The fashion industry is heading into 2025 with a mix of challenges and opportunities.

A new report by The Business of Fashion and McKinsey highlights how economic slowdowns, shifting consumer preferences, and sustainability pressures reshape the landscape. Brands that adapt quickly could find success in this changing environment.

Global fashion revenue is expected to grow only slightly, continuing the sluggish pace of 2024.

For the first time in over a decade, non-luxury segments are set to outpace luxury in driving profit. However, just 20% of industry leaders believe consumer sentiment will improve next year, with many citing economic uncertainty and geopolitical instability as key risks.

India and Japan are emerging as bright spots in an otherwise slow market.

India’s economy is projected to grow by 7%, fueled by its 430-million-strong middle class and a rapidly digitizing retail sector. Non-luxury fashion could see annual growth of up to 17%.

Meanwhile, Japan’s luxury market is booming, growing as much as 30% in 2024, thanks to a weak yen and rebounding tourism.

China, once the industry’s growth engine, is slowing down. Domestic brands now dominate non-luxury sales, and a trend of “luxury shame” is shifting consumer preferences toward more understated products.

While government measures may boost spending, international luxury purchases are increasingly happening outside China.

Older shoppers and budget-conscious consumers are playing a bigger role. In the U.S., people over 50 hold 72% of their wealth, making them a key demographic for brands.

Cost-conscious behaviours are also sticking around, with 70% of consumers planning to shop at off-price retailers even as inflation eases.

Technology is becoming a critical tool for brands. Half of industry executives see AI as a key driver for improving product discovery and customer engagement. However, sustainability is taking a back seat.

Despite producing up to 5 billion excess items in 2023, many brands need help prioritizing sustainability amid economic pressures.

The global supply chain is undergoing major changes. U.S. imports from China have dropped by 6% since 2019, with brands shifting to India, Vietnam, and Bangladesh.

Nearshoring is also rising, with companies looking to regions like Latin America and Turkey for faster production and greater resilience.

Sportswear brands are experiencing a shake-up, with smaller challengers capturing more than half the market’s profits.

Meanwhile, online marketplaces are struggling, with some seeing stock prices drop by over 70% since their pandemic highs. Despite these challenges, opportunities remain for brands willing to innovate and localize their strategies.