Luxury Market Faces Decline Amid Global Challenges and Shifting Consumer Trends
The luxury goods sector is experiencing a significant slowdown in 2024, with spending on personal luxury items projected to decline by 2%, according to Bain & Company. Major players such as LVMH, the largest luxury conglomerate globally, have reported falling sales in fashion and leather goods. Similarly, Kering, the parent company of Gucci, has issued multiple profit warnings. Versace, another major brand, is offering 40% discounts on its products, signaling a challenging environment for the industry.
This decline follows two decades of robust growth for the luxury sector. Between 2000 and 2023, global sales of personal luxury goods quadrupled, reaching $400 billion, while the combined market capitalization of the ten largest Western luxury firms tripled to nearly $1 trillion. However, over the past year, their valuation has dropped by more than 10%, reflecting a reversal in fortunes.
Two key factors fueled the industry’s earlier expansion. The first was globalization, with brands targeting growth in Asia, especially China. In 2000, China had 39,000 dollar millionaires; by 2023, this figure had risen to six million, making China the second-largest home to millionaires globally. As a result, the Chinese market contributed approximately 15% to global luxury goods sales in 2023, up from 3% in 2000.
The second driver was “democratization.” Luxury brands expanded their offerings to cater to affluent but not ultra-wealthy customers, introducing more accessible price points. For example, Gucci marketed $200 socks alongside its premium handbags, while brands like Armani and Valentino launched lower-priced sub-brands. This shift helped attract a broader customer base, with shoppers spending €2,000 or less annually on luxury goods accounting for nearly two-thirds of total sales, according to BCG.
Today, both growth engines are under strain. Western middle-class consumers face financial pressures from high interest rates and weak labor markets, curbing discretionary spending. In China, a property market downturn and government campaigns against ostentatious displays of wealth have dampened demand. Many younger Chinese consumers are opting for frugal alternatives rather than luxury products.
Price hikes have also alienated customers. Luxury goods are 54% more expensive than in 2019, according to HSBC. For instance, the price of a mid-sized Dior Lady Bag has nearly doubled from €3,200 in 2016 to €5,900 in 2024. Andrea Guerra, CEO of Prada, called the price increases “a blatant mistake.”
Some industry observers worry that the era of rapid growth may be over. The pool of middle-class consumers willing to spend on luxury goods is finite, and no emerging market appears poised to replicate China’s economic ascent.
However, the outlook may not be entirely bleak. China’s luxury slowdown is partly offset by increased spending by Chinese tourists abroad, particularly in Japan, where the yen has depreciated against the yuan. Bernstein estimates that global luxury spending by Chinese consumers will decline by only 3% in 2024.
Moreover, the ultra-wealthy remain a resilient customer base. UBS projects the number of global millionaires to rise from 60 million today to 86 million by 2027. Billionaire ranks also continue to grow, with Forbes counting 2,781 in 2024, surpassing previous records. This segment is less sensitive to economic fluctuations, driving growth for brands like Brunello Cucinelli, which reported a 12% sales increase, and Hermès, which achieved 14% revenue growth in the first nine months of 2024.
For brands catering to a broader audience, innovation and exclusivity remain crucial. Miu Miu, owned by Prada, has seen success with bold new products and marketing strategies, doubling its sales in the first nine months of 2024. Other brands, including Bottega Veneta, Chanel, and Givenchy, have appointed new creative directors to revitalize their offerings, though the impact may take years to materialize.
A key challenge for luxury brands is balancing exclusivity with mass-market appeal. Valentino ended its lower-priced sub-brand, Red Valentino, in 2021 to preserve its brand image. Other brands employ strategies such as limited production (e.g., Rolex) or segmenting luxury products from more affordable lines (e.g., Chanel and Dior). As Luca Solca of Bernstein notes, the industry increasingly relies on “perceived exclusivity,” a perception that must be carefully managed to sustain growth.