The luxury goods market is facing a significant downturn, with sales of personal luxury items projected to fall by 2% in 2024. This anticipated decline marks one of the weakest performances in recent years, driven largely by rising prices and economic uncertainties that have diminished the industry’s customer base, particularly in China, according to Bain & Company.
The consultancy’s report highlights a shocking 20-22% drop in luxury sales in China, which has been a vital engine for the global luxury market over the last decade. After witnessing a boom fueled by the wealth of the upper class and a burgeoning middle class, China is now grappling with economic challenges that have led to a significant decrease in purchasing power among its luxury consumers. As a result, the global luxury market, valued at approximately 363 billion euros ($386 billion), is being severely impacted.
This decline is particularly concerning as it marks the first contraction in the personal luxury goods industry since the global financial crisis of 2008-09, outside of the pandemic-related downturn. Federica Levato, a partner at Bain, emphasized that the current situation raises alarms for investors, suggesting that the downturn could last longer than initially expected, impacting companies such as LVMH and Kering which have already seen their shares stumble.
As the holiday season approaches, Bain projects that luxury sales will remain flat at constant exchange rates, with China expected to continue its negative performance. This stagnation can be attributed to heightened prices for luxury goods, alongside a stark decline in consumer confidence driven by geopolitical tensions, economic struggles in China, and the impact of worldwide elections that have led many potential buyers, especially younger demographics, to forgo luxury purchases altogether.
The report reveals that over the past two years, the luxury consumer base has shrunk by approximately 50 million individuals, down to about 400 million global consumers. This decline underscores the potential volatility the luxury market faces unless brands can effectively navigate these new challenges. The strategies brands adopt — particularly in terms of pricing and product positioning — will play a critical role in the market’s recovery.
Interestingly, while the luxury goods market experiences this downward trend, the spending on luxury experiences, such as hospitality and fine dining, appears to be on the rise. Bain predicts that this sector will see an increase, as consumers lean towards experiential purchases over material goods during these uncertain times.
To combat the challenges presented by higher pricing and reduced consumer interest, many luxury brands are turning to outlet channels. These outlets have outperformed traditional luxury stores as consumers pursue better value for their money. This shift demonstrates a strategic adjustment within the industry, catering to changing consumer behavior.
Looking ahead, Bain’s forecast for 2025 is cautiously optimistic, expecting the luxury personal goods sector to grow between 0% and 4% at constant exchange rates, buoyed by potential recovery in markets like Europe and the Americas. Recovery in China is only anticipated to take place later in the year, but there are silver linings, such as economic changes in the US, where shifts in interest rates and potential tax cuts could lead to increased consumer spending.
As the luxury market confronts a multitude of hurdles, from economic challenges to changing consumer preferences, brands will need to adapt to maintain their relevance. The emphasis on value over prestige may signal a broader transformation within the luxury sector.
