Recent analyses reveal worrying signs for the global luxury goods market, which is poised for contraction as high inflation, changing consumer behaviors, and rising product prices take their toll. A study released by Bain & Company indicates this could be the first such contraction since the Great Recession, and it suggests consumers are reassessing their expenditures—sparking concerns among industry insiders.
According to Claudia D'Arpizio, who led the study for Italy's Altagamma association of luxury producers, the luxury segment of personal goods is expected to shrink by approximately two percent, moving from €369 billion ($385 billion) to €363 billion ($369 billion) by 2025. This decline isn't just seen as temporary; it signals deep-rooted shifts within the marketplace.
“This could be a nightmare if implemented,” D'Arpizio warned, referring to tariffs proposed by former President Donald Trump, which could add as much as 20 percent onto the prices of imported luxury items, effectively pricing out many consumers. She pointed out, “European brands could end up being super expensive in an already expensive environment.” While the potential impact of these tariffs remains uncertain, it could exacerbate the challenges for luxury goods producers.
The luxury market, lucrative and resilient over the past few years, rebounded strongly after pandemic-driven shutdowns. By 2022, the sector had not only recovered but exceeded its pre-pandemic sales figures, primarily propelled by pent-up consumer demand. Sales surged during the post-lockdown boom, yet as of now, consumer sentiment is shifting. Inflation has sharply increased the prices of luxury items, leading to diminishing returns for brands.
Brands' pricing strategies—an aggressive push to reposition themselves toward higher-end markets—have not yielded the expected results. Rising prices, part of a larger drive toward what’s termed 'subtle luxury,' have alienated some of the core customer base. D'Arpizio noted, “The effect of this pricing policy has been twofold; volumes have reduced dramatically, and over 50 million high-end consumers have exited the market.” The study estimates the current luxury consumer base to be between 250 and 360 million.
Despite brands' efforts to cater primarily to wealthier customers, the reality is even these affluent buyers are beginning to question the value for money they receive. Recent findings show this has particularly affected the younger demographic, namely Gen Z shoppers, who create new expectations for the sector. D'Arpizio remarked, “We have 50 million fewer customers either because they can't afford to shop, or they don’t want to because they don't feel there is enough juice.” The loss of younger consumers presents fresh challenges for luxury brands, which now find themselves at risk of being out of touch with the mainstream market.
The latest figures clearly highlight this shift: sales of luxury goods slipped to €1.478 trillion globally, down 2 percent from €1.5 trillion the previous year. The revenue derived solely from luxury goods—including fashion, accessories, and beauty products—remained stagnant at €363 billion, after witnessing staggering growth of 22 percent just two years earlier.
Factors beyond pricing alone are contributing to this slow down. Geopolitical issues and widespread social unrest lead to dwindling consumer confidence. D'Arpizio noted, “Social and political turmoil have eroded consumer confidence.” Such instability has prompted many luxury consumers to reconsider their spending habits, potentially easing off on extravagant purchases until conditions stabilize.
The pitfalls of excessive price increases reverberate throughout not only the luxury sector but the entire textile industry as well, which has seen production levels drop sharply. The Bain report noted production volumes are experiencing their first decline of double-digit rates since 2022. If these trends continue, the repercussions will not only be felt by luxury brands but also ripple through supply chains and minors markets.
Brands also face the challenge of stagnant creativity. Successful luxury brands maintain long-term relationships with their creative directors and prioritize innovative storytelling. Luxury items must not only be stylish but also imbue exclusivity and creativity. D'Arpizio emphasizes this balance of brand management and creative energy: “Luxury groups need to reflect on their long-term vision and the types of customers they wish to serve.”
So, what should luxury brands do? It’s become imperative for leaders within the luxury sector to rethink their strategies and customer engagements. Gone are the days of simply pushing higher prices for exclusiveness; brands must now convey authenticity, focusing on craft, storytelling, and meaningful customer relationships. “Developing greater ability to create connections is key,” concluded D'Arpizio.
Recently, fashion shows and local boutiques have also noticed changes. Decreased foot traffic and fewer appointment-only browsing visits have impacted sales—all symptoms pointing to the same conclusion: luxury is becoming less attainable. A more inclusive future, one where consumers feel valued and engaged, could be the remedy needed to revive interest and sales.
With these challenges laid bare, the global luxury sector confronts its most significant test yet as it embarks upon 2025. Tariffs proposed by Trump could complicate the industry's recovery, and internal shifts away from high pricing could signal the dawn of new strategies. The only certainty is, the luxury game is about to change.
