The global fashion industry looks set to endure another challenging year ahead, amid economic uncertainty, high inflation and shifting customer behaviour.
In the State of Fashion 2025 report, published annually by the Business of Fashion (BoF) and McKinsey & Company, the industry’s growth outlook for 2025 is expected to be a continuation of the sluggishness seen in 2024, with revenue growth forecast to stabilise in the low single digits.
The McKinsey Global Fashion Index forecasts that in 2025, it will be non-luxury that will drive the total increase in economic profit, marking the first time since 2010 (excluding the COVID-19 pandemic) that luxury underperformed in value creation.
With inflation continuing to decline in many countries, the industry will benefit from falling cost pressures and increases to tourism in Europe. The American high-net-worth individuals have proved resilient and new growth areas in Asia - Japan, Korea, and India are forecast to help counteract China’s macroeconomic headwinds.
Luxury growth drivers
In Europe luxury demand is expected to be low, affected by a cautious consumer sentiment there, but foreign travellers to Europe are expected to drive market growth.
In the U.S. however, the aspirational middle-and upper-class consumers are seen to have a higher disposable income to spend on luxury, amid decreasing inflation and a robust real estate market.
In China, luxury growth is expected to remain below historical levels as growth among ultra-high-net-worth individuals slows, with a slight uptick forecast in late 2025.
On a brighter note in Asia, Japan’s luxury boom is expected to continue into 2025, after the country’s luxury market grew 25% to 30% in the first half of 2024, driven by ongoing currency weakness and a surge in tourism.
Consumer shifts
Changing customer behaviour is driving a slowdown in China, despite brands such as Prada Group and Hermès reporting double-digit growth in Asia (excl. Japan) in the first half of 2024, with luxury growth in China estimated to be negative 3% down from 12% in 2023.
Recent government stimulus measures are expected to support luxury demand, but this may not translate to domestic sales.
These regional differences are set to become even more apparent in the coming year, with the outlook for the fashion industry in 2025 set to be particularly turbulent and uncertain.