- Consumers rethink their spending, seek value
- Industry faces changing technological landscape
- Executives describe 2026 scenario as challenging
The global fashion industry is projected to experience low growth in 2026, a report jointly produced by McKinsey, the multinational management and strategy consulting firm, in partnership with the Business of Fashion, and made available to Business a.m. has shown.
The McKinsey report specifically says the industry will again post low single-digit growth this year as heightened macroeconomic volatility will continue to weigh on sentiment and drive value-conscious consumer behaviour, particularly evident in the United States, where consumer sentiment was especially low in 2025.
“Overall, we expect US industry growth to fall short of last year’s forecast for 2025,” the report stated, but adds that “in Europe, GDP growth is expected to remain steady, underpinned by a resilient labour market and stable unemployment rates.”
Notwithstanding this, McKinsey stated that consumers are expected to remain cautious, trading down across purchase categories.
It said with respect to China GDP growth is expected to slow, and disposable income growth is also expected to fall below 2024 and 2025 levels, but observed that there are bright spots in the Chinese fashion market, particularly in sportswear.
The luxury segment, meanwhile, is projected to see modest improvements across markets after a difficult 2025, supported by a flurry of creative resets fashion leaders hope will inject excitement into the industry. Brands are again investing in the US luxury market: Retail square footage rose 65 percent in the first half of 2025, compared with a decline in the year prior, reflecting efforts to restore growth.
The report found that whereas fashion leaders who, facing volatility in global affairs in previous years, were not certain about what lay ahead, are now resigned to accepting that constant change is simply the new normal.
It stated that “challenging” has overtaken “uncertainty” as the word executives polled in the annual Business of Fashion–McKinsey State of Fashion Executive Survey used most frequently to describe the industry in 2026, with tariffs cited as the number-one hurdle.
“Perhaps unsurprisingly, then, many leaders are feeling pessimistic. This year, 46 percent said they expect conditions to worsen in 2026, compared with 39 percent in last year’s survey. By geography, 36 percent viewed North America as unpromising or very unpromising, double last year’s share,” the report stated.
It observed, however, that not everyone is so downbeat, noting that among those polled, 25 percent believe industry conditions will improve, up from 20 percent in 2025, which it suggested shows some players see pockets of opportunity.
“Sentiment toward China is finally picking up, even as conditions remain difficult: 28 percent viewed the market there as unpromising in 2026, down from 41 percent heading into 2025,” the survey found.
In “The State of Fashion 2026: When the rules change”, fashion industry executives are reported to be contending with a “fundamentally new reality” including United States’ tariffs redrawing trade maps and forcing brands and their suppliers to rapidly adjust; consumers rethinking their spending while seeking value and devoting more of their budgets to achieve other goals, including their own well-being and longevity; and a rapidly changing technological landscape brought about by the swift onset of AI.
The report noted that while these ongoing disruptions in the industry may feel daunting, “they are in fact part of a wider set of longer-term systemic shifts.”
It acknowledged that fashion leaders have moved past uncertainty, but that the challenges of economic volatility, evolving consumer priorities, and rapid technological disruption demand from them and the industry “more agility and stronger capabilities to succeed in the year ahead.”
The report found that the dominant themes across the industry include agentic AI, the growth of the resale market, the quest for operational efficiency, and strategic renewal in the luxury sector.
As a result, it noted that the industry’s main agenda in 2026 will be adapting to a new environment where trade, consumer behaviour, and technology remain in rapid flux, adding that agile brands that can adapt quickly are likely to emerge as the winners.
The report underscored the impact agentic AI was having on the global fashion industry, noting that with turbulent conditions, including volatile input costs, supply chain disruptions, and slow growth, straining fashion’s economic model, AI is shifting from a competitive edge to a business necessity.
“Companies are reshaping workforces accordingly, with some existing jobs becoming more AI-centric, enabling roles to shift toward higher-value creative and analytical tasks,” the report explained.
According to the report, global fashion and luxury players have made progress deploying automation with generative AI in select functions for routine tasks, with more than 35 percent of executives reporting that they are already using it in areas such as online customer service, image creation, copywriting, consumer search, or product discovery.
“While finance and manufacturing roles will see the greatest overall impact from automation without gen AI, automation with gen AI could lead to huge productivity gains for fashion players in their marketing and sales functions,” the report stated.
Industry executives also identified fostering customer loyalty to be an important front line in the battle for customers, with the report noting that more than half of executives cited retention strategies as a key theme shaping the industry in 2026.
“To attract—and retain—customers, brands will need to give them what they want, and increasingly, that means offering value. While luxury players raised prices without corresponding improvements in product quality or creativity, design-led brands from the value segment up through affordable luxury elevated their products and store experiences,” the report noted.
Several product launches are expected in 2026, it observed, “with the offerings striking a balance between function and fashion in ways that may land better with consumers than earlier offerings did.”
The report summed up its findings by stating that 2026 will likely be another year of dislocation for fashion companies, noting that while on one hand the market is expected to see low growth, trade reconfigurations, and tech disruption, on the other, there are category-specific green shoots; rapidly evolving tools that will redefine how goods are created, discovered, and sold; and an injection of new creative energy that could revitalize the market.
“The rules governing the fashion system may now be in flux—which means there are opportunities for companies to rewrite them altogether,” the McKinsey report added.
