For 10 years, Business of Fashion/McKinsey’s “The State of Fashion” reports have been tracking global economic movements, changes in consumer preferences and the fashion system. While in previous years, fashion leaders facing global business volatility were uncertain about what lay ahead, they now seem to have accepted that constant change is simply the new normal. As a result, “challenging” has become the word that defines 2026, surpassing “uncertainty” among respondents when describing the industry in the coming year, with US tariffs as the number one obstacle.

S tariffs have redrawn trade maps and forced brands and their suppliers to adapt and adjust quickly. Consumers continue to rethink their spending, seeking value and devoting a larger share of their budget to other goals, including their health and well-being. The rapid rise of artificial intelligence, meanwhile, has led fashion leaders to increasingly navigate a rapidly changing technological landscape that is part of a broader set of long-term systemic changes.

Against this backdrop, many respondents appear pessimistic and do not expect an easy future. Forty-six per cent say they expect conditions to worsen in 2026, compared with 39 per cent in last year’s survey. Geographically, 36 per cent consider North America to be unpromising or very unpromising, double last year’s percentage. But not everyone is so pessimistic. Among respondents, 25% believe that conditions in the sector will improve, up from 20% in 2025, suggesting that some operators see opportunities. Sentiment towards China is finally improving, although conditions remain difficult: 28% consider the Chinese market to be unpromising in 2026, down from 41% in 2025. The main focus for the sector in 2026 will be to adapt to this new environment in which trade, consumer behaviour and technology continue to change rapidly. Brands that are “agile” and able to adapt quickly are likely to emerge as winners.

The role of artificial intelligence

In a turbulent environment characterised by volatile production costs, supply chain disruptions and slow growth that are putting pressure on the fashion business model, artificial intelligence is shifting from a competitive advantage to a business necessity. Companies are reorganising their workforces accordingly, with some existing jobs becoming more AI-focused, allowing roles to shift towards higher-value creative and analytical tasks.

To capitalise on this technological shift, companies must redesign their processes and compete for AI talent, often looking beyond the fashion ecosystem to find it, while protecting the creativity inherent in the fashion system. Business leaders must shift their focus from small pilot projects and experiments that can only lead to incremental change to a more fundamental re-evaluation of how their organisations operate. And although still in its infancy, agentic AI is redefining how people work and collaborate, so fashion companies will need to figure out how to leverage this emerging technology as well.

Artificial intelligence is also transforming the way people do their shopping. Customers rely on large language models to search for products, compare offers and receive personalised recommendations. Some already use artificial intelligence as a style and wardrobe advisor, asking for advice on what to buy and where to buy it, making the presence of fashion brands in AI-powered chatbot responses the new SEO. These dynamics will become even more apparent with the acceleration of agentic commerce in the second half of the decade.

Customer priorities and new competitors

Customer loyalty is emerging as an important front in the battle to win consumers, with more than half of respondents citing loyalty strategies as a key issue that will shape the industry in 2026. To retain and attract customers, brands will need to give them what they want, and that increasingly means offering value. While luxury brands have increased prices without corresponding improvements in product quality or creativity, mid-range design-oriented brands have improved their products and in-store experience. Not surprisingly, the mid-range segment is the fastest growing, replacing luxury as the main creator of value in fashion.

The jewellery sector has also seen strong growth thanks to rising prices for fashion brands. Strong demand for jewellery is expected to continue through 2028, driven by consumers’ desire for lasting investments and self-expression, along with increased purchases for themselves by both men and women. Meanwhile, smart glasses that combine fashion and technology have become the fastest-growing accessory category, with further product launches expected in 2026. To revive growth, the luxury sector is rethinking itself, with some of the largest and most important luxury houses turning to new creative directors. But this may not be enough. High prices remain a significant barrier for ambitious customers, and in any case, more and more aspiring luxury buyers are focusing on their personal wellbeing: body, mind and health, a trend that The State of Fashion first reported in 2017. Only companies that win the hearts and minds of customers will be able to grow and gain market share.