The fashion industry has always been fickle and unpredictable. “Though hard to predict even in the best of times, the fashion industry is in for a particularly tumultuous and uncertain future,” said the “State of Fashion 2025: Challenges at Every Turn,” a McKinsey report published in November.
That unfavorable outlook was not surprising. “The negative environment predicted by many in the fashion industry this time a year ago has now manifested,” said the report. This is “a long-feared cyclical slowdown.
Consumers [are] scared by the recent period of high inflation” and therefore are “increasingly price sensitive,” McKinsey explained.
Nevertheless, the report said “there is still growth to be found.” However, “shifting customer behavior and preferences mean seizing it will require navigating a maze of compounding challenges at every turn.”
New dynamic?
This year sees several fashion consumption trends continue from 2024. “Judged purely by the topline … the State of Fashion 2025 outlook appears to be a continuation of the sluggishness seen in 2024: revenue growth is expected to stabilize in the low single digits,” the report said.
Another ongoing trend is that “non-luxury” garments and attire will “drive the entirety of the increase in economic profit.” Meanwhile, high levels of pessimism among surveyed fashion leaders also persist. This year’s report shows “just 20% expected improvement in consumer sentiment in 2025, where 39% see industry conditions worsening.”
New in 2025 is the expectation “the industry will benefit from falling inflation and increased tourism in Europe, the resilience of high-net-worth individuals in the United States and new growth engines in Asia.”
McKinsey noted those improvements should “counteract uncertainty around consumer spending in China, which is still … buffeted by macroeconomic headwinds.” Accordingly, while the second-largest economy will “remain the region’s center of gravity, brands will pivot their focus to other Asian markets, most notably Japan, Korea, and India.”
This year should see more price stability than in 2024. The survey shows 37% of executives expect garment prices won’t increase, versus 18% in last year’s report. “Brands that do not wish to play in these categories must demonstrate [more than ever] to customers why their products are worth the premium price,” said McKinsey.
Instead, the fashion industry will turn to “volume, rather than price, [to] fuel growth” in 2025. Nearly 66% of surveyed executives are betting that volume growth will drive revenue, even if it is “mostly in the low single digits,” the report noted.
Redefining search
A key finding in the 2025 report is “fashion shoppers are overwhelmed with choice, which negatively impacts their engagement and conversion rates with brands.” The survey shows “74% of customers report walking away from online purchases due to the volume of choices.”
Meanwhile, prevailing search methods aren’t helping fashion consumers find what they want. Around 80% of those surveyed say “dissatisfaction with online search [results] is a barrier to purchase.” Their biggest issue is “irrelevant results,” which 41% of respondents said was the “main barrier to shopping” online.
That is a significant problem for retailers as “69% of customers [say] they go directly to the retailer’s search bar.”
To solve that problem, vendors and fashion consumers are turning to artificial intelligence (AI) to curate content and search results. “50% of [surveyed] fashion executives see consumer product discovery as the key use case for generative AI in 2025.” Meanwhile, “82% of customers want AI to assist in reducing the time they spend researching.”
Social media “will continue to change the way shoppers discover and purchase fashion,” the report said. In 2025, brand discovery through social media will be as common as conventional search engines like Google, as 38% of surveyed customers prefer the former, while 37% use the latter.
McKinsey noted that while Asian consumers widely use social media to “discover” fashion brands and products, this trend is still gaining momentum across Europe and North America. The report singled out the United States and UK fashion markets. The former’s “social commerce market” should grow 38% between 2023 and 2025 and 24% from 2025 until 2027. The UK will witness 31% growth between 2023 and 2025 and 58% between 2025 and 2027.
Silver buyers
Mckinsey noted a significant transformation in the demographics of fashion buyers. “Fashion brands have typically focused on youth, but in 2025, they may struggle to grow sales from younger shoppers alone,” the report said. “The ‘silver generation’ aged over 50 represents a growing population with a high share of global spending.”
The report’s survey shows those over 50 will account for 48% of global fashion spending growth this year. That is mainly because in some wealthy Western economies they account for a significant portion of the population’s wealth. In the United States, residents over 50 hold 72% of domestic personal wealth, McKinsey said.
That shift amplifies the importance of brand loyalty. Half of surveyed Gen-Z consumers prefer to explore and shop new brands, “often in search of the latest trends [versus] 33% for those aged [over] 50.” The report found that, on average, “29% of [Gen-Z’s] wardrobe is from the same brand, compared to 52% for those aged 50 and above.”
Targeting older consumers also makes the fashion industry “more resilient during times of economic uncertainty,” the report said. Additionally, they will likely spend more on fashion brands thanks to the wealth they accumulated over the years, noted McKinsey. Bolstering that spending further is that those over 50 are “more style-conscious than when they were in their 20s,” the report said.
However, older consumers “lack … sentiment towards sustainability in fashion,” the report said. They also are “less likely to engage with non-traditional fashion channels.”
Meanwhile, younger buyers are increasingly moving away from high-end fashion brands, with “73% of Gen-Z consumers reporting changing their spending habits because of increased prices,” the report said. “More than half of [them] are worried about their financial situation in the year ahead.”
That outlook isn’t helped by the fact “Gen-Z uses credit [cards] more than [previous] generations” and is, therefore, likely more indebted than older buyers.
Accordingly, fashion brands need to rethink their approach to traditional marketing segmentation. They also have to assess the universal appeal of the product range, invest in technologies or materials that improve functionality or more versatile product designs, and appeal to different generations. Lastly, those brands should emphasize quality over other product attributes.
All about value
According to McKinsey, value for money will be critical in 2025 regardless of who is buying and how they find what they want. Accordingly, fashion industry players need to “localize their go-to-market models, broaden their price ranges and focus on brand position to capture the attention of shoppers.”
That is not because fashion consumers can’t afford more expensive garments. On the contrary, “70% of [surveyed] consumers plan to continue shopping from outlets or off-price retailers in the next 12 months, even if they have more money to spend.”
Another value-driven trend that could upend the high-end fashion market is more buyers don’t mind wearing rip-offs of expensive brands. “Nearly one in three adults say they intentionally bought a [duplicate] of a premium or luxury product,” the report said. “Half say they bought it for cost savings … 17% would continue to purchase [them] even if they could afford the original item,” the report said.
Such precarious forecasts mean fashion 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 report said. “The old playbook is now obsolete; the industry will need a new formula for differentiation and growth.”
This article first appeared in March’s print edition of Business Monthly.
