Navigating the Fashion Industry's Transformation: Tackling Costs, Embracing Digital, and Driving Circularity

The global fashion industry is experiencing significant disruption and transformation in the past 48 hours, with mounting pressures from surging production costs, regulatory changes, and changing consumer behaviors. According to a new McKinsey report, nearly three quarters of fashion executives now plan to raise prices for 2026 as heightened tariffs and supply chain expenses become unavoidable, up sharply from about half the year before. This is impacting not just luxury but also mass-market brands, leading many to adjust prices on upcoming seasonal collections. For example, Ralph Lauren and American Eagle have both announced price hikes as part of their strategy to offset these challenges.

Apparel prices have climbed nine percent since 2020, yet the latest round of tariffs and inflation is expected to push that higher in the coming months. In some categories, like jackets and outerwear, average prices rose by twenty-four percent over just the past year, according to industry studies. Rising costs have driven more shoppers, especially women, toward clothing rental and resale marketplaces, often for holiday events and special occasions. The rental clothing market is currently worth over 2.6 billion dollars and is projected to more than double by 2035. Retailers like Rent the Runway and Nuuly are expanding inventory and implementing smarter sourcing strategies to navigate tariff-induced shortages and maintain subscriber levels.

On the supply chain front, recent US trade agreements with countries including Korea, Switzerland, Guatemala, and El Salvador are designed to strengthen textile and apparel partnerships and cushion some tariff impacts for American brands, while industry groups praise the expected improvements in competitiveness.

Meanwhile, major industry players are partnering with technology leaders to boost resilience and efficiency. Levi Strauss and Microsoft just announced a major collaboration to deploy AI and cloud solutions across retail operations in an effort to enhance the customer experience and employee productivity.

Another trend is the rapid expansion of resale markets, which are now growing two to three times faster than traditional fashion sales. New regulatory requirements in the US and EU are pushing brands to adopt circular economy practices with end-of-life takeback and textile recovery responsibilities. Brands are now launching their own resale and circular initiatives not only for profit but as a compliance necessity, setting a new competitive landscape.

Compared to earlier reports, today’s market is more volatile, competitive, and innovation-driven, with cost pressures, digital transformation, and circularity initiatives reshaping the future of fashion.

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This content was created in partnership and with the help of Artificial Intelligence AI