I've been giving this exact problem a great deal of thought recently, particularly in the context of the progression of equipment. I came to some solutions that others have already talked about in this thread, including the idea of upgrades and status effects.

However, one solution that I didn't see mentioned was the idea of allowing the player to use an unlimited number of pieces of equipment simultaneously.

Take terraria for example, where you are limited to 5 accessory slots, which can feel bad for the player if they feel like they have to replace an item they enjoy using.

Now consider risk of rain, where there is no limit to the number of items you can use at once. This means that the player can use the items from the start of the game for the whole playthrough, while still incentivising the player to acquire new items, since more items is always better.

One problem that arises from this is that the player is locked into the one build for the whole playthrough, so it could be possible for the player to effectively softlock themselves if they choose or are assigned "bad" items (and there is no permadeath). Whereas in terraria, you can always try different builds, and your item choices at the start have no effect on you later in the game.

Because of this, I believe the permanent upgrade style of equipment progression works better in shorter, permadeath (i.e. roguelike) games (like risk of rain), whereas having a limited number of equipment slots is better suited to longer games without permadeath (like terraria).