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Background
For nearly a decade, the luxury sector has experienced what seemed like limitless growth, with brands like Louis Vuitton, Gucci, and Chanel pushing product prices higher — and seeing consumers pay up. However, recent quarterly reports have marked a sudden shift, with even industry giants reporting disappointing revenue. As luxury editor Robert Williams explains, “These brands are omnipresent and people are seeing them everywhere. Whether consumers finally pull the trigger is so much about their economic confidence, this feel-good factor. Are things going to be better for me next month than they are today?”
This week, BoF executive editor Brian Baskin and luxury editor Robert Williams discuss the forces contributing to this downturn, the implications for top brands and potential strategies luxury players are exploring to reignite growth.
Key Insights
- Global economic uncertainty has hit US and European luxury spending hard. “Whether they finally pull the trigger [on a big purchase] is about economic confidence,” explains Williams, noting that factors like inflation, wage stagnation, and election cycles have consumers second-guessing expensive purchases. There are similar issues in Europe, with proximity to conflicts in the Middle East, Ukraine and Russia additionally impacting consumer sentiment and spending power.
- However, according to Williams, the biggest issue is China pulling back on this type of spending. China’s luxury market has always been a growth engine, but changing economic sentiments and less travel due to Covid-19 are affecting luxury sales. “[Chinese consumers] are really holding out for when they feel better about the economy. … They’re holding out for when they can feel like they can get a deal because prices are higher in China than most of the world for luxury brands,” says Williams.
- Many consumers are frustrated with steep price increases, as seen with Dior’s Lady Dior bag, which has jumped 76 percent in price since 2019. “Customers are quite fed up with how dramatic the price increases have been often for like for like products,” Williams states, adding that consumers often feel they’re “spending a lot more for something that’s not necessarily as good.” Even if quality hasn’t declined, the perception has, especially with social media spotlighting many issues. “With the way our Internet culture works, if someone has an issue with the product, they can make that so public in a way and really disenchant a lot of people and their audience and make them question, is this high price worth it?”
- Facing a saturated market after years of rapid growth and price hikes, many forecast that 2025 and 2026 are to be similarly stagnant or negative periods for sales.” Even if it wasn’t just a question of the prices or if there weren’t these other macroeconomic factors, there could be a sense of having saturated the market, of people needing to be bored with fashion a bit so that then they can rediscover it. I’m not sure that it’s the right time to introduce the next big idea if you were the one who had it,” says Williams. “Because if you’re among the brands whose sales are quite negative … then how much can you really invest in telling the world that you’re the one who has the next big idea?”
Additional Resources
- Inside Luxury’s Slowdown. Economic headwinds, high prices and a lack of novel design are all weighing on what was previously fashion’s most dynamic segment. How severe is the slowdown and how long will it last?
- Why Some Luxury Groups Are Doing Better Than Others. The slowdown in demand for high-end brands is hitting the sector unevenly, as seen in the polarised third-quarter results released this week by Hermès, Kering and others.
