The fashion industry is expected to experience slow but steady growth in 2024, with low single-digit revenue increases, according to a report released by McKinsey on Monday. The report, titled The State of Fashion 2025: Challenges at Every Turn, highlights a significant shift in the market dynamics, with non-luxury fashion now driving the entire growth in economic profit for the first time since 2010 (excluding the COVID-19 pandemic). This growth will be fueled by an increasing focus on value, particularly in resale and off-price markets.
The report also notes that digital platforms, particularly in non-luxury fashion, will face challenges similar to those that have affected the luxury sector. Non-luxury e-commerce has been struggling with “existential business model challenges and disruptions.” To remain competitive, these platforms will need to clearly define their role in the broader fashion ecosystem.
While 2024 is projected to see record economic profits for the industry, McKinsey cautions that the balance of power is shifting. In previous years, luxury fashion was the key driver of economic profit, partly due to price hikes. However, in 2023, non-luxury fashion began to lead value creation, a trend expected to continue into 2024. Luxury, on the other hand, is forecast to contribute less value than in 2023, marking the first such decline since 2016 (excluding COVID-19).
Looking further ahead, the report warns that 2025 could bring significant challenges for the fashion industry. Rising consumer price sensitivity, driven by recent high inflation, along with the growing popularity of affordable “dupes,” the impacts of climate change, and ongoing shifts in global trade, could make for a particularly uncertain year.
However, some regions may offer opportunities for growth. Falling inflation and an increase in tourism to Europe will benefit the industry, along with high-net-worth consumers in the U.S. The report also points to new growth prospects in Asia, particularly in markets like Japan, Korea, and India, which may help offset the uncertainties surrounding consumer spending in China.
The report further suggests that brands may need to focus more on engaging the “Silver Generation”—consumers aged 50 and older. This group holds 72% of total U.S. wealth, and brands that appeal to this demographic while also creating inter-generational appeal could unlock significant growth potential.
Technological innovation will also play a major role in 2025. McKinsey’s findings indicate that 50% of fashion executives view generative AI as a key tool for product discovery, while 82% of customers expect AI to help them make faster and more informed buying decisions.
In the sportswear market, smaller “challenger brands” like Hoka, Asics, New Balance, Vuori, and Alo Yoga are gaining market share. These brands are expected to surpass the traditional “Big Four”—Nike, Adidas, Puma, and Under Armour—in profits for the first time in 2024. Innovation will be essential for staying competitive in this space.
On the sustainability front, the report reveals that 63% of fashion brands are behind on their 2030 decarbonization goals. Despite increased pressure from regulations, only 18% of executives see sustainability as a top-three growth risk for 2025, down from 29% in 2024. However, the report warns that apparel consumption is set to rise by 63% by 2030, and if the industry continues on its current path, it could account for more than a quarter of the world’s carbon budget by 2050.
Overall, the fashion industry faces a year of both opportunity and challenge as it navigates shifting market dynamics, evolving consumer behaviors, and environmental concerns.
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