The fashion industry faced a challenging year in 2024, marked by historic shifts in value creation dynamics. Growth was sluggish compared to previous years, with luxury diluting economic profit results for the first time in a decade. In contrast, mid-market players in non-luxury fashion outperformed other segments.
Looking ahead to 2025, fashion executives will need to navigate reduced consumer confidence amid evolving geopolitical and macroeconomic challenges. Innovative strategies will be critical to re-engage consumers in an increasingly competitive market.
Some predictions:
- More companies will look to restructure their groups to offload underperforming assets. We've already heard rumours of Capri Holdings contemplating a sale of Jimmy Choo and Versace after its failed merger with Tapestry. This will let them focus on Michael Kors (Kors brought in $738mn Q2 2024 vs $201mn for Versace and 140mn for Jimmy Choo)
- There will be greater consolidation across the industry. Companies will merge with or acquire other complementary companies to successfully scale into new consumer demographics, products, and geographies. Just this month we saw Saks Global finalise its acquisition of Neiman Marcus, bringing the luxury department store chain into its fold through a $2.7 billion deal.
- Brands will increasingly be held to higher ESG standards as a result of incoming regulations adopted globally. This year saw the Italian court put Dior under judicial administration for failing to have adequate oversight of working conditions at its contracting companies. ASOS and Boohoo were also investigated by the UK competition regulator for allegedly misleading consumers with their "green" claims.
While top-line growth is expected to remain low (possibly even flat), numerous opportunities still exist for brands to protect and grow market share. 2025 will be an interesting year
My top 10 takeaways from the BOF-McKinsey's State of Fashion Report 2025 are below:
1) Silver Spenders: An Underserved Opportunity
For the past couple of years, the industry has heavily focused on catering to younger markets. In fact, almost 60% of fashion executives still plan to target Gen-Z and Millennials going into 2025, despite these groups being more price-sensitive and prone to brand-switching.
Here's the thing, an equally lucrative but underserved segment could provide brands with new growth: the "silver spenders".
In 2024, individuals aged 55 and over held 72% of U.S. wealth. They're a group that's more financially resilient given where they are in life and they prioritise functionality and experiences over price. This presents a distinct opportunity. Consumers aged 50 and above are projected to drive 48% of global spending growth in 2025.
To capitalize on this opportunity, inter-generational campaigns will be key to striking a balance between appealing to younger generations and targeting the financially resilient older demographic.
2) Supply Chain Diversification
The global trade landscape has become increasingly restrictive. The reality is it's more difficult to do business in other countries than ever. In 2023 almost 3,000 trade restrictions were imposed across the world — almost five times more than in 2015. Trump's administration is also likely to shake things up in the year ahead.
Brands are reconfiguring their trading strategies as they realise being too dependant on one country holds incredible risk to their supply chains. Rising labour costs, political complexities and supply chain disruptions are driving brands to diversify sourcing strategies.
2025 is likely to see brands blend near-shore and offshore approaches. Key sourcing destinations include:
- Asia: India, Vietnam, and Bangladesh
- Europe and Latin America: Turkey, Brazil, and Mexico
But how quickly these models will be viable remains to be seen. Mexico overtook China for the first time as the largest import into the US last year, but it took almost 40 years to build out.
3) New Regional Growth Engines
China's ongoing economic deceleration combined with changing consumer habits, particularly with international travel, are pushing brands to scope out alternative growth engines in Asia.
Japan and Korea are hot picks as mature markets with strong domestic and international spending power.
India, Indonesia and Thailand are also emerging opportunities driven by infrastructure and policy improvements. India, in particular, is the third largest consumer market in the world and has an accelerating middle class population of 430 million people. Non-luxury is expected to grow from 12% to 17% and luxury is expected to grow 15 to 20%. This presents a significant opportunity for fashion brands to tap into.
4) AI-Powered Brand and Product Discovery
Most of us have had that familiar feeling of swimming in choices when browsing online. So it comes as no surprise that 74% of consumers have abandoned shopping carts because they feel overwhelmed by excessive options.
Generative AI is emerging as a key solution, with 50% of executives identifying it as central to improving consumer experiences online. AI-powered curation can help address decision fatigue by personalising and streamlining options so that customers can discover brands and products more effectively.
5) Value-Conscious Consumption
Even as economies recover and inflation decreases, consumers continue to focus on spending less and spending smarter. These shopping habits are expected to continue into 2025 even where disposable income increases.
Consumers want value for money, which is why value-driven segments like resale, rental, outlet/off-price retailers, and dupe brands are expected to grow. Resale alone is worth about $200bn and may grow as much as 20% in the coming years. GenZ in particular has become accustomed to secondhand shopping through mass-market platforms. They see platforms like Vinted and the Vestiaire Collective offering lower prices for on par (or better) quality items. This is matched with a strong and trustworthy authentication processes.
6) The Role of In-Person Retail
Despite the rise of digital influence, human interactions in physical stores remain pivotal to client experience. Well-trained staff that can provide tailored advice and services can be the deciding factor into whether a client converts into an active purchaser both within the store and later through online channels. 75% of customers are likely to spend more after receiving high-quality attention by store personnel.
A combination of staff training and frictionless omnichannel integration will be key to strengthening the client experience.
7) Challenges for E-Commerce Platforms
Facing a combination of rising customer acquisition costs, high return rates, and increasing competition from brands like Shein and Temu, many online fashion marketplaces have struggled this year. Earlier in the year we saw Matchesfashion go into administration. Share price on average have also seen a 77% decline between Jan 2021 — Sep 2024. The scale and pace at which e-commerce has grown hasn't been sustainable.
Going into 2025, some online marketplaces are exploring new business models and technology, while others have considered mergers or acquisitions to offset some of these challenges. We've already seen movement in the market with Farfetch and Coupang, and Yoox Net-a-Porter and Mytheresa.
8) Challenger Brands in Sportswear
Challenger brands in fashion are thriving and the sportswear segment is no exception. Companies like Deckers and Asics have outpaced incumbent players like Nike, Adidas, and Puma. Challenger brands now own 57% of the market, which marks an incredible shift. This success has in part been to strategic focus on product innovation, targeted category specialisation and marketing that resonates with consumers.
9) Optimising Inventory Management
Excess inventory continues to plague the fashion industry, with 2.5–5 billion surplus items valued at $70–$140 billion produced in 2023 alone.
Sourcing models in the fashion industry have remained largely unchanged since the 1990s. Many garments are still sourced from countries like China, which offer labor and cost advantages. However, this approach often results in extended lead times and oversized inventories due to the time required for manufacturing and transportation. As a result, it's not uncommon for major brands to hold up to 120 days worth of inventory. This lag creates a significant disconnect between supply and demand, complicating effective inventory management.
Heading into 2025, brands will face mounting margin pressures and regulatory scrutiny, pushing them to optimise inventory management. Leveraging technology will enable more agile supply chain models through data-driven trend analysis and more accurate forecasting.
10) Sustainability: A Decreased Priority
Sustainability is slipping down the industry agenda, with only 18% of executives citing it as a top-three risk for growth in 2025, compared to 29% in 2024. Yet, over 63% of brands are behind on their sustainability targets to be reached by 2030.
The fragmented nature of the fashion supply chain, combined with consumers' reluctance to pay a premium for sustainable products, remains a significant challenge for brands. While new regulations in 2025 are expected to drive progress on the sustainability agenda, meaningful change will likely require collective action to share and reduce the associated costs.
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