Luxury sector facing first major slowdown in 15 years excluding the pandemic period

Faltering economies, trade wars, geopolitical tensions, market volatility. These factors are undermining the confidence of luxury goods consumers on a global scale, with a strong impact on luxury brands’ sales. According to the latest luxury sector report by consultancy firm Bain & Co., presented on Thursday in Milan with Altagamma, the association of Italian high-end companies, the luxury goods market is experiencing its first major slowdown in 15 years (excluding the pandemic period), hit hard by the uncertainty and turbulence it is experiencing for the first time since the global financial crisis of 2008-09.

The luxury goods market as a whole (including luxury hospitality, cars, and all other sectors) is worth €1.5 trillion annually. “Between 2019 and 2024, the sector recorded a revenue increase of approximately 28%, so we’re still well above pre-pandemic levels,” said Altagamma President Matteo Lunelli. For the luxury goods segment alone, which includes fashion, leather goods, jewellery, watches and beauty products, the market was worth €364 billion in 2024. In 2023, following the post-pandemic rebound, it was worth €369 billion. After averaging 6% annual growth between 1996 and 2019, and 5% between 2019 and 2024, the sector shrank by 1% at current exchange rates in 2024, and the trend seems to have continued in Q1 2025, when it is expected to shrink by between 1% and 3%.

In fact, after a buoyant Q4 2024, which raised hopes of an uptick, the luxury market began to decline, then deteriorated further after the “Liberation Day” promised by US President Donald Trump, when sweeping tariff increases were announced.

“Last year, many spoke of an imminent recovery, but the market has remained weak, some labels faring better than others. Widespread price rises for luxury goods have led to sell-out and customer shortfalls. And the wealthiest customers did not manage to compensate the deficit,” said Claudia D’Arpizio, partner at Bain & Co. and co-author of the report.

Luxury labels are facing not only a decline in consumer confidence, but also the younger generations’ growing disillusionment with their products, notably Gen Z consumers. This trend is challenging the ratio between price and brand value established over the years by luxury labels, and a growing number of young customers are re-assessing their relationship with luxury, noted the report.

“At the same time, strong external turbulence has added to an already highly volatile environment. Notably, the issue of customs duties, which is likely to have an impact on growth in various countries, on stock markets, and consumer confidence. The [luxury] market is absolutely affected by this turbulence and the attendant economic trends. As a result, the current situation adds to the weakness already seen in 2024. The luxury goods market has been on a downward slope for two years now,” said D’Arpizio, talking to FashionNetwork.com.

Heading for 2% to 5% downturn in 2025

For the current year, Bain & Co. has drawn up three scenarios. The most likely one is that the slowdown will continue, with revenue falling by between 5% and 2%. The most optimistic, betting on a rebound, predicts the luxury market will oscillate between a 2% shortfall and a 2% rise. The most pessimistic scenario takes into account a collapse in demand, which would result in a revenue drop comprised between 9% and 5%.

All the main luxury markets have been heavily affected, starting with the two giants. Neither of them is growing, as consumption is under pressure in mainland China, and the USA are still in negative territory, while Europe and Japan are slowing down. Since the start of the year, sales of luxury goods have fallen in the USA, while China recorded its sixth negative quarter. “The issue of tariffs has impacted China’s already slowing economy. In this context, with young people facing unemployment for the first time, the government is censuring ostentatious behaviour on the part of consumers who, even if wealthy, are no longer buying luxury goods,” said D’Arpizio.

Nevertheless, the picture is not entirely bleak. Some markets are doing well, driven by the growth of the middle class. These include the Middle East, Latin America (led by Mexico) and South-East Asia (India, Vietnam, Thailand, and the Philippines), although these countries cannot compensate for revenue lost in the USA and China, especially as tourist flows remain weak. In addition, to capture new consumer segments, luxury labels need to adapt by introducing specific, more affordable products.

“The positive is that consumers are again keen to visit stores to buy luxury products, although not at prohibitive prices. There’s a great deal of expectation around some luxury labels’ new creative directors. Consumers want to be cocooned and motivated again by luxury labels,” said D’Arpizio. Indeed, the fundamentals for long-term growth remain solid, based as they are on the potential growth of the luxury goods consumer base induced by the expansion of the middle class. Admittedly, the market has lost 50 million customers by 2024. However, according to Bain & Co. estimates, it’s set to attract over 300 million additional consumers within five years, more than half of whom will be young people from generations Z and Alpha.

Given this outlook, the luxury industry will have to rethink its priorities, shifting from short-term strategies to building a relevant brand over time, by refocusing chiefly on new, innovative, sustainable and high-quality products, focused on content and creativity. “Labels will also have to get young people back on board. Alhough this clientele may currently have limited purchasing power, they nonetheless have a strong influence on the market and will form the basis of the luxury goods clientele in the long term,” said D’Arpizio.

Many luxury labels have overhauled their creative teams, and the revolution is under way. One that’s going hand in hand with an in-depth managerial reshuffle, with the arrival of new top executives and staff. 2025 seems set to be a transition year, in terms of creative rejuvenation, profitability protection, the creation of more affordable products, and new product range and pricing structures.