Storm clouds are gathering, but the experiences of recent years show how the fashion industry can overcome the challenges ahead. The McKinsey Global Fashion Index showed once again the sector’s resilience in 2022, indicating that it nearly matched the record economic profit of 2021. Repeating the model of the previous year, the luxury segment performed better, with a 36 percent increase in economic profit that offset weakness in other segments. Yet even the non-luxury segment remained above its long-term average. Strong margin performance meant that in 2022 the sector, except for one year, generated more than twice the economic profit of any year between 2011 and 2020.

In 2023, the industry faced both persistent and deepening challenges. Regionally, Europe and the United States experienced slow growth throughout the year, while China’s initially strong performance lost momentum in the second half. The luxury segment also started the year well, but began to feel the effects of weak demand in the second half, leading to a slowdown in sales and uneven performance.

Looking ahead to 2024, the most prominent sentiment among fashion industry leaders is uncertainty, reflecting the likelihood of weak economic growth, persistent inflation, and weak consumer confidence. In this environment, businesses will struggle to identify value pools and unlock the key drivers of new performance.

According to McKinsey’s fashion forecast analysis, the global industry is expected to record revenue growth of 2 to 4 percent in 2024, with differences at the global, regional, and country levels. Once again, the luxury segment is expected to take the largest share of economic profit. But even there, companies will face a difficult economic environment. As consumers curb spending after post-pandemic volatility, the segment is expected to grow globally by 3 to 5 percent, compared with 5 to 7 percent in 2023. While growth is slowing in Europe and China, growth in the U.S. is expected to recover after weakness in 2023, reflecting a slightly more optimistic outlook there.

Beyond luxury, parallel to the probable outcome of 2023, the rest of the sector is expected to grow by 2 to 4 percent next year. Compared with Europe’s growth of 5 to 1 percent in the second half of 2023, the European market will likely expand by only 1 to 3 percent. Weak consumer confidence and reduced household savings are expected to be the most likely reasons for constrained spending. The U.S. non-luxury sector is expected to grow by 0 to 2 percent. China is also expected to face growth of 4 to 6 percent; although this would be a slight increase compared with the end of 2023, historically it would still be slow.

These are just a few of the findings from The State of Fashion 2024, published by The State of Fashion 2024 , published by Business of Fashion (BoF) and McKinsey. The eighth report in the annual series analyzes the forces shaping the fashion economy and evaluates the sector’s potential responses. Drawing on in-depth research and many conversations with industry leaders, it identifies the key trends that will shape the fashion landscape in the year ahead.

Uncertainty in the Face of the Wind

Because of conflicts in Europe and the Middle East and tense international relations elsewhere, fashion industry executives’ number one concern heading into 2024 is geopolitics, followed by economic volatility and inflation. In the survey conducted in September, about 62 percent of executives said geopolitical instability was the biggest risk to growth. Economic volatility was cited by 55 percent, and inflation by 51 percent (compared with 78 percent last year). Global average inflation is estimated to fall from 6.9 percent in 2023 to 5.8 percent (still high by historical standards).¹

In a difficult economic environment, executives’ views on the future of the sector are more divided than in any year since the BoF-McKinsey Executive Survey began in 2017. While 26 percent of respondents said they expect conditions to improve year over year, 37 percent and 38 percent said conditions will remain the same or worsen.

Uncertainty in the sector reflects the broader economic environment despite regional differences. Heading into 2024, pressure on household incomes is expected to reduce apparel demand and decrease cross-category spending. Even so, some geographic bright spots may provide relief. One of these is India, where consumer confidence reached its highest level in four years in September 2023.² According to executives based in India, the country is improving. McKinsey’s Global Economics Intelligence survey shows that 85 percent of respondents expect conditions to improve over the next six months.³ China faces economic challenges, but consumers there still show more willingness to shop for fashion in 2024 than consumers in either the U.S. or Europe.

10 Themes for 2024

Preparing for challenges and staying alert to opportunities will likely lead top fashion companies to prioritize urgent scenario planning for the coming year. One of the main themes will be companies that accelerate growth while managing prices carefully and tightly controlling costs and inventory. Brands and suppliers can expect an increasingly competitive environment. Yet opportunities will also come from consumers’ discovery of new styles, tastes, and priorities; all of these present ways to create value. As in previous years, this year’s report highlights ten new themes that will sit at the top of leadership agendas.

• Global economy:

  • Fragmented future. In 2024, the global economic outlook will remain unstable as financial, geopolitical, and other challenges continue to negatively affect consumer confidence. China, Europe, and the U.S. consumer markets will likely face headwinds reflecting their respective regional dynamics. Suppliers, brands, and retailers may need to support urgent scenario planning and manage uncertainty.
  • Climate urgency. The frequency and severity of extreme weather events related to climate conditions in 2023 show that the climate crisis has become a much more urgent priority than in previous years. As physical and transition risks increase across continents, the industry must not delay fighting emissions and building resilience in supply chains.

• Consumer shifts:

  • Vacation mode. Consumers are preparing for the biggest travel year since before the pandemic. But shifting values mean that although shopping remains a priority, expectations are also changing. Brands and retailers must update distribution and category strategies to reflect new realities.
  • The new face of influence. As a new wave of creators wins admiration, it is time for brand marketing playbooks to be refreshed. In 2024, working with opinion leaders will require a different kind of collaboration, more emphasis on video, and a loosening of creative control.
  • The outdoors rediscovered. As consumers adopt healthier lifestyles, technical outdoor clothing and “gorpcore” continue to attract demand. In 2024, more outdoor brands are expected to bring lifestyle collections to market. At the same time, lifestyle brands will likely incorporate technical elements into their collections, further blurring the line between functionality and style.

• Fashion system:

  • Generative AI’s creative crossroads. After the breakthrough year of generative AI in 2023, more use cases are emerging in the sector. Capturing value will require fashion players to look beyond automation and explore the potential of generative AI to enhance creative human work.
  • Fast-fashion’s fierce game. Competition in fast fashion will be more intense than ever. Rivals led by Shein and Temu are introducing new tactics in price, customer experience, and speed. For established and local companies, success may depend on adapting to new consumer preferences while navigating a growing regulatory agenda.
  • All eyes on the brand. As fashion moves away from performance marketing, brand marketing is expected to regain attention. Marketers will need to rewrite their tactics to build long-term brand value by leveraging consumers’ emotional ties to brands.
  • Sustainability rules. The fashion industry’s era of self-regulation is nearing its end. Across affected areas, the new rules will have significant consequences for both consumers and fashion players. Brands and manufacturers may consider redesigning their business models to adapt to coming changes.
  • The bullwhip pulls back. Shifts in consumer demand have created a “bullwhip effect” in which order fluctuations reverberate unpredictably along supply chains. As brands and retailers focus on transparency and strategic partnerships, suppliers will likely continue to face pressure.

Looking Ahead

As the sector continues to battle geopolitical and economic headwinds, fashion leaders in 2024 will try to strike a careful balance between managing uncertainty and capturing opportunities. Since cost-saving tactics are largely exhausted, companies may focus on increasing sales supported by new pricing and promotional strategies. According to the BoF-McKinsey Executive Survey, net intent to raise prices across the sector is above 50 percent. At the same time, easing cost pressures could offer some upside to performance.

As climate change brings increasingly severe weather events and global temperatures continue to rise, the coming year will likely push the industry to focus more on environmental, social, and governance issues. Our survey shows that executives see this topic as both the number one priority and the number one challenge. The most successful companies will find a balance among sustainability initiatives, risk management, and commercial obligations.

In an uncertain world, consumer discretionary spending will tilt toward trusted categories and brands. Hard luxury goods such as jewelry, watches, and leather goods are likely to see demand, reflecting their durability in economic downturns as investment items. Consumers are also expected to travel more and spend more time outdoors. And they are choosing emotional connection and originality over celebrity endorsement.

Ultimately, executives are preparing for a strategically complex year ahead. To withstand uncertainty, leading companies will prepare for a range of outcomes. The most successful will become more resilient, better equipped to deal with challenges, and ready to accelerate when the storm clouds begin to clear.