Global trade turmoil, supply chain uncertainty, consumer jitters: 2025 is shaping up to be a challenging year for the fashion industry—and many brands are worried. But in the words of McKinsey Senior Partner Gemma D’Auria, “Yes, there are risks, but there are also opportunities to be captured.” On this episode of The McKinsey Podcast, D’Auria speaks with Global Editorial Director Lucia Rahilly about our latest State of Fashion research, including who’s likely to shop where, how consumers prefer to buy, and what leaders can do to ignite progress—even in a volatile market.
The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.
The following transcript has been edited for clarity and length.
What’s the state of fashion?
Lucia Rahilly: All of us are confronting a world in flux, given geopolitical and macroeconomic volatility plus AI potentially disrupting the way we work and shop. How do these dynamics combine to affect fashion’s overall outlook for 2025?
Gemma D’Auria: It’s going to be a very challenging year. We focused on three broad regions: Europe, the US, and China. In Europe, we expect fairly sluggish growth, and consumer confidence is quite low. In China, it is extremely low.
For certain parts of the world, there is an appetite to spend, particularly on goods, and we have seen a real shift by consumers toward value. What we mean by value is not just price but also perceived value for what they’re paying. This is already having an impact. For example, in the US, one of three consumers we surveyed has purchased a dupe in the last 12 months.
Lucia Rahilly: Talk to us about what a dupe is—the dupe phenomenon.
Gemma D’Auria: A dupe is an extremely well-made look-alike of a luxury product. And when I say “extremely well made,” I really mean that. In the past, consumers wore dupes almost with shame. Now they’re wearing them with pride. They’ve become more like the smart choice, not the cheap choice.
And dupes are just one small phenomenon. Another is the growth in resale platforms. People are much more willing to purchase preloved goods than they’ve ever been. The narrative on preloved can be quite compelling, as is finding products that are no longer on the shelves or in a boutique. It’s particularly strong in luxury because of overexposure to luxury goods. People now are looking for uniqueness and for things that money alone can’t buy.
Lucia Rahilly: There’s also a certain durability, presumably, in luxury goods.
Gemma D’Auria: Yes, although in some categories more than others. We see this durability phenomenon and the perception of value maintained, or in some cases increased, over time, particularly in iconic leather goods and branded jewelry. A bit less so in apparel and footwear.
Lucia Rahilly: We have an incredible cornucopia of choices now, given online retail and social media and so forth. Does that help, in a cost-conscious world? Or are consumers struggling with too much choice?
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Gemma D’Auria: We talk about discovery as one of the key consumer behaviors to watch for in 2025. In a world where about 70 percent of transactions and purchases are digitally influenced, we now see a proliferation of technology and AI-powered tools to help consumers quickly find what they’re looking for, and to get a recommendation that’s more precise because it’s not just about speed. It’s about, “Do you really understand what I’m looking for? And are you going to be able to offer a product I need and want?”
We see players that have been investing for years in advanced analytics to try to predict what consumers are likely to buy and want. They customize their experience almost to the point that what I see may be completely different from what you see logging into their website. There is an opportunity for further personalization and customization. In a slowing market where many brands are looking to gain share, this will be an important differentiator.
Finding growth in a sluggish market
Lucia Rahilly: This year’s State of Fashion report digs into ten themes. And we encourage folks to check out the 150-page report on McKinsey.com. But for now, Gemma, let’s talk about three: Asia’s growth, silver spenders, and sporting goods. What’s going on in Asia?
Gemma D’Auria: Asia has heavily depended on the Chinese consumer for a few years, but we expect Chinese growth to be much more muted this year.
There are, however, some new growth engines emerging in Asia, one of them being India, which is on pace to become the third-largest consumer market in 2027. This is fascinating because there are 430 million people in India’s middle class. That is as large as the middle class of the US and Europe combined, with two-thirds of the population under age 35, so it’s also a very young and dynamic market. We see a lot of interest by fashion brands in trying to understand how to go to market in India, how to cater to local consumer needs, and how to ensure they can grow in that market.
Another interesting market is the Middle East, particularly the United Arab Emirates and Saudi Arabia. It’s very important for luxury, but increasingly also for fashion. And then there are a number of capitals in Asia emerging as fashion hubs, like Jakarta and Bangkok.
Lucia Rahilly: You just mentioned younger consumers in India, but there’s another demographic ready to buy clothes: silver spenders.
Gemma D’Auria: The fashion industry has been focused on younger generations not only in terms of marketing and communication but also product assortment. But the global population aged 50+ is growing faster than any other generation. They account for 38 percent of consumer spend today and for about half of growth in consumer spend. It’s a call to action for fashion brands to think about what their strategy is to be relevant to and attract older consumers.
It’s a call to action for fashion brands to think about what their strategy is to be relevant to and attract older consumers.
Lucia Rahilly: Let’s hear about sporting goods.
Gemma D’Auria: Sporting goods is a very interesting segment within fashion. It has been disrupted in recent years by what we call challenger brands. As recently as 2020, if you look at the economic profit split, 80 percent of that profit was generated by what we call incumbent brands—those with sales over $5 billion. Think about the big groups: Nike, Adidas, and Under Armour.
When you fast-forward to 2024, you see that percentage has halved. And 60 percent of the economic profit is being generated by challenger brands, like Hoka or On or Vuori. You can see how much product innovation has driven such a shift in the profit pool, as well as smart marketing strategies building a community of loyal consumers, et cetera.
The difference AI makes
Lucia Rahilly: How does AI and using AI to surface different and very specific, curated shopping experiences affect the dynamics between smaller, newer challenger brands and more traditional, bigger players?
Gemma D’Auria: Direct-to-consumer engagement through social media has been a key factor driving the growth of these challenger brands. That’s what has sustained this growth. Investments in product innovation—especially in sportswear, where product and product innovation are king—have also made a big difference.
I do think this has been part of their strategy. They create very sticky communities because it’s not just about customer acquisition; it’s really about customer engagement. How do you keep these customers engaged with your brand so you can stay relevant to them?
Lucia Rahilly: What should leaders prioritize now to stay ahead of this AI-influenced consumer behavior?
Gemma D’Auria: One we just talked about: search and personalization. The second is using AI to provide a distinctive customer experience offline, in stores. We talk a lot about the impact of AI in the online channel. I don’t think we talk enough about how AI can drive a step change in how customers experience the physical store. Empowering your sales representatives or client advisers with AI tools so they can be effective with consumers in stores is super important.
The third area, which we talked about in our 2024 State of Fashion report, is the creative side. One of the most fascinating things about this industry is the combination of craftsmanship and creativity with business, commercial acumen. And there’s a lot AI can do to enhance the creative aspects of this industry. For example, you can create so many more options of a particular handbag design through AI than you could manually. And these options mean you can avoid investing too much money in creating samples that won’t be successful or compelling to consumers. That’s huge. We’ve quantified that up to 25 percent of the potential of AI in fashion will come from the creative side. But we’re at the very beginning of that journey.
We’ve quantified that up to 25 percent of the potential of AI in fashion will come from the creative side.
Stores? Again?
Lucia Rahilly: Let’s get back to the in-store shopping experience. Are consumers returning to stores?
Gemma D’Auria: The answer is varied, depending on consumer segments and parts of the world. What we know and believe is that stores make a big difference. They can be a real differentiator for the way customers experience brands. Seventy-five percent of consumers we surveyed said they are likely to spend more after receiving high-quality service from store personnel.
The role of the store has changed: 70 percent of retail sales today are digitally influenced. Initial discovery is now typically done online. Once you see something online, the likelihood is you want to see it in the store, but that doesn’t mean you’ll purchase it there. Stores have become more experiential; they have less stock and are more about giving you a sense of the DNA of the brand.
Store growth may decelerate. We don’t think many brands will suddenly go on a spree of opening new physical stores. But they will need to really enhance the experience of the stores they have. Some brands may only have one or two stores in the country, but those stores are special places where people get to experience the brand.
Lucia Rahilly: Anecdotally, I often go into this little store, belonging to a New York–based designer, Rachel Comey. Every time I’m in that store, I think, “These clothes are amazing but they’ll be horrible on me.” And there’s always some incredibly stylish but also accessible person there who says, “You should really try this, and you should really try that.” She selects clothes I would never choose. I grudgingly try them on, and I end up walking out with at least one of them. It’s amazing.
Gemma D’Auria: I agree with you. I love stores with friendly, helpful staff.
Knowing your audience
Lucia Rahilly: Anything else leaders might consider doing differently to thrive in what may shape up to be a challenging market this year?
Gemma D’Auria: Really understanding consumer behavior and leaning into that, so you can not only meet customers’ wants but also try to anticipate them. You would be surprised how few brands have a deep, intimate understanding of their consumers and what their purchase behavior is and how it is likely to evolve.
You would be surprised how few brands have a deep, intimate understanding of their consumers and what their purchase behavior is and how it is likely to evolve.
Lucia Rahilly: Seriously? If I mention pajamas to my kids, I suddenly get ads for pajamas in my feed. How is it possible that we don’t have a more sophisticated understanding of customers?
Gemma D’Auria: We researched this in our State of Luxury report. We believe many brands may have underinvested in some of the capabilities that will be super important for them in the future and that are also important today.
We talked about one: frontline staff and sales advisers. You’d be surprised by how traditional some of the methods are for hiring, developing, compensating, and motivating these sales advisers.
Another is analytics and consumer insights, which is an area that is evolving quickly. We see interesting pilots, but we haven’t seen a huge wave of advanced analytics transformation in fashion that has helped companies better understand their consumers. Paradoxically, the industry is way behind some other parts of the consumer universe. Consumer packaged goods are really advanced when it comes to this, in relative terms.
Preparing for the unpredictable
Lucia Rahilly: At the outset of this conversation, you alluded to global trade. There’s a lot of uncertainty as traditional political alignments shift and the world becomes more fragmented. What should leaders be thinking about to anticipate and manage for these disruptions?
Gemma D’Auria: First, when we talk about capabilities, geopolitics is a very important exogenous factor that will have an impact on this industry. Often it is thought about and managed as a risk, typically by the chief risk officer or the CFO. But it should really be embedded in strategy because, yes, there are risks, but there are also opportunities to be captured. And the way to attract the US consumer is fundamentally different from the way you would attract a consumer in Europe or in China or in the rest of Asia.
Second, there is so much uncertainty that many brands are working on different scenarios. I think that’s very wise. They’re evaluating what happens in a given scenario and the implications for the brand. Every brand is different. It’s hard to generalize because a lot of it depends on where their biggest markets are and what their sourcing footprint looks like. In fashion, we have the full gamut of brands, some with very concentrated footprints and others with extremely diversified footprints.
Third, there is recognition that uncertainty makes adaptability very important because whatever course of action you take, you may need to revise and course-correct as you go. You cannot be too in love with one course of action; if you are, you risk going down the wrong path for too long before you pull back or change direction.
Uncertainty makes adaptability very important because whatever course of action you take, you may need to revise and course-correct as you go.
Lucia Rahilly: Are there any ways brands can prepare for the unpredictable?
Gemma D’Auria: Reassess regularly and optimize the sourcing footprint, including priority regions for reconfiguration based on manufacturing cost, capabilities, and potential supply chain disruptions.
Then there’s climate—a huge force of disruption in this industry. Some countries that have been supplying this industry are extremely vulnerable to climate disasters. It’s extremely important to leverage analytics to understand what is happening, what the cost breakdown is, and how to get a better trade-off between cost and quality.
Brands should regularly examine potential disruptions and actions they can take to minimize them. We also talk about rethinking the approach to manufacturers and suppliers with an emphasis on developing long-term strategic relationships, so that you can increase both the efficiency and the resilience of the supply chain. This close collaboration is extremely important, particularly if you expect the market to be more volatile. This is another area where AI, analytics, and data can help brands get ahead.
Last, this is an industry where a collective response or action plan would be beneficial, because no brand can do this on its own. And it’s not just about brands. It’s about suppliers. It’s about regulatory bodies. It’s about manufacturers. There is something to be said for determining how to partner to get not only a better understanding of what’s happening but also a greater ability to respond to whatever may happen in the future. We hope this spirit of joint problem-solving will be catalyzed by what’s happening at the moment.
Sustainability in the current climate
Lucia Rahilly: You mentioned climate in the context of supply chain disruption and resiliency. Is sustainability in the current political climate still a priority for fashion leaders? Do you expect this conversation to persist, and if so, how should leaders be thinking about it?
Gemma D’Auria: Sustainability is one of our ten priorities for the industry. It is absolutely important for this to remain a priority. We can’t forget that fashion is responsible for anywhere between 3 and 8 percent of total greenhouse gas emissions.
We also have estimated that by 2030, extreme weather events could jeopardize $65 billion worth of apparel exports and eliminate nearly one million jobs in four economies that are among the most central to the global fashion industry.
It’s extremely important that with climate risk worsening, the fashion industry does not hold off any longer on building resilience into its supply chains. The perceived economic and operational complexity of meeting sustainability targets is massive. The fragmentation of suppliers makes it even more difficult. Over 60 percent of global apparel production is conducted by small and medium-size suppliers.
Of course, you can imagine such suppliers may struggle with uncertain volume commitments and competing sustainability initiative requests from brands. Often, they lack the funding to do this. On the other hand, there is a disconnect, because many consumers expect brands to prioritize sustainability but then may be unwilling to pay a premium for sustainable products. The brands are really caught in a bind here between what the regulators are asking them to do, what many of them think is the right thing to do, and how to make this commercially viable.
Lucia Rahilly: That seems daunting.
Gemma D’Auria: We believe brands can reignite progress, but they will need to work collectively with the broader fashion ecosystem. We suggest adopting a dual mission of committing to sustainability initiatives but keeping in mind profitability demands. We also suggest sharing best practices on supplier decarbonization and financing solutions that can help scale initiatives and reduce financial risk. There needs to be an alignment of incentives to ensure adherence to decarbonization plans.
Often the marginal abatement cost curves are not well understood, or there is not enough data and insight to prioritize initiatives that make the greatest difference. We believe this can only be done if brands take the lead, because brands often have the resources and the scale to do so. But they also need to bring suppliers along on this journey.
A very important first step is to get granular on data to understand the entire value chain. Maybe partner with traceability or impact measurement providers to understand the data, because that can really help not only to set the strategy but also to understand the potential impact of initiatives and prioritize what is otherwise a very large problem to solve.
