Despite possessing substantial human capital and a large domestic market, Iran’s apparel industry accounts for only a negligible share of the global apparel market. This study employs a hybrid thematic analysis with methodological triangulation to systematically examine the strategic challenges of Iran’s apparel industry and to propose comprehensive development strategies from a value chain perspective. Data were collected through semi-structured interviews with 17 industry experts, complemented by an analysis of official reports and national and international statistics. The findings indicate that Iran’s apparel industry is caught in a low value-added trap, with the majority of activities concentrated in the cut–make–trim (CMT) stage, while higher value-added segments—including design, branding, and international marketing—remain largely underdeveloped. Five major challenge domains were identified: (1) limited access to high-quality raw materials and significant dependence on imports; (2) weak design capabilities due to insufficient intellectual property protection; (3) fragmented, workshop-based production structures characterized by low productivity; (4) unfavorable consumer perceptions toward domestic products, leading to the prevalence of foreign branding practices (the use of foreign labels by domestic producers); and (5) an inefficient institutional environment marked by widespread smuggling and fragmented policymaking. Based on these findings, the study proposes several strategic directions: strengthening textile–apparel linkages through regional clusters and collaborative R&D initiatives; institutionalizing intellectual property protection and promoting indigenous innovation in design and Islamic fashion and modest wear; advancing industrialization and digital transformation in production processes; supporting the development of national and cluster-based joint brands; and establishing a unified policy coordination mechanism for the apparel industry. By providing an integrated assessment of value chain bottlenecks and coherent policy directions, this study offers a strategic framework to enhance the competitiveness of Iran’s apparel industry in domestic and international markets.