2024 was a year of reckoning for the fashion and luxury goods supply chain.
As luxury brands continued to hike their prices, consumers and critics scrutinised the quality and value of goods and found many lacking. Incoming legislation — especially initial preparations for the introduction of digital product passports in Europe — shone a light on the lack of transparency in the industry as it stands. Various reports highlighted the ongoing use of forced labour in the global fashion supply chain, while Bangladeshi garment workers’ fight for fairer pay exposed the power dynamics at play between brands and their suppliers. Meanwhile, the need for flexibility was underlined as the industry grappled with disruptions in key trade routes, a US port strike and damp demand in several key markets.
So what now?
2025 is poised to be another year of uncertainty, largely due to unresolved tariff issues in several countries, particularly the US, says Joëlle Grunberg, partner and leader of McKinsey’s apparel, fashion and luxury group in North America. President-elect Donald Trump, who will be sworn in on 20 January, has proposed additional tariffs on imports into the US of between 10 and 20 per cent for all goods, and between 60 and 100 per cent on goods from China. Other expected challenges include the threat of fresh strikes by US dockworkers, global airfreight capacity restraints, rising shipping costs and — for luxury in particular — a shortage of talent. At the same time, fashion brands are looking to reduce their costs, improve delivery times and comply with evolving sustainability regulations.
Consider it the new normal. “Nowadays, we are faced with a global poli-crisis setting, mainly in terms of geopolitical tensions and severe weather situations due to climate change,” says Marijn Visser, global vertical head of lifestyle at shipping and logistics company Maersk. “On top, many businesses have to cope with multiple challenges like digitisation, decarbonisation of the business, high inflation rates and others. Volatility will increase rather than ease.”
“Building end-to-end resilience, particularly through strategies like nearshoring, multi-sourcing and strategic partnerships will be essential to mitigate the risks associated with geopolitical instability, shipping costs and global supply chain fragility,” says Claudia D’Arpizio, senior partner and leader of management consultancy Bain Co’s luxury goods practice.
Impact of the slowdown
The global personal luxury goods market is expected to grow in the low single digits in 2025 — a marked slowdown from the post-pandemic boom, per Bain. This decline is prompting a reassessment of inventory strategies, with a focus on reducing stock levels to free up cash and improve working capital efficiency, says D’Arpizio. “The market slowdown is having a significant impact on supply chains, triggering an estimated double-digit drop in supply chain volumes compared to two years ago,” she adds. “Brands are facing heightened pressure to adapt their operations to the realities of reduced demand.”
McKinsey’s Grunberg warns that a reduction in order volumes could place renewed strain on the relationships between brands and their suppliers. “As in 2020, significant shifts in demand will have long-term repercussions on the landscape and will carry effects into 2026.”
By aligning inventory more closely with real-time demand, brands can mitigate the risks of overproduction and excess stock. “The luxury slowdown is emphasising the importance of advanced demand forecasting and planning optimisation,” says D’Arpizio. “With reduced room for error, brands can leverage predictive analytics and data-driven tools to better align production schedules with consumer demand, maintaining good profitability while also minimising waste.”
Global logistics company GXO says one of its luxury clients has combined several smaller warehouses into one large, automated facility, which has helped to reduce operating costs, reduce inventory holdings via an omnichannel focus and, at the same time, speed up deliveries. “With demand uncertain in 2025, we expect a renewed focus from luxury and fashion companies to drive efficiency,” says Max Alexander, SVP of global sector development at GXO.
Meanwhile, the use of artificial intelligence will drive efficiency and personalisation, speed up decision-making and reduce waste by enabling advanced demand forecasting. AI will also help to automate repetitive tasks and improve supply chain visibility. It doesn’t come without challenges, however; among them, potential job losses and the need to reskill the workforce.
Recovering trust
Focus in 2025 will be on building back trust in the luxury supply chain, which was rocked last summer when the Italian Competition Authority launched a probe into allegations that workers in some factories used by Dior and Armani were being underpaid and experiencing sweatshop conditions (both brands said they were collaborating with the authorities to look into the claims).
Experts agree that the best way to do this is to create visibility. “For luxury brands, it is important to manage and control their end-to-end supply chain internally, as well as to be able to create transparency for their consumers,” says Maersk’s Visser.
Spencer Shute, vice president at procurement and supply chain consulting firm Proxima, agrees: “Increased transparency on sourcing practices, cost structures and being open and honest about failures (with a plan to repair) go a long way with consumers. Not only stating policies for improvement, but actively reporting out on how they measure against their goals and targets to show continued improvement is critical to consumer trust.”
D’Arpizio advises luxury brands to focus on rebuilding strong emotional connections by expanding their narrative into areas that resonate with customers, making sure to highlight their commitments to ethical practices. “Regaining trust requires a careful balance of creativity with traditional luxury pillars — craftsmanship, heritage and exclusivity — ensuring authenticity while staying attuned to customer expectations.” Greater personalisation will also make customers feel valued and “uniquely catered to”, she adds, which is particularly important when trust has been eroded.
Changing up the sourcing map
Experts predict that brands will continue to evaluate their sourcing strategies globally, moving away from a heavy reliance on any one market. “Many brand owners have or are looking at having at least two sourcing markets for each of their products,” says Visser. Shute adds that he expects companies to look for ways to reduce, delay or avoid increased tariffs through making changes in their supply chain.
The extent and speed of this shift will depend on how geopolitical and economic conditions evolve, says Bain’s D Arpizio. “Current geopolitical tensions, particularly regarding critical technologies and economic competition, encouraged brands to explore alternative sourcing regions, such as Southeast Asia, building resilience against trade restrictions and rising tariffs. However, moving production is not without challenges, potentially leading to higher short-term costs as brands invest in new facilities, train workers and adjust their logistics.” On the positive side, changes to the sourcing map open up opportunities to become more agile by adopting strategies like nearshoring, which can reduce transportation times and costs while addressing sustainability goals.
Alongside Southeast Asia, India is an emerging sourcing hub to watch in 2025. “India offers significant potential as a sourcing hub due to its large labour force, improving manufacturing infrastructure and government incentives to attract foreign investment,” says D Arpizio. “Similarly, Vietnam has emerged as a strategic hub due to its proximity to China, competitive labour costs and growing expertise in electronics and textiles manufacturing.”
Exchange rates, current trade agreements and proximity to final markets are key reasons for these areas to be up and coming in the luxury market, says Shute. But he warns that they still face many of the same challenges primary sourcing hubs do today, particularly around labour practices. “Implementing a robust sourcing and supplier review process to mitigate potential concerns with vetting new suppliers is a critical step in the process of moving any supply chain.”
D Arpizio agrees, noting that India, for instance, faces issues such as complex regulatory frameworks, underdeveloped logistics infrastructure and inconsistent labour productivity. Vietnam, while competitive, is constrained by its smaller labour pool compared to China, which may limit its scalability. “Both regions also face risks of overreliance on foreign investments and geopolitical vulnerabilities, particularly as global supply chains continue to evolve,” she says.
To address these challenges, she advises brands to invest in local ecosystems by building long-term partnerships with suppliers, enhancing workforce training and supporting infrastructure development to improve productivity and scalability.
“Diversifying across multiple hubs can reduce reliance on a single market while balancing the strengths of various sourcing regions. Leveraging advanced technologies, such as AI-driven supply chain systems, can further optimise production, minimise waste and improve logistics in regions with less-developed infrastructure,” explains D Arpizio. “Additionally, collaborating with local governments to streamline regulations and access incentives can facilitate smoother market entry and operations. By adopting these approaches, brands can fully harness the potential of emerging hubs, boosting supply chain resilience and competitiveness in a dynamic global market.”
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