This week, we take a look at fashion brands’ perspectives on the U.S. economic outlook for the year. Given geopolitical tensions, continued tariff uncertainty and new challenges related to AI, brands are preparing for a 2026 that could be just as challenging as 2025.
The U.S. stock market has been on a wild ride over the last year, but this week it was particularly volatile. President Trump’s speeches threatening allies and new tariffs contributed to factors spooking both investors and consumers about what the future holds for the country’s economy.
After the chaos of the tariff rollout in the last year, business leaders were hoping for some measure of stability in 2026, but that seems unlikely now. Trump threatened and then rescinded several new tariffs in just the last week. Geopolitical tensions, continuing tariffs and uncertainties surrounding the AI boom are all putting pressure on consumer spending.
Glossy spoke with brands and experts over the last two weeks about the state of the American economy and their predictions for what the market will look like throughout this year.
Kristen Allen, founder and CEO of the DTC womenswear brand Exclusively Kristen, told Glossy that her sales were down almost 50% last year compared to 2024.
“Tariffs, inflation, student loan payment reinstatement and the laying off of federal employees impacted my business,” she said. “I used to get a lot of sales of my white button-down shirt in DC, and those sales have virtually stopped. It appears that the same policies will keep squeezing American workers in 2026, giving them less expendable income.”
She said she’s now exploring sales in other countries like the U.K. and Australia to make up for lost revenue in the U.S.
Ranu Coleman, head of marketing for the California-based children’s apparel brand PatPat, said she can already see her customers reprioritizing their spending, seeking more value and opting for lower-priced items. PatPat has resisted raising prices for that reason. PatPat has more than 21 million customers and sells in over 140 countries, according to the brand.
“This isn’t the time for heavy discounting or gimmicks. It’s about building trust by consistently delivering value,” she said. “For us, that means maintaining quality while keeping prices accessible, and listening closely to what families tell us they need. Brands that win will be the ones with operational discipline, strong supply chain partnerships and direct customer relationships.”
Many economic forecasts for the year are positive, but they come with a caveat. The International Monetary Fund, for example, forecasted on January 21 that the U.S. economy would grow by 2.4% this year, which is healthy. But the IMF report notes that almost the entirety of the U.S. economic growth rests on the promise that the massive investment in AI will lead to productivity increases and revenue to make it worth it. Many companies have adopted AI, and McKinsey reported in November that 64% of companies say that AI is enabling innovation.
But that’s not a guarantee. A PwC survey released on January 20 found that more than half of 4,500 surveyed U.S. CEOs have seen zero payoff from their investment in AI. Twelve percent said they saw lower costs and higher revenue, but 56% said they saw neither. Similarly, McKinsey said only 39% of businesses report a positive EBIT impact at the enterprise level.
Investors and economists think that a reversal of the hundreds of billions already invested in AI is likely in the near future, although they disagree on whether that will be a gradual correction or a full dot-com-style collapse. Ross Mayfield, an investment strategist at Baird Private Wealth Management, told Reuters that increased stock valuation does not necessarily constitute a bubble. Meanwhile, Michael Burry, the investor who famously predicted and bet on the 2008 housing collapse, has said he sees AI headed the same way and has put $1 billion into shorting AI companies.
“We estimate that investments in AI tech are now larger than the peak of the dot-com bubble,” said Michael Pearce, chief U.S. economist at Oxford Economics. “It would be unusual to have a surge of investment that large without some sort of negative fallout to come out of it. We’re still in relatively early stages, and much of the investment has been out of earnings instead of debt, which was a big concern in the dot-com bubble. Ultimately, the biggest question is: Will it be useful to the global economy?”
Some executives, even while being overall positive about AI, have admitted that not every AI idea pans out.
“There are a lot of ways to use AI, and not all of them are for us,” said Max Magni, chief customer and digital officer at Macy’s. “Ultimately, if it’s not useful, it won’t go anywhere. And even if it works in a test, that doesn’t necessarily mean it will work at scale. We tried to use AI to summarize product reviews. We thought it was a good use case, but it only really worked with ready-to-wear because there was good data for it. For everything else, it was either wrong or it wasn’t helpful.”
As it stands, the K-shaped economy means that overall economic numbers could look good, while the average consumer has less money and spends less. Many fashion brands are already seeing this effect in real-time.
“My retail clients have seen steady foot traffic and sales declines versus the boom of the pandemic era,” said Emmanuel Tamrat, founder of Blindspot Agency and a former consultant at SSENSE. Tamrat works with several large fashion and retail brands on digital marketing and content creation. “After big increases in online purchases and foot traffic gains post-pandemic, both have been in decline for the last 24 months. With persistent inflation, escalating shipping costs and more tariffs possible, this seems likely to continue for all of North America.”
Stat of the week
Advertising agency Mediaocean released its annual Advertising Outlook report this week, which included several datapoints on the challenges marketers are experiencing with generative AI. The biggest are:
- Data quality and access issues (42%)
- Difficulty connecting AI insights across systems (41%)
News to know
- Garavani Valentino, the founder of Valentino, died on Monday. Only a few months ago, Giorgio Armani, another major figure in the history of Italian fashion, also passed away.
- Bottega Veneta CEO Leo Rongone is leaving the brand to take over as Moncler’s new CEO.
- Third-party sellers are starting to raise their prices on Amazon, according to CEO Andy Jassy.
