46% of fashion executives expect industry conditions to worsen in 2026

Nearly half of fashion executives expect industry conditions to deteriorate in 2026, according to the latest State of Fashion survey from The Business of Fashion and McKinsey & Company. The proportion of executives expecting worsening conditions rose to 46% for 2026, up from 39% who anticipated deterioration in 2025. The shift reflects mounting concerns over trade policy uncertainty, persistent cost pressures and weakening consumer demand across key markets.

What is driving the rise in pessimism among fashion executives?

Three interconnected factors dominate the industry's darkening outlook: geopolitical trade tensions, structural cost inflation and fragile consumer confidence. Trade and tariffs emerged as the top concern for 2026, cited by executives as a critical challenge. The threat of new or expanded tariffs on apparel imports has created planning paralysis for brands that rely on global supply chains, particularly those sourcing from Asia.

Cost pressures remain unrelenting. Raw material prices, labour costs and logistics expenses continue to squeeze margins even as many brands struggle to pass increases on to price-sensitive consumers. The combination of stubborn inflation and cautious consumer spending has compressed profitability across market segments, from value retailers to luxury houses.

Consumer demand has softened notably in several major markets. China's luxury market has faced significant challenges, with consumers pulling back on high-end purchases. In Western markets, middle-income shoppers are trading down or delaying discretionary purchases as cost-of-living concerns persist into 2026.

How are tariffs affecting fashion supply chains?

Trade policy uncertainty has become one of the most disruptive forces in fashion planning cycles. Many executives cite the unpredictability of tariff regimes as more damaging than the tariffs themselves, since it prevents long-term sourcing commitments and forces brands to maintain costly flexibility in their supply chains.

The impact extends beyond direct cost increases. Brands are reassessing sourcing strategies, exploring nearshoring options and building buffer inventory, all of which tie up capital and reduce agility. For smaller brands with limited resources, the compliance burden and need for supply chain diversification represent existential challenges.

Which market segments face the greatest headwinds?

Luxury brands confront a particularly difficult environment. The aspirational consumer segment, which drove much of luxury's growth in recent years, has retrenched. Chinese consumers, who accounted for a substantial share of global luxury spending, are reducing purchases both at home and abroad. The pullback reflects not only economic uncertainty but also shifting cultural attitudes towards conspicuous consumption.

The mid-market faces a profit squeeze from both directions. These brands lack the pricing power of luxury labels and cannot match the cost structures of fast-fashion and value players. As consumers polarise towards extreme value or affordable luxury, the middle ground has become increasingly contested and unprofitable.

However, not all segments face equal pressure. Value retailers and off-price channels continue to gain share as budget-conscious consumers seek acceptable quality at the lowest possible price points. The discount sector has emerged as one of the few bright spots in an otherwise challenging landscape.

What strategies are executives prioritising to navigate uncertainty?

In response to deteriorating conditions, fashion executives are pursuing several defensive strategies:

• Inventory discipline: Brands are cutting order quantities and shortening lead times to reduce exposure to unsold stock and markdown risk.
• Cost reduction: Companies are scrutinising expenses across marketing, store operations and corporate functions to preserve margins.
• Portfolio rationalisation: Many brands are pruning product ranges, closing underperforming stores and exiting marginal markets.
• Digital investment: Despite budget pressures, executives continue to prioritise e-commerce and digital marketing as more measurable alternatives to traditional channels.
• Supply chain diversification: Brands are reducing dependence on any single sourcing country to mitigate tariff and geopolitical risk.

Yet defensive positioning carries its own risks. Underinvestment in product development, brand building and store experience may preserve short-term profitability at the expense of long-term competitiveness. Several analysts have cautioned that excessive caution during downturns can leave brands poorly positioned when conditions eventually improve.

Are there any sources of optimism for the fashion industry?

Despite the prevailing pessimism, 54% of executives do not expect conditions to worsen, suggesting that views remain divided. Some segments and geographies offer relative bright spots. The second-hand and rental markets continue to grow as sustainability concerns and value-seeking behaviour converge. Activewear and occasion wear show resilience as consumers prioritise functional and experiential purchases.

Technology adoption, particularly artificial intelligence for demand forecasting, inventory optimisation and personalisation, offers potential efficiency gains. Brands that successfully deploy these tools may offset some cost pressures and improve sell-through rates.

Regional opportunities also exist. While China's luxury market has cooled, other Asian markets including India and Southeast Asia show stronger growth trajectories. In the United States, employment levels remain relatively healthy, supporting continued consumption despite inflation concerns.

What does rising pessimism mean for industry consolidation?

The challenging outlook is likely to accelerate industry consolidation. Weaker brands with limited financial resources or unclear positioning face existential pressure. Private equity-backed retailers carrying significant debt loads are particularly vulnerable if sales decline and refinancing becomes difficult.

Larger, well-capitalised players may use the downturn to acquire distressed assets, gain market share and strengthen their competitive positions. However, acquirers are proceeding cautiously, given uncertainty about when conditions will stabilise and whether acquired brands can be successfully integrated and turned around.

The rising pessimism reflects a fashion industry confronting multiple simultaneous pressures with few clear paths to relief. Executives entering 2026 face the challenge of preserving profitability and brand equity whilst navigating an environment where both costs and uncertainty remain elevated and consumer confidence remains fragile.