46% of fashion executives expect conditions to worsen in 2026: McKinsey

Fashion industry executives are bracing for the worst year on record, according to the latest State of Fashion survey from The Business of Fashion and McKinsey & Company. 46% of executives surveyed expect industry conditions to worsen in 2026, whilst only 25% anticipate improvement, marking the most pessimistic sentiment since the annual survey began tracking executive outlook. The findings, released ahead of a year marked by economic uncertainty and geopolitical instability, suggest the fashion industry is preparing for sustained headwinds across multiple fronts.

What is driving the record pessimism amongst fashion executives?

Economic volatility, geopolitical tensions and tariff uncertainty are weighing heavily on executive confidence as the industry enters 2026. The survey reveals a marked shift from previous years, when executives typically maintained cautious optimism even during challenging periods. This year's sentiment reflects a confluence of macroeconomic pressures that show few signs of abating, from inflation concerns to supply chain fragility and shifting consumer spending patterns.

The luxury sector, which has historically driven industry growth, faces particular challenges as Chinese consumer demand remains weak and US market dynamics shift. These twin pressures on the industry's most profitable segment contribute significantly to the overall pessimistic outlook, as luxury brands have traditionally provided a buffer during downturns.

How does 2026 compare to previous years?

The gap between pessimists and optimists has never been wider in the State of Fashion survey's history. The 21 percentage point difference between those expecting deterioration and those anticipating improvement represents a dramatic reversal from more balanced sentiment in previous editions. Even during the COVID-19 pandemic, executive outlook did not reach such deeply negative territory, suggesting that current concerns extend beyond temporary disruption to more structural challenges.

The remaining executives surveyed fall into a neutral category, expecting conditions to remain roughly stable. However, the distribution heavily skewed towards pessimism indicates that even stability may be viewed as a positive outcome by many industry leaders navigating 2026.

Which segments and regions face the greatest challenges?

Luxury brands are confronting a particularly difficult environment, with weakness in Chinese consumer spending and challenges in the US market creating a two-front pressure on growth. China has served as a critical growth engine for luxury fashion over the past two decades, making the current slowdown especially concerning for brands that have built significant exposure to the market.

The US market faces its own set of complications, with consumer confidence affected by economic uncertainty and potential policy changes. Mid-market brands are caught between premium pricing pressure and competition from value-oriented retailers, whilst value players must navigate thin margins in an environment of persistent cost inflation.

Regional variations in outlook suggest that executives see limited bright spots globally, with few markets offering clear opportunities for expansion or growth in the near term. This geographic breadth of concern distinguishes 2026's outlook from previous downturns that were more regionally concentrated.

What are executives prioritising despite the bleak outlook?

Even as industry leaders prepare for deteriorating conditions, the survey identifies strategic investment areas that executives view as critical for navigating the downturn and positioning for eventual recovery. Technology adoption, particularly artificial intelligence applications, remains a priority despite budget pressures, as companies seek efficiency gains and competitive advantages through automation and data analytics.

Sustainability initiatives continue to receive attention, driven by both regulatory requirements and evolving consumer expectations. Executives recognise that environmental and social governance considerations cannot be postponed, even during difficult trading conditions, as stakeholder pressure from investors, regulators and customers continues to intensify.

Key executive priorities for 2026 include:

• Implementing AI and automation to improve operational efficiency and reduce costs
• Strengthening supply chain resilience to mitigate geopolitical and tariff risks
• Advancing sustainability programmes to meet regulatory requirements and stakeholder expectations
• Optimising inventory management to protect cash flow in uncertain demand environments
• Investing in direct-to-consumer channels to improve margins and customer relationships

How should the industry respond to deteriorating conditions?

The record pessimism captured in the McKinsey survey suggests that fashion companies must adopt defensive strategies whilst maintaining focus on long-term competitive positioning. Cost discipline will be essential, but executives must balance short-term savings against investments that enable future growth once conditions improve.

Supply chain agility has emerged as a critical capability, allowing companies to respond quickly to demand shifts and mitigate disruption risks. The ability to adjust production volumes, diversify sourcing and manage inventory levels will distinguish successful operators from those caught with excess stock or missed opportunities.

Customer-centricity becomes even more important during downturns, as brands compete for reduced consumer spending. Companies that understand shifting preferences, deliver value and maintain engagement through difficult periods position themselves to capture disproportionate share when recovery arrives. Digital capabilities, personalisation and seamless omnichannel experiences remain differentiators even as overall spending contracts.

The fashion industry has weathered significant challenges before, from financial crises to pandemics. The 2026 outlook, whilst historically pessimistic, may ultimately prove to be conservative if executives successfully navigate the identified risks. However, the breadth and depth of concern amongst industry leaders suggests that companies unprepared for sustained difficult trading conditions may face existential challenges in the year ahead.