It’s a tough time to be in the luxury fashion business. After years of explosive growth, the industry is experiencing a significant downturn, facing its steepest sales decline since the 2008 financial crisis. You might think it’s all because of global economic headwinds—slowdowns in major economies, volatile markets, and geopolitical tensions.
Many experts suggest that luxury brands shot themselves in the foot during a period of what’s been called “greedflation.” Brands hiked prices to unprecedented levels, making their products unattainable for the aspirational customers who fueled much of their recent growth. Worse yet, this price surge wasn’t met with corresponding innovation or quality. Instead, many brands churned out more of the same, leading to a sense of consumer fatigue and a lack of inspiration. Why spend so much more for a product that feels less special?
Zuzanna Pusz, a luxury analyst at UBS, sees the current situation as a “sector-specific down cycle” that is being amplified by broader macroeconomic issues. The big players like LVMH, Kering, and Chanel are trying to reboot, bringing in new creative directors and turnaround experts, but they’re also hoping for some economic relief.
Bain & Company predicts a contraction of 2 to 5 percent this year if current trends persist. A quick turnaround seems unlikely, with challenges in key markets like China and the US expected to last at least until the end of the year. Still, some analysts, including Rambourg, believe the industry could return to “decent, profitable growth” next year.
For over a decade, China was the main engine of luxury growth, but that engine has slowed dramatically. Domestic luxury spending in China fell by 18 to 20 percent last year. A years-long crisis in the property market, where most consumers’ wealth is held, along with high youth unemployment and new US tariffs, is tied to the slowdown. This has made Chinese shoppers more cautious and selective
Brands with more timeless, classic designs like Hermès and Moncler have fared better than trend-driven brands like Gucci and Balenciaga, which have struggled to connect with consumers. While Chinese tourists are still making luxury purchases abroad in places like Japan, the overall sentiment at home remains a “wait-and-see attitude,” as Hermès CEO Axel Dumas put it.
The US has also been a key growth market, but the picture has become less rosy. The post-pandemic surge in spending, fueled by savings and stimulus cash, has dried up. Years of high interest rates and inflation have squeezed the budgets and confidence of aspirational shoppers. This has led many to cut back or trade down to secondhand goods or brands offering better value.
Even with the headwinds in China and the US, there are clear areas of opportunity for luxury brands. The Middle East, particularly the Gulf states, has emerged as a major bright spot. Despite nearby conflicts, consumer spending has continued apace. Dubai and the wider Gulf states are driving growth in the luxury sector. The region’s luxury market is booming due to several key factors. Dubai’s strategic location, pro-business environment, and status as a global hub for tourism attract high-net-worth individuals and visitors with significant disposable income.
Southeast Asia is also heating up, with Singapore, Indonesia, and Thailand showing strong growth. Thailand, in particular, has become a favorite destination for Chinese and Indian tourists after waiving visa requirements.
Latin America is another region to watch, with Mexico outperforming. While these smaller markets won’t be enough to fully offset the slowdowns in China and the US, they offer valuable pockets of growth for brands that know where to look.
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