations are taking place on AI assistants. We did some research that seemed to indicate, ironically, that some of the larger brands are less well represented and covered on AI assistants, while many disruptive challenger brands feature more prominently. We think that’s going to be important for brands to consider: What role do they play, and how can they be discovered on these?
There is a second variant of this, which is agentic search on brand websites. How should brands think about a web experience that can allow consumers to have more of a conversation to help them find a solution, versus the traditional list of 1,000 products that a consumer then needs to scroll through? The brands and retailers doing more in this space are absolutely seeing a lot of customer growth in agentic search traffic.
There is a third horizon, which is at the nascent stage. There are a lot of unsolved questions, but the direction of travel is away from human-first and toward agent-first. Imagine a world where we all have personal shoppers. They are well briefed, they know what we like, they know our purchase history, and they’re able to make decisions on our behalf because they are armed with our personal decision rule set, if you will. They can make the purchasing decision on our behalf from the brands they think will most resonate. We think this is going to be a big disruption for brands, but also fundamentally existential if you are a multibrand aggregator or platform.
Gemma D’Auria: Anita, there are a bunch of audience questions about how AI shopping agents will affect luxury e-commerce. What can companies do to get ahead of the game, both in fashion and in luxury?
Anita Balchandani: The one takeaway—amid all the AI developments that, obviously, brands need to track and plan for—is that it becomes even more important to invest in and develop your brand, including in the real world, so consumers know what you stand for. One of the big shifts is that, increasingly, consumers are turning to AI assistants for product advice and guidance and using that as a source to search for and discover brands.
We see this playing out in a few different ways. One: Very specifically, think about your brand’s role and presence in generative engine optimization. There are, of course, various methodologies and approaches. For example, we have a scorecard and a way of thinking about performance on generative engine optimization and how you might improve that positioning. One of those elements is making sure your APIs connect with and talk to those AI assistants. Beyond that, it’s also the content that you put out there, because the LLMs [large language models] thrive on more content—not just on your website but also out in the ecosystem—so everything that you are doing to drive earned media in the social space and beyond is going to be important. If content was king, it’s now going to be an emperor.
The next thing to think about is: For consumers who come to your site or interact with the brands, how can you make that whole experience “agentified”? Is the search conversational? Is it genuinely personalized? How do you agentify it in a way that gives a totally different, always-on “clienteling” experience?
Then there’s a third piece: this is still in the making, but every player will need to evaluate their choices around how to partner in some of the upcoming ecosystems. As we’re starting to see in the US, you can increasingly now check out using AI assistants. The experience isn’t yet friction-free; it’s not amazing, but this is in the making. What role do you want to play in that ecosystem? Do you want to be an agent? Do you need to partner with an agent? So, we do think there is a range of questions that brands still need to work on today.
The well-being era
Gemma D’Auria: Consumers are telling us again and again in surveys that they are extremely concerned about and focused on well-being, about living longer and better—and that encompasses a whole host of experiences and services, from nutrition to sleep to experiential travel to fitness and movement. When we asked US consumers whether this was a top priority, 84 percent said yes, but even more interesting is that more than half said they would continue spending on themselves even if their discretionary income declined, a data point we had not seen before.
What it means for brands is that you really need to make a strategic choice as to how to play in that ecosystem, if at all. Some brands have started experimenting with third spaces, but we do not believe that will be enough.
The well-being market is surging. Growth has been 6 percent annually since 2019 and is forecast to continue at that pace through 2028. We also see that consumers expect more from the brands they interact with; short-lived interactions and the “dopamine hits” are losing their allure. Consumers are looking for more meaningful, sustained connections with brands that reflect their values and evolving identities.
Nine in ten consumers cite being part of a like-minded community as a top driver of brand connection. Therefore, brands must think about the shift from attention to retention. If you are going to retain and grow your “share of life” with consumers, this connection has to be much deeper, and you have to execute it authentically. It’s not just about adding an extension. If it’s not attuned to the DNA of your brand, it’s not going to work. You have to be truly committed, because that’s how you build credibility in this space.
Whether you decide to play at the periphery or at the core—whether it’s only about your storytelling and well-being-focused activations, or you want to embed well-being in the brand DNA—you have to commit and execute consistently across product, service, and experience to build lasting connections with consumers.
The resale sprint
Gemma D’Auria: Resale is having a fantastic moment. It’s set to grow two to three times faster than the firsthand market in 2027. Think about that. It’s a massive, massive acceleration. Why? There are a couple of reasons. From the consumer side, there is a shift toward value, but there’s also the uniqueness of finding something on a resale platform that isn’t necessarily available elsewhere.
Also, the business model is becoming much more sustainable for players in the space. We have seen two players become profitable: Vinted and The RealReal. Brands have started to embrace this channel, and some of the early concerns—about authenticity and lack of control over product—have abated. There are a lot of exciting developments in this space that will continue to define the sector.
Consumer behaviors differ between regions. For example, many survey respondents in China, 77 percent, and the United States, 85 percent, say they use resale to explore aspirational brands for future purchases; it’s much lower in the United Kingdom, at 66 percent. Similarly, more consumers in the US and China say they “associate brands being resold often with trendiness or high demand.”
Consumers see resale as a channel where they can look for value and uniqueness. As it becomes more accepted and more part of brands’ strategic priorities, it is very important for you as a brand to define your resale strategy. Are you going to set up your own platform? Are you going to form smart partnerships?
Where do you begin? We suggest you begin with higher-value, more iconic items. But this is also very different region by region. Our report includes data showing why people use different platforms and how important this can be for future customer acquisition—particularly for Gen Z.
Efficiency unlocked
Colleen Baum: Tariffs are the top concern of executives we surveyed, so it is unsurprising that the second-most-cited concern was how to unlock efficiency. The levers that the industry has traditionally relied on—a little improvement in sourcing and in full-price sell-through—will no longer be sufficient to deliver lasting efficiency. The focus here is on finding the next step—through technology, AI, and innovation—that will allow not only investment back into the business but also some of that margin to reach the bottom line.
Why are the traditional levers no longer sufficient? It comes down to the degree of disruption in the industry. Several things are happening in parallel. Costs are rising across the value chain: We’re in an inflationary market, and tariffs have increased prices for apparel and leather goods by roughly 35 percent from a first-cost perspective. This industry is among the most impacted by tariffs in an inflationary market.
In parallel, consumers are becoming more value conscious, with 70 percent telling us that they plan to spend less and 80 percent indicating value-seeking behavior—waiting for sales or perhaps shopping around at different retailers for an item that they want. Those factors have significantly affected working capital and inventory days on hand [DOH]. In 2024, DOH was at an all-time high: 14 percent higher than pre-2020 averages.
All of this together results in real opportunities, not only to improve sourcing and product costs but also to improve pricing and address that value-seeking behavior, and then finally to think about inventory. How can you do that? Digitization and AI are among the biggest unlocks to achieve these opportunities in a scalable way: Digitization from a sourcing perspective and better collaboration on the end-to-end value chain with suppliers in your manufacturing plants could unlock double-digit product cost savings. This is something that we see leading players starting to pilot, and we expect those capabilities to extend into 2026.
From an efficiency perspective, there are tremendous opportunities not only in highly personalized pricing and promotions, but also in more effective demand planning, inventory allocation, and management of inventory churn through the full season—maximizing the value you can get from your inventory while bringing down DOH—and, finally, using the combination of technology and AI to drive innovation. We’ve seen that the industry is a bit slower to adopt AI—about 90 percent of projects have stalled at the pilot phase—but frontrunners and leaders are continuing to push through into pilot and production.
Luxury recalibrated
Colleen Baum: The economic profit downturn in 2024 was primarily driven by luxury, which saw negative EP development for the first time since 2016. While luxury still has the largest yield or economic profit rate, the gap is narrowing relative to other segments, and some of its relative advantage to premium and to mass has been declining.
Gemma D’Auria: It is a period of strategic renewal. We are calling it recalibration. This is because we believe there has been a breach of trust with consumers, maybe a loss of belief in the luxury fashion system, largely driven by the price increases. Many brands are trying to understand how to continue growing and staying relevant in the luxury space, and how to regain that client trust, which lies at the heart of luxury.
Overall, luxury brands need to stay close to what matters most to their consumers. And there are big generational and geographic differences in what matters most—for example, the factors that would encourage high-net-worth individuals to buy more from a luxury brand: Creativity and innovation are very important in China and seem to be less important in Europe.
Therefore, as a brand, you should think about how your positioning and value proposition reflect what each of your target cohorts values most. Use technology as a key enabler, because technology and agentic commerce will dramatically transform the sector and the shopping experience. Human development must keep pace with technological development: It’s not just about the latest cool tool you are using, but about how your organization is rewiring its processes and decision-making flows and upskilling to keep up, so that it can make a difference to your experience.
The duality of Gen Z
Gemma D’Auria: There is a question from the audience about Gen Z’s duality: Gen Z is interested in circularity in clothing, thrifting, and resale, but at the same time, it is having these indulgences, like lab-grown diamonds or jewelry—in the US, in particular, but also more broadly. How should brands interpret this duality of Gen Z, acknowledging both the frugality in fashion but also the innovation-driven consumption in luxuries that coexist within this cohort?
Colleen Baum: I think a couple of things are shaping this. First, consumers—particularly US consumers—have become far more discerning about quality, craftsmanship, and when they’re willing to spend the dollars for a splurge versus when they can get something that is close enough. This focus on value is where some of the emphasis on things like lab-grown diamonds comes through. I had a discussion with some friends about tennis bracelets. A tennis bracelet is a tennis bracelet is a tennis bracelet. This is an example of how Gen Z consumers are saying, “I can get something beautiful, and I feel like I got it at an exceptional value for the money.” So, it’s about being discerning about where you spend your discretionary dollars as a more value-seeking consumer, but through a lens of “What is quality?” That is the first thing that is quite critical for the industry to internalize.
The second is this idea that when Gen Z consumers are going to splurge, they want that product to be very special. There is a mindset of, “I use fashion and accessories as a means to express my individuality and my personality.” The implication is that when they splurge, they are looking for unique items that resonate with them—not only the craftsmanship and the quality, but the brand itself. I would describe it as an increasingly educated and discerning consumer who knows when they are willing to splurge, but also knows they are not going to splurge in every situation, particularly if they can get what we’d call a dupe at a really good value.
