Trench Coats and Denim: Execs Brace for Fashion’s Next Wave

US tariffs, consumers spending more money on health and wellbeing and the swift onset of AI: fashion leaders looking into 2026 are faced with a rapidly changing landscape and are contending with these new realities.

The Business of Fashion and McKinsey have been tracking global economic dislocations to the fashion industry for 10 years now, and its The State of Fashion 2026 report shows these ongoing disruptions are part of a wider set of “long-term systemic shifts”.

US tariffs are particularly recognised as a defining force in the global fashion trade. In 2025, the US government introduced new import duties and since the US imports 89% of apparel and leather products sold in the country.

In the 90-day implementation period following the April 2025 announcement, apparel and footwear tariffs spiked from 13 to 54%, and although some tariffs were later reversed, the average tariff rate for apparel and footwear from the top 10 importers was 36%.

Reflecting this, the report finds that 76% of fashion executives say that trade disruptions and rising duties will impact the industry in 2026.

Levi’s goal to simplify

In an interview with The Business of Fashion’s Joan Kennedy, Levi’s CEO Michelle Gass said: “We’re operating in a complex environment, but we ourselves are becoming less complex.”

Acknowledging macroeconomic forces, the state of the consumer and disruptions across technology and AI, Michelle acknowledged that since she stepped into the role in January 2024, these changes have made her job more challenging.

Tasked with transforming Levi’s into a ‘head-to-toe denim lifestyle’ lifestyle brand, she said: “We have to stay really close to the consumer and understand what they want, what they need - and bring them things they don’t realise they need.

“We will diversify in [lifestyle], but it has to make sense to the consumer and what Levi’s can distinctly own.”

The denim icon saw a good outset to the start of 2025, kick-starting with making headlines with a Beyoncé campaign based around her album ‘Cowboy Carter’.

Amid the supply chain changes, Joan says “Levi’s has emerged as a standout for its tariff playbook” – through fast mitigation tactics and long-term strategic initiatives.

In October 2025, the firm reported a 7% year-on-year increase in quarterly sales, with margins above guidance.

COS’ elevation game

The report also outlines a transition from the value segment to affordable luxury as a key area of change in 2025 expected to continue in 2026.

It says that some want to differentiate from ultra-low-cost competitors, while others “aim to capture the former high-end shopper squeezed out by luxury prices” – with these elevation strategies gaining new urgency in 2026.

COS, owned by H&M, has become one of the stars in the “quiet luxury” world, drawing in both customers in search for high-end designs and those looking for value through a £19 cotton t-shirt or a £1000 investment piece.

Staying true to the brand’s minimalist aesthetic, Managing Director Daniel Herrmann told Cathaleen Chen that true elevation comes from the customer experience of the products you create.

He said: “It’s easy to talk about ambition of generating elevation, but unless you have a product actually meeting that feeling, you do become unnecessary in a way.

“What we are doing [to widen] our position in the market is to be very considerate in our price architecture of things.”

Burberry’s strategy to reach efficiency 

Scale and low-cost sourcing are no longer sufficient to sustain a healthy economic model, the report outlines, and fashion executives say changing margin, cost and cash strategy will be the second most-important theme to shape the industry in 2026.

Burberry, the iconic trench coat maker, has been hit hard by luxury fashion’s slowdown, with sales down 15% year-on-year in 12 months through March 2025.

But among this, the report highlights that the fashion house has seen its share price double from September 2024 to October 2025.

Taking over in July 2024 following a successful tenure at Coach and Michael Kors, in his first year as CEO, Joshua Schulman has pushed Burberry to rebalance pricing, refocus on outwear and reassert a vision of British luxury.

Joshua told Business of Fashion’s Robert Williams: “It’s about having a pyramid of pricing with [options for] good, better, best. We had previously pursued elevation at the expense of our core.”

“The more we tap into our authenticity, the more we tap into who we are, the more we will succeed,” he added.