Looking ahead to 2026, the word most frequently used to describe expected conditions in the fashion industry is “challenging,” surpassing “uncertainty” which was most common in 2024 and 2025.
As a result, the industry outlook for 2026 remains generally downbeat. Forty-six percent of executives expect industry conditions to worsen, an increase of 8 percentage points over the previous year. However, expectations have also become more polarised, as 25 percent also foresee industry conditions improving — a 5 percentage point increase.
Overall, the key reasons for concern remain broadly consistent with last year — nearly eight in 10 executives cite consumer confidence and appetite to spend as the top risk to industry growth. This is closely tied to geopolitical instability, with broader macroeconomic conditions continuing to make consumer behaviour more unpredictable.
More so than in previous years, disrupted trade flows and deglobalisation are weighing heavily on executives as they look ahead to 2026. Forty percent of leaders cite this as one of their top three risks (up 25 percentage points from last year), largely driven by new tariffs that are reshaping supply chains and raising input costs.
Industry growth is expected to remain low as macroeconomic uncertainty persists
McKinsey’s Fashion Growth Forecasts predict the global fashion industry will once again post low single-digit growth in 2026. Heightened macroeconomic volatility is expected to continue to weigh on sentiment and drive value-conscious consumer behaviour. Consumer sentiment has been especially challenged in the US in 2025. In April, the consumer confidence index hit its lowest level since May 2020 amid tariff announcements, with overall US industry growth expected to fall short of last year’s forecast for 2025.
The luxury segment is projected to see modest improvements across markets after a difficult 2025, supported by a flurry of creative resets fashion leaders hope will inject excitement into the industry.
Growth drivers will vary by region for fashion and luxury in 2026
Looking ahead to 2026, luxury is set to outperform fashion in all major markets, supported by resilient high-net-worth demand, travel retail recovery and selective brand investment, while fashion growth remains constrained by cautious consumers, inflationary pressure and muted sentiment. Regional macroeconomic conditions, wealth effects and category mix will play a decisive role in shaping performance across Europe, the US and China.
Europe: +1.4% GDP growth (2026E)
The fashion market in Europe is expected to grow by 1 to 2 percent in 2026.
- GDP growth is expected to remain steady in 2026, underpinned by a resilient labour market with stable unemployment rates.
- Disposable incomes are expected to grow slightly faster than 2025, with inflation easing from 3.3 percent to 2.5 percent.
- Consumers are expected to remain cautious, with over 60 percent of consumers planning to trade down in Q4 2025.
The luxury market in Europe is expected to grow by 1 to 3 percent in 2026.
- Duty-free spending is expected to grow in key markets (up more than 3%points in France, Italy and Spain) after 2025 spend was dampened by the US dollar’s decline against the euro.
- Domestic demand remains strong, with brands like Hermès, Richemont and LVMH reporting strong sales from local shoppers in H1 2025.
US: +2.1% GDP growth (2026E)
The fashion market in the US is expected to grow by 1 to 3 percent in 2026.
- The first full year of tariffs is set to intensify price pressures relative to 2025, with rising prices the top concern for US consumers.
- After a slowdown in GDP growth and an almost-four-year unemployment high in August 2025, GDP growth is set to stay low in 2026. Uncertainty remains around further Fed rate cuts.
- Consumer sentiment is still cautious, with confidence down by 3.6%points in September 2025 and ongoing uncertainty expected to weigh on sentiment into 2026.
The luxury market in the US is expected to grow by 2 to 4 percent in 2026.
- Equity market momentum continues to fuel wealth creation. The number of ultra-high-net-worth (UHNW) Americans rose 6.5 percent in H1 2025, following a 21 percent surge in 2024.
- While economic volatility and high prices curbed 2025 spend from aspirational buyers, creative resets could reignite demand.
- Brands are investing in the US luxury market, with retail square footage rising 65 percent in H1 2025, compared with a decline the year prior, reflecting efforts to restore growth.
China: +4.2% GDP growth (2026E)
The fashion market in China is expected to grow by 1 to 3 percent in 2026.
- GDP growth is projected to slow in 2026, with disposable income growth also expected to fall below 2024 and 2025 levels.
- With the real estate market still weighing on sentiment, consumer confidence remains subdued and saving rates elevated.
- Category performance is mixed: Sportswear sales are up 9 percent in 2025 driven by casualisation and focus on health and wellbeing, while the wider apparel market remains muted.
The luxury market in China is expected to grow by 2 to 4 percent in 2026.
- Domestic spend is set to rise modestly as affluent households are expected to grow 6 percent through 2027, while growth in outbound travel to key markets is expected to slow.
- UHNW consumer net intent to spend on luxury fashion in 2026 is 34 percent in China versus 27 percent on average in markets.
- Movements in the real estate or equity market remain an important factor influencing outcomes.
Fashion executives expect to increase prices more than last year
In 2026, nearly three-quarters of executives expect to raise prices — a 19 percentage point increase from 2025. In the fashion segment, 26 percent plan to increase prices by more than 5 percent, compared with 18 percent in the luxury segment, where growth has largely been price-driven in recent years. Regionally, North American executives expect to increase prices the most, with 45 percent planning to raise them by more than 5 percent in an effort to offset tariff-driven input cost increases.
Reflecting this, nearly one-quarter of executives in North America anticipate their cost of goods sold (COGS) will increase by more than 9 percent. Expectations of cost increases remain elevated across regions: Excluding North America, 11 percent of executives anticipate COGS to increase by more than 9 percent, compared to just 3 percent in 2025.
As these pressures persist, executives are focussing more on efficiency. In 2026, 69 percent plan to prioritise sales growth over cost improvements, down from 73 percent in the previous year. While top-line growth remains a key focus, the growing emphasis on cost management underscores recognition of higher costs and the need to improve productivity to protect margins.
Leaders say AI and digital tools will present the biggest opportunity for the industry in 2026
Using AI to manage cost pressures and future-proof growth: Executives identify scaling AI and related digital capabilities as the single biggest opportunity for 2026. To date, most applications have focused on siloed tasks such as copywriting, image generation and customer service. However, leaders are now looking to integrate AI across their businesses. The fashion industry has historically trailed other sectors in adopting AI, highlighting the need for the right organisational structure and skills to capture the full potential of AI-driven innovation.
Keeping differentiation front of mind: Executives continue to emphasise the need for a distinctive value proposition rooted in creativity and innovation. Given concerns around the unpredictability of consumer behaviour, this reflects an imperative for brands to differentiate to drive relevance.
Integrating sustainability into the business model: Executives are once again looking to sustainable practices as an opportunity to improve operations and meet consumer expectations. Circular approaches, including resale, were highlighted as areas where executives see potential to create value.
Navigating economic uncertainty: Executives no longer consider improved economic conditions in key markets among their top opportunities. Instead, leaders are focussing on building greater resilience through improving their own business operations and differentiating their offerings.
The 10 fashion industry themes that will set the agenda in 2026:
1. Tariff Turbulence
US tariffs are reshaping global trade as higher duties push up costs across the value chain, heavily impacting fashion. Brands are making price changes, shifting sourcing and improving efficiency in a bid to counteract the impact. Larger suppliers are pursuing footprint optimisation, digitisation and automation, while smaller players face mounting pressure. Agility will be the defining factor enabling brands and suppliers to maintain their competitive edge.
2. Workforce Rewired
Technology is reshaping workforces globally. Artificial intelligence investments are set to drive productivity, meaning some existing positions will become AI-centric and new roles will emerge. Fashion leaders must prioritise upskilling their workforces and acquiring new talent to stay competitive. Strong change management will be critical to capture AI’s full potential.
3. The AI Shopper
Artificial intelligence is already disrupting how consumers discover fashion. In the years ahead, autonomous AI shopping agents may even act on their behalf, completing tasks from monitoring prices to buying products. To ensure their products are visible — and favoured by — AI models, brands must rethink their digital marketing and e-commerce infrastructure, where semantically rich data and API-accessible content will be critical to success.
4. Jewellery Sparkles
With unit sales growth outpacing all other fashion categories, jewellery’s bright moment is set to continue into 2026. Having defied the broader luxury slowdown, the category will keep reaping the rewards of a growing customer base with a desire for long-lasting investments, self-expression and treating themselves. As jewellery cements its role as accessories centrepiece, fashion players will seek to capture their share of the category’s outsized growth.
5. Smart Frames
Style-conscious devices equipped with multi-modal AI are set to redefine the wearables landscape in 2026, with smart eyewear emerging as a leading format. Major players already have product launches scheduled, reflecting strong market momentum. With the category projected to exceed $30 billion by 2030, brands have a timely opportunity to partner with technology leaders to unlock high-value consumer use cases and accelerate adoption.
6. The Wellbeing Era
Wellbeing is becoming central to how consumers live, spend and define themselves. As they tire of attention-grabbing content, they are drawn to brands that reflect their shifting identities and offer them emotional connections. Fashion brands are responding by entering wellbeing-adjacent “third spaces,” but further opportunity lies in integrating these shifting priorities more holistically across the brand universe.
7. Efficiency Unlocked
In a challenging fashion market, companies must become more efficient to drive growth. Old advantages like scale and low-cost sourcing are no longer sufficient to sustain a healthy economic model. By taking advantage of new technology, businesses can improve productivity to reduce costs, unlocking resources to invest in differentiators that enable growth.
8. Resale Sprint
Customers are spending more on secondhand fashion in the search for value as prices continue to rise in the primary market. Marketplaces have made shopping secondhand mainstream, but brands must now define resale strategies of their own. While operational hurdles remain, the lure of untapped revenue will make resale an increasingly attractive way to bolster business models and brand perception.
9. The Elevation Game
From the value segment up to affordable luxury, fashion brands are moving upmarket. Some want to differentiate from ultra-low-cost competitors, while others aim to capture the former high-end shopper squeezed out by luxury prices. With margins under pressure and competition intensifying in 2026, these elevation strategies will gain new urgency. Product quality and standout experiences could help brands upgrade their positioning.
10. Luxury Recalibrated
The luxury slowdown is prompting a phase of strategic renewal. Brands are reducing their reliance on price-led growth and refocussing on creativity and craftsmanship to rebuild client trust. This recalibration calls for brands to balance the needs of distinct customer segments and integrate product, storytelling and client experience into a cohesive expression of brand value.
This article first appeared in The State of Fashion 2026, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company.
