1. 2026 Apparel industry economic outlook

Fashion industry braces for shifting rules and low growth

The global fashion industry is navigating a fundamentally new reality in 2026, characterized by persistent macroeconomic volatility, redrawn trade maps, and rapid technological disruption. Executives are seeking clarity amidst systemic shifts that demand heightened agility and disciplined capital deployment.

The overarching theme for the year is recalibration, as brands must adapt quickly to an environment where consumer priorities, trade policy, and technology remain in constant flux. Indeed, the word "challenging" has overtaken "uncertainty" in surveys among fashion executives polled by McKinsey & Company when describing the outlook in their annual ‘State of Fashion’ report in collaboration with BOF Insights.

The industry is expected to post low single-digit growth in 2026 according to McKinsey, forcing leaders to prioritize efficiency and profitability over pure volume expansion. This outlook is tempered by geopolitical friction, fluctuating interest rate environments, and evolving consumer demand for value, experiences, and well-being.

This article is designed to provide fashion industry professionals with the existing data, data estimations and strategic insights required for informed planning in the year ahead.

Projected GDP and inflation impact on consumer spending

Global economic expansion is forecast to slow modestly in 2026, a deceleration driven primarily by ongoing macroeconomic headwinds and persistent, albeit cooling, inflation. According to the October 2025 World Economic Outlook [WEO] published by the IMF, world output is projected to grow at a constrained 3.1% in 2026. This trend suggests that policymakers in major economies, including the US and the euro area, will continue to have room to implement monetary easing policies and reduce interest rates.

Inflation continues to moderate across major economies; however, its persistence exerts a strong direct effect on discretionary spending, forcing consumers to seek greater value across purchase categories. This value-conscious behavior is especially pronounced in the mass and mid-market segments.

Analysis of key markets reveals divergent paths:

The US: Growth is supported by resilient consumption, driven by healthy household balance sheets and rising wealth according to the 2026 Economic Outlook by Morgan Stanley. The expansion is also fueled by significant capital spending on artificial intelligence [AI] technologies. U.S. output growth is projected at 2.1% in 2026. While household finances are strong, tighter credit conditions and uncertainty surrounding new trade barriers pose risks to real disposable income growth. Consequently, the fashion industry in the US must contend with a consumer base that remains judicious in its allocation of spending.

China: Despite enduring economic difficulties related to the property sector and slowing global demand, China's market sentiment is beginning to recover. China’s gross domestic product [GDP] is projected to expand by 5% in 2026 according to Morgan Stanley. For the luxury segment, the pace of the post-pandemic recovery remains closely tied to the resurgence of high-net-worth individuals [HNWIs] spending domestically and internationally.

Europe: The euro area is projected to see moderate GDP growth of 1.1% in 2026 (Morgan Stanley). Consumer sentiment across the main five markets remains cautious despite a resilient labour market, leading to pervasive trading-down behavior. Post-Brexit trade friction continues to impact supply chain efficiency and cross-border e-commerce flows.

Luxury segment faces measured growth as value sector continues to rise

The economic forecast for the fashion industry suggests a clear market split: the top and bottom price segments are expected to show resilience, while the middle-price segment will face increasing pressure.

Luxury (Haute Couture and High-End Ready-to-Wear)

Following a period of deceleration in 2025, the luxury sector is poised for modest growth, propelled by strategic recalibration and renewed investment in key markets such as the US. Luxury houses are moving away from price-led growth strategies that alienated aspirational consumers. The focus is now shifting toward emphasizing high product quality, rarity, and craftsmanship to reinforce brand value and appeal to ‘established’ high-net-worth individuals [HNWIs] reports Bain&Company / Altagamma.

Category performance reveals clear winners:

Fine jewellery and watches are outperforming leather goods and apparel.

The jewellery category defied the broader luxury slowdown, increasing prices more slowly than other apparel categories and benefiting from the growing consumer desire for long-lasting investments, which appeals to HNWIs and fuels self-gifting trends. This sector is expected to grow by unit sales at a rate more than four times that of clothing, according to the State of Fashion report.

Value/Fast Fashion and the elevation game

Amid continued cost-of-living pressures, the appeal of value propositions remains robust. However, competition within the sector is intense, marked by new market entrants utilizing social commerce models and expanding volumes. The fastest-growing segment of the industry is currently the mid-market or accessible luxury as described by Bain& Company, which is increasingly viewed as the main source of value creation in the market.

In response to market saturation and competition from ultra-low-cost players, many brands in the value segment up through affordable luxury are executing an ‘elevation game’. They are focusing on improving product quality and design aesthetic and the in-store experience to match the emotional connection previously exclusive to luxury. This strategic upward movement aims to capture shoppers squeezed out by rising luxury prices, while differentiating themselves from high street rivals.

Mid-Market/Specialty Retail

The mid price segment faces intense pressure, squeezed by high-low consumer behavior that favours either extreme value or core luxury. Brands lacking a clearly defined value proposition or authentic brand storytelling risk market share erosion and, potentially, consolidation.

Apparel categories and regional spotlights

Category analysis

Womenswear continues to drive the highest volume but faces ongoing fragmentation.

Menswear is showing momentum, partly driven by the rise of self-gifting and spending on non-apparel items such as smart frames according to McKinsey.

Kidswear remains comparatively stable, driven by non-discretionary purchases.

Regional Focus

Europe: The euro area is projected to see moderate GDP growth of 1.1% in 2026. Despite a resilient labour market, consumer sentiment across the main five markets remains cautious, characterized by pervasive trading-down behavior. Furthermore, post-Brexit trade friction continues to impact supply chain efficiency and cross-border e-commerce flows, increasing the cost of doing business in the UK and its partners.

Asia-Pacific [APAC]: Outside of China, APAC offers key growth areas. Markets such as South Korea and Japan are anticipated to rebound, driven by strong domestic consumer bases and cultural relevance that dictates spending, establishing them as vital hubs for luxury and premium consumption.

Sourcing and logistics remain critical cost drivers

The operational calculus remains complex, defined by margin pressure and persistent supply chain risk.

The core challenge stems from tariff turbulence that is actively reshaping global trade networks. Higher duties impose mounting costs across the entire value chain, heavily affecting the fashion sector.

Commodity Volatility: Commodity price volatility for inputs like cotton and synthetics continues to create uncertainty, making reliable gross margin projections challenging.

Trade Friction and Logistics: Geopolitical factors continue to destabilize global shipping routes, increasing transit times and freight costs. This mandates proactive management of sourcing and logistics functions to maintain market competitiveness.

Sourcing Shift: The trend towards nearshoring and reshoring is accelerating, with brands actively seeking to move production closer to end-markets in regions like Turkey, Eastern Europe, and Central America. This strategy, while offering greater supply chain agility, typically introduces higher immediate labour costs. Agile brands able to optimize their sourcing footprints through rapid digitization will be best positioned to offset this inherent trade friction.

Labor dynamics and wage pressure

Labor challenges manifest across the corporate and manufacturing functions:

Manufacturing Hubs: Wage inflation remains a key issue in major manufacturing hubs such as Vietnam and Bangladesh, putting pressure on bottom-line margins for mass-market manufacturers.

Corporate Talent: A ‘talent war’ is intensifying for specialized digital and data analytics roles at corporate headquarters. As AI becomes a business necessity, companies must compete beyond the traditional fashion ecosystem to acquire new talent proficient in agentic AI and complex data models.

Investment shifts toward profitability over pure volume growth

Capital discipline is replacing the pre-2025 focus on unconstrained volume growth. Investment is being strategically channeled into areas that build core capability and drive sustainable margins, according to fashion professionals surveyed for the State of Fashion report.

E-commerce

The explosive, pure volume growth experienced by the e-commerce channel during the Covid-19 pandemic is normalizing. The imperative is shifting from acquisition volume to profitability within the direct-to-consumer (D2C) model. A key driver here is the rapid disruption caused by AI, as autonomous AI shopping agents fundamentally alter how customers discover and purchase products. The shift toward agentic commerce means brands must invest in semantically rich data and API-accessible e-commerce infrastructure to ensure their products remain visible to and favoured by AI models. This re-prioritization means customer acquisition cost (CAC) continues to be a central metric under severe upward pressure.

Omnichannel

The core strength of a brand now relies on harmonizing brick and mortar and digital experiences. The physical store must be fully integrated as part of the digital experience, improving services such as click and collect efficiency and deploying in-store technology for personalized clienteling and seamless transitions between channels.

Sustainability and resale

Sustainability remains a long-term capital expenditure priority, particularly due to evolving European Union regulatory demands. Concurrently, the second-hand fashion market is no longer a peripheral niche but a fully integrated growth channel.

The appeal of second-hand fashion, or pre-loved goods, is high amid rising prices in the primary market.

Boston Consulting Group projects that the resale market will grow two to three times faster than the first-hand market through 2027.

Brands are developing proprietary resale strategies to bolster their business models, leveraging it not only as an untapped revenue source but also as a powerful tool to build loyalty with existing customers and acquire aspirational shoppers at a more accessible price point.

Mergers and acquisitions activity expected to remain selective

The mergers and acquisitions [M&A] landscape is expected to remain highly selective, favoring strategic deals over large-scale consolidation.

Consolidation: Opportunity for M&A exists in the squeezed mid-market, where brands lacking differentiation may be acquired for their consumer base or physical footprint.

Technology Acquisition: Strategic acquisitions will prioritize technology platforms, particularly those specializing in AI capabilities, supply chain optimization, and consumer data analytics platforms, necessary to navigate the digital transition and mitigate supply chain risk.

Summary of core risks and opportunities

The year 2026 presents a dual landscape of constraint and opportunity. The global fashion industry faces low single-digit growth and persistent operational complexity from trade friction. However, the shifting rules governing the fashion system also offer opportunities for agile companies to rewrite them altogether.

Executive focus should adhere to three core strategic priorities for success:

Prioritizing capital discipline and pursuing a relentless focus on D2C profitability.

Ensuring supply chain agility to mitigate geopolitical and logistical disruptions.

Selectively investing in the transformation required by AI and in integrated omnichannel retail to meet the demands of the value-conscious, wellness-focused consumer. The long-term outlook beyond 2026 is dependent on the industry's ability to fundamentally transform its economic model and operational capabilities now.

This 2026 Outlook is based on articles published on FashionUnited and combined with external source material. It was written with the help of AI

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