The global fashion industry, poised to reach $2.3 trillion by 2025, faces unprecedented challenges from shifting consumer expectations, economic uncertainties, and rising calls for sustainability. As The State of Fashion 2025 annual report by McKinsey & Company, highlights, digital transformation is not just an enabler but a necessity for fostering better collaboration between brands and manufacturers to combat these challenges as a cohesive force. According to the new report, technology will play a vital role in ensuring collective progress by enabling brands and manufacturers to create robust ecosystems of shared accountability through greater digital collaboration and data sharing.
In a nutshell – digital transformation replaces chaos with clarity. Advanced capacity planning, real-time analytics, and AI-driven forecasting provide the visibility and precision that the industry desperately needs. More importantly, it brings all players—designers, manufacturers, logistics teams—into the same conversation. This connectivity transforms disjointed operations into seamless ecosystems, enabling faster decision-making, more sustainable processes, enhanced production efficiencies and greater profits.
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Green-Fatigue is Not an Option
While the McKinsey State of Fashion 2025 report reveals that sustainability has fallen off the priority list for many fashion industry executives, inaction is out of the question. Regulatory frameworks, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) are intensifying the need for transparency, requiring brands to provide verifiable data on emissions, sourcing, and production processes.
Sustainability must remain at the forefront of industry priorities, the report advises. By leveraging digital platforms, brands and manufacturers can achieve granular insights into their supply chains, from material sourcing to waste and production emissions. Collaboration tools enable real-time data sharing, allowing stakeholders to co-develop sustainable solutions and track environmental performance. The introduction of standardised, more accurate Cost-to-Make data across their supply chains, for instance, is enabling many more brands than ever before to create a master overview of the productivity outputs, machinery capabilities ethical compliance and fair wage practices of each of their vendor partners. This has helped brands collaborate more effectively and meaningfully with their manufacturers to support more sustainable and responsible growth across the value chain.
Blockchain technologies are also providing increased end-to-end traceability, enabling brands to verify raw material origins and reduce fraud. AI-driven systems are helping to optimise energy use and reduce waste; while new digitised fabric cutting and buying tools alongside digital twins – which effectively simulate production processes – are significantly helping to minimise material waste and inefficiencies.
By adopting these tools, brands and manufacturers can not only meet incoming regulatory demands, but also prove to consumers that they are serious about sustainability – fostering greater loyalty that unlocks long-term value.
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By GlobalDataTackling Inventory Waste Separates Winners from Losers
One of the fashion industry’s most significant challenges is inventory mismanagement. According to McKinsey, the sector generated $2.5–5 billion in excess stock in 2023, equating to $70–140 billion in lost sales. Excess inventory doesn’t just hurt the bottom line—it exacerbates environmental waste, with unsold items often ending up in landfills.
There is no doubt that robust digital inventory management tools will prove crucial to solving this issue. Advanced capacity planning systems allow brands to align production with real-time demand to significantly reduce overproduction. Accurate costing and sourcing tools ensure precise purchasing, while AI-powered demand forecasting eliminates guesswork. These technologies enable brands to transition from reactive to proactive inventory management, minimising markdowns and waste.
In this context, inventory management is no longer just an operational function—it’s a strategic lever for sustainability and profitability. Brands that master this dimension will certainly emerge as leaders in the coming years, according to McKinsey.
Reshaping Supply Chains: The Rise of Diversification
China’s slowing economic growth and rising labour costs have prompted brands to diversify their supply chains, with markets like India, Vietnam, Thailand, and Indonesia gaining prominence. Nearshoring—producing closer to key markets—is also gaining traction as companies seek to reduce geopolitical risks and meet local demand more efficiently. Turkey, for example, is proving a compelling manufacturing option for EU brands; Whilst LATAM is gaining significant sway in North America.
Digital tools are indispensable in managing these shifts. Cloud-based supply chain platforms enable seamless collaboration across diverse geographies, ensuring quality and efficiency are maintained. AI-driven analytics help brands identify the optimal mix of nearshoring and offshoring to balance cost, speed, and risk.
Furthermore, diversification requires even more robust capacity planning and supplier collaboration. By investing in digital systems that centralise data and streamline communication effectively, brands can consequently build resilient, agile supply chains that are ready to weather potential disruptions.
Going Digital Pays!
Fashion manufacturers are under pressure to meet shorter lead times, navigate supply chain disruptions, and reduce waste—all while managing tighter margins. Traditional, siloed methods are no longer sufficient to address these demands.
The financial case for digital transformation is undeniable. McKinsey’s research underscores how brands using advanced technology see measurable gains in efficiency – from reducing unnecessary overtime to cutting inventory costs to reducing overproduction and markdowns.
But the impact isn’t just short-term. Companies that embrace digital tools are positioning themselves for scalable growth, opening up opportunities in emerging markets, and staying competitive in a fast-changing world.
The Bigger Picture: A Clarion Call for Unity & Action
Fashion’s challenges are too big for any one player to solve alone. The industry must act collectively, with brands and manufacturers working as true partners. Digital transformation isn’t just about adopting new tools – it’s about rethinking how the entire ecosystem operates.
The McKinsey report’s findings are a wake-up call. Sustainability, collaboration, and profitability aren’t competing priorities—they’re deeply interconnected. The industry has no choice but to embrace this reality and take bold action. Those who do will thrive. Those who don’t will unfortunately be left behind.
Kunal Kapur is the Managing Director of Coats Digital. Kunal was appointed in 2023 to spearhead a programme of rapid growth for this unique, multi-faceted technology business that optimises and accelerates the necessary and urgent digital transformation of the fashion industry. Coats Digital’s connected ecosystem of technologies drive sustainable best-practice processes; enable greater data transparency and deliver high value data insights that significantly improve decision making and operational/financial performance across the end-to-end fashion supply chain.
