Ecommerce trends for 2025: Fashion brands will be most susceptible to disruption

This is the third article of our four-part series on the ecommerce trends we see on the horizon for 2025.

Traditional fashion brands will face existential challenges in 2025 as disruptors redefine the competitive landscape. The once-unshakeable dominance of legacy players is now threatened by new entrants like Shein and Temu, which have reshaped consumer expectations through affordability, speed, and variety that traditional brands struggle to match.

These challenges are exacerbated by dramatic shifts in consumer behavior. Today’s shoppers prioritize cost-consciousness and convenience over traditional markers of value like brand loyalty. This shift is most pronounced among Gen-Z consumers, whose attention spans and purchasing habits differ starkly from previous generations. The rise of practices like “bracketing”—purchasing multiple sizes or styles with the intent to return most—further erodes profitability for retailers, creating operational and logistical strain.

Simultaneously, investor sentiment has moved away from the “growth at all costs” model that defined the 2010s. Profitability has replaced revenue growth as the central benchmark of success, leading to heightened scrutiny of traditional retailers’ business models. Many now face mounting pressure to modernize operations and reduce inefficiencies to meet evolving financial expectations. In this hyper-competitive landscape, traditional retailers must either adapt to these new realities or risk fading into irrelevance.

In this article, we will dive into these industry dynamics to better understand the challenges facing the fashion industry. We will also share our perspective on what brands can do to drive improved performance in the face of these headwinds.

Understanding the current landscape

Competitive dynamics: New disruptors from China

Amazon has long held dominance in the value fashion segment, leveraging its vast marketplace and low-cost operations. However, disruptors like Shein and Temu are rapidly challenging this dominance. These platforms, which we dive further into below, highlight the inefficiencies in traditional retail approaches. They leverage cutting edge technology to adapt to fast-moving trends and to create hyper-personalized experiences that meet each shopper where she’s at. Mid-market department stores, such as Macy’s and Nordstrom, are attempting to hold their ground by investing in omnichannel strategies, blending physical and digital shopping experiences. However, their reliance on outdated infrastructure often slows their pace of innovation, leaving them vulnerable to more agile competitors.

Customer acquisition costs and return rate challenges

The cost of acquiring new customers (CAC) surged by 60% from 2017 to 2022, reflecting the competitive intensity and growing reliance on digital advertising platforms. Practices like bracketing have further complicated profitability. It has become so prevalent that 50% of online shoppers indicate that they have bracketed at least once. The average return rate in the fashion industry has reached 20.8%, placing significant financial strain on retailers.

To mitigate these losses, retailers such as Zara and H&M have started charging return fees, but this strategy risks alienating consumers and increasing cart abandonment rates. Upwards of 12% of shoppers say that they abandon their carts because the company’s return policy doesn’t meet their needs. Still, return fees are becoming an unavoidable part of the industry landscape as retailers grapple with ballooning costs and the growing complexity of reverse logistics.

Operational inefficiencies with outdated systems

Many traditional fashion retailers operate on legacy systems that stifle their ability to adapt quickly to changing consumer demands. This reliance on outdated technology not only limits profitability but also hampers agility in inventory and supply chain management. AI-driven solutions offer a clear path forward, enabling dynamic pricing, efficient inventory allocation, and real-time consumer insights.

For instance, studies show that AI can save up to 25% in inventory costs due to overstocking and reduce revenue loss from product availability issues by 30%. Companies like Harrods Limited and COOP Group that have invested in modernizing their tech stacks, such as integrating predictive analytics and machine learning algorithms, are seeing tangible benefits in both cost savings and enhanced customer satisfaction.

Investor shift from growth to profitability

Investor sentiment has shifted dramatically in recent years, moving away from an emphasis on rapid sales growth to a focus on profitability and long-term sustainability. This has placed many upstart ecommerce companies, like Asos and Boohoo, under intense scrutiny, as their previous growth-focused models are no longer sufficient to satisfy stakeholders. Investors now demand clear paths to profitability, often requiring companies to restructure operations, cut unprofitable product lines, and invest in sustainable practices.

This shift reflects a broader industry-wide pivot, where financial discipline and operational efficiency are prioritized over unchecked expansion. Retailers that fail to meet these new expectations risk losing critical funding and market confidence. With these headwinds firmly established, the fashion industry will also need to contend with increased competition and shifting customer behavior in 2025.

Rising challenges and evolving consumer behavior

The disruptors’ game: Shein and Temu’s innovations

Shein and Temu have disrupted the traditional retail model with innovations that prioritize speed, cost-efficiency, and variety. Shein’s on-demand manufacturing ensures faster product introductions and lower costs by using real-time data to guide production. The platform introduces up to 10,000 new items daily, outpacing traditional retailers by a significant margin.

Temu has adopted a similarly aggressive strategy, leveraging its vast supplier network and low operating costs to offer highly competitive prices. It has implemented a sophisticated pricing strategy that leverages AI algorithms to enable dynamic pricing, maximizing its sales while balancing profitability. 

Both platforms have expanded aggressively into Western markets, challenging the dominance of established players like Amazon. Together, they illustrate how technology and innovative business models can redefine market dynamics, leaving traditional retailers struggling to keep up.

Gen-Z’s loyalty, or lack thereof

Gen-Z shoppers, who now account for a significant portion of the consumer base, exhibit the lowest brand loyalty of any demographic. With an attention span estimated at just eight seconds, they are bombarded by advertisements and overwhelmed by the sheer volume of brand options available. Only 29% of the average Gen-Z wardrobe comes from a single brand, compared to 52% for older consumers, highlighting their propensity to shop across multiple brands. In fact, 50% of Gen Zers say they would switch from their favorite brand if another were cheaper or higher quality.

Cost-consciousness further defines this cohort, with 73% of Gen-Z consumers adjusting their spending habits in response to rising prices. Many are even willing to wait for the best deals, with two-thirds indicating they prioritize promotions over brand loyalty. This shift underscores the need for retailers to compete on price and value while offering differentiated experiences to retain younger shoppers.

Business outcomes and ROI are under strain

These trends in competition and customer behavior are having negative impacts on ecommerce business outcomes. Because of the overwhelming number of options facing online shoppers, brands have a more difficult time engaging potential customers with conversion rates suffering. Growth in average order values (AOV) has slowed in recent years as well, though it is still increasing YoY. Lessening brand loyalty also has a negative impact on customer lifetime value (LTV) because consumers are making fewer repeat purchases.

Combine all of these trends with the increasing acquisition costs and return rates that we’ve covered and the business outlook for the fashion industry is weakening. The fashion companies of yesterday must make substantial improvements to meet this moment. The way people shop online is undergoing a radical transformation and yesterday’s approach simply won’t work. Retailers must learn from the success of newcomers like Shein and Temu to meet the needs of the modern shopper.

Strategies for overcoming challenges

Increasing conversions and AOV with search and discovery

To combat short attention spans, online retailers must invest in advanced search and discovery capabilities to meet customer expectations and improve business outcomes. Customers are more likely to make purchases when they are presented with relevant search results and product recommendations, improving LTV and fostering customer retention. Effective search tools enable retailers to match customers with relevant products quickly, enhancing the overall shopping experience. By utilizing AI-driven search algorithms, businesses can generate relevant product recommendations and create tailored discovery journeys that increase engagement and conversion rates.

Moreover, enhanced search and discovery can drive higher Average Order Values (AOV) by exposing customers to complementary or premium products during their shopping journey. Coupled with intuitive interfaces and seamless navigation, these investments can significantly improve LTV, making search and optimization a critical component of profitability moving forward.

Style-based personalization as a driver of LTV

For fashion retailers, personalization built on understanding a shopper’s unique style has become essential for delivering memorable online shopping experiences. Shoppers increasingly expect tailored recommendations, with 71% anticipating personalized experiences and feeling frustrated when their style preferences aren’t recognized. Retailers that align product suggestions with a shopper’s personal aesthetic can boost revenue by 10-15%, driving long-term customer lifetime value (LTV).

This means offering curated recommendations that reflect a shopper’s distinctive style, preferred quality, and price range. Achieving this requires advanced systems for data collection and style analysis. While AI enhances these capabilities, success begins with adopting a robust personalization platform that powers search and discovery, creating a seamlessly connected fashion shopping experience.

Conclusion

Traditional fashion is grappling with unprecedented challenges from disruptors like Shein and Temu, as well as shifting consumer behaviors and rising operational costs. To thrive in this hyper-competitive environment, retailers must prioritize innovation, from adopting advanced technologies to rethinking customer engagement and business models. By focusing on profitability, personalization, and operational efficiency, traditional brands can carve out a sustainable future. However, failure to adapt will likely render even the most established names obsolete in today’s market. Building for the future will be required for success in 2025 and beyond.

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