Image: Illustrative purposes image/ BAV TAiLOR/ Arab Fashion Week
Europe stands as a central hub for fashion globally, showcasing a rich blend of cultural heritage, luxurious craftsmanship, and innovative design. Yet, for over two decades, the surge in demand for fashion and luxury goods has largely been driven by China and its consumers.
Since the onset of the COVID-19 pandemic, this stronghold has begun to wane, as China faces challenges such as reduced economic growth, plummeting property values, shifting demographics, and declining incomes.
Major European brands and their global counterparts are now looking beyond China; however, they have struggled to identify a clear alternative to the vast Chinese consumer base until very recently.
The United States market presents uncertainties for these brands, primarily due to the looming threat of tariffs and dwindling consumer savings. Meanwhile, India shows promise, but at present, it is premature to regard it as a viable substitute, given its GDP per capita is expected to remain under $3,000 (nominal, 2025 est).
This leads us to ponder: could Europe, in conjunction with the Middle East, emerge as a new principal market for luxury and fashion brands? The possibility exists.
The Middle East is gaining significance, particularly as wealthy consumers are increasingly choosing to settle in the region. For instance, brands like LVMH and Hermes have begun to develop exclusive collections specifically aimed at customers in the UAE and Saudi Arabia.
Historically, there has been a positive correlation between elevated oil prices and the demand for fashion and luxury items, as illustrated in the chart below spanning from early 2019 to mid-2022. We believe this trend may re-emerge in the Middle East, potentially boosting demand for luxury goods.
Europe, too, could regain its appeal as a consumer market. The possibility of declining interest rates and significant fiscal stimulus might lead to increased disposable income, which traditionally results in heightened spending on fashion and luxury items.
Significant trends in fashion retail affecting the global luxury market
1. Shift towards Europe due to rising US tariffs: An increasing number of retailers and brands are redirecting their focus to Europe as they anticipate that US tariffs will lead to price increases, consequently dampening American consumer demand. Hugo Boss, a German clothing brand, has already started to divert its China-based production away from the US, noting a marked decline in American consumer activity.
Zalando, a European online fashion retailer, reported a surge in inquiries from international brands seeking to expand in Europe, attributing the decline in US demand to expected price increases. Adidas also acknowledged that while 20% of its revenue originates from the US, it is aiming to strengthen its presence in other markets like Europe to offset potential losses. This reflects a broader industry trend towards geographic diversification favoring Europe.
2. Emergence of nearshoring — Turkey and Tunisia lead the strategic shift: European clothing brands are increasingly adopting nearshoring strategies, with Turkey and Tunisia rising as pivotal sourcing locations.
As of 2023, Turkey’s exports of textiles and apparel to Europe climbed to 6%, overtaking Vietnam, with more than 25% of European brands acknowledging Turkey as a crucial partner.
Key players, including Inditex, H&M, Boohoo, and Asos, have expanded their operations in Turkey to enhance supply chain efficiency and responsiveness.
Concurrently, Europe is forging stronger links with Tunisia following a significant Memorandum of Understanding signed in April 2025 between EURATEX and FTTH to bolster industrial cooperation and supply chain integration. With an anticipated €2.5 billion in textile exports to the EU by 2024, Tunisia is set to become a strategic nearshoring ally, supporting the EU’s aspirations for sustainability, resilience, and diminished reliance on distant markets.
3. Simplification of regulations and realignment of compliance: The European Commission’s Omnibus simplification package introduced in February enacts essential changes to sustainability legislation affecting the textile value chain, including the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D).
The reforms aim to lower compliance costs and streamline reporting processes, particularly benefiting small and medium enterprises by minimizing excessive data requests from larger buyers. This initiative showcases the EU’s intent to harmonize regulatory ambition with business practicality, empowering well-positioned textile companies to secure a competitive edge through effective and affordable ESG strategies.
4. Circularity compliance reshaping the textile industry in the EU: New EU directives are driving a significant transition toward circular business models within the textile sector. Regulations such as the Ecodesign for Sustainable Products Regulation (ESPR), the Waste Framework Directive, and the Waste Shipments Regulation have come into effect, mandating companies to adopt eco-design practices, ensure supply chain transparency, and accept responsibility for end-of-life products.
The writer serves as a senior advisor and leads Equity Investments at Abbey Road Investment Group.