Why 50% of Fashion Executives Are Betting on Generative AI

The global fashion industry faces a pivotal year in 2025, marked by economic headwinds, shifting consumer priorities, and transformative opportunities, according to McKinsey & Company’s State of Fashion 2025 report and related analyses. With revenue growth projected to stabilize at low single-digit rates, brands must navigate a complex landscape of challenges while capitalizing on emerging trends to remain competitive.

Key Challenges and Industry Outlook

The industry’s economic profit growth in 2024 was driven entirely by non-luxury segments for the first time since 2010, signaling a shift away from luxury’s historical dominance. Regional disparities are stark:

• Europe: Benefits from falling inflation and tourism rebounds but faces low consumer confidence.
• Asia: Brands are pivoting to markets like India (projected to become the world’s third-largest consumer market by 2027), Japan, and Korea amid China’s slower post-pandemic recovery. India’s middle class, numbering 430 million, offers untapped potential for mid-market and luxury brands.

U.S.: Relies on high-net-worth individuals, though 72% of wealth is held by those over 55, underscoring the importance of engaging “silver spenders”.

Consumer Behavior and Market Dynamics

Value-Driven Shopping: 42% of U.S. consumers purchased dupés (high-quality counterfeit luxury items) in 2024, reflecting price sensitivity and shifting perceptions of value. Resale and off-price markets are expanding, with 39% of executives citing economic uncertainty as a top concern.

Sportswear Surge: Challenger brands like Hoka, On, and Vuori are outpacing incumbents (Nike, Adidas) in profit growth, driven by innovation and community-focused marketing.

Technology and AI-Driven Innovation

Generative AIis reshaping product discovery, with 50% of executives prioritizing it for personalized recommendations. McKinsey estimates 25% of AI’s potential in fashion lies in enhancing creativity, such as rapid prototyping and reducing sampling waste. In-store experiences are also evolving: 75% of consumers spend more after receiving high-quality service, highlighting the need for AI-powered “clienteling” tools.

Despite contributing 3–8% of global emissions, 63% of brandslag behind 2030 decarbonization goals. Climate-related disruptions threaten $65 billion in apparel exports by 2030, yet only 18% of executivesrank sustainability as a top growth risk. Collaborative efforts with suppliers and data-driven traceability are critical to bridging this gap.

Strategic Imperatives for 2025

McKinsey emphasizes agility as the defining trait for success. Key strategies include:

• Hyper-Personalization: Leveraging AI to curate tailored shopping experiences amid overwhelming digital choice.
• Regional Diversification: Investing in India’s youth-driven market and Middle Eastern luxury hubs like Dubai and Riyadh.
• Store Reinvention: Blending digital discovery with immersive in-store experiences, even as physical retail growth slows.
• Supplier Collaboration: Building resilient, climate-adaptive supply chains through long-term partnerships and analytics.

Leadership Insights

Gemma D’Auria, McKinsey Senior Partner, notes: “2025 is a time of reckoning. Brands must balance sustainability commitments with profitability while harnessing AI to unlock creativity and consumer insights”.

As the industry grapples with geopolitical volatility and generational shifts, its ability to innovate—while staying true to craftsmanship—will determine who thrives in this “maze of compounding challenges”.