The State of Luxury: How to navigate a slowdown

State of Fashion Luxury

(53 pages)

Over the past five years, the luxury industry experienced a period of exceptional value creation. Between 2019 and 2023, unprecedented demand for personal luxury goods—fashion, leather goods, watches, and jewelry among them—combined with a deep well of supply allowed the sector to achieve a 5 percent compound annual growth rate. Luxury brands outperformed global markets and achieved new profitability records.

The pace of growth across the industry was remarkable and swift, while luxury “megabrands” with annual revenues over €5 billion ($5.3 billion) used their scale to drive even greater visibility and desirability (Exhibit 1). Price increases accounted for more than 80 percent of growth during this period, while volume gains were more moderate.

1

Now, as we step into 2025, the luxury industry is facing a significant slowdown that has hit even top brands hard, not dissimilar to what the broader fashion industry is experiencing, as outlined in our State of Fashion 2025 report. For the first time since 2016 (excluding 2020), luxury value creation is expected to create less value than the previous year.

Several of the industry’s growth-driving engines have stalled. Price increases have reached a ceiling, and higher prices are negatively affecting demand from aspirational luxury consumers. Macroeconomic headwinds—especially in the key China market, which drove more than 18 percent growth annually from 2019 to 2023—are weighing heavily on the sector.

Meanwhile, the luxury client base is becoming more diverse, and clients have a more complex relationship with luxury goods than ever. Having a differentiated value proposition that is appealing to this diverse client base is essential, given the anticipated low-growth environment. Further, clients are becoming more interested in luxury experiences, not just luxury goods. This dynamic creates new trade-offs for clients to consider, meaning personal-luxury-goods players must exceed higher-than-ever client expectations to win spend over luxury travel and wellness experiences, for example.

But luxury’s woes are also partly self-inflicted. The sector’s rapid expansion over the past five years has led to overexposure and has weakened the industry’s promise of exclusivity, creativity, and craftsmanship. Brands increased prices, though some failed to sufficiently adapt their creative strategies and supply chains to meet new scale requirements, thereby weakening their core value proposition and ultimately failing to keep their promise to clients. Even the brands that have evolved over the past several years are subject to increased pressure, as consumers are questioning the luxury promise—one of uncompromising product quality and personalized, white glove experiences—and demanding more innovation.

As a result of these strategic choices and economic headwinds, growth in the years ahead is expected to be slower, reaching between 1 and 3 percent annual growth globally between 2024 and 2027 (Exhibit 2). Dynamism in emerging markets such as the Middle East, India, and other Asia–Pacific regions will not compensate for single-digit growth expected in luxury’s core markets, including the United States, Europe, and China. The industry can use this new chapter as an opportunity to reflect and recalibrate. Luxury leaders will need to conduct a holistic, strategic reset and play the long game, rather than rely on quick fixes to address their most pressing challenges.

2

Now is the time to take bold risks, rebuild connections with clients, and invest in the critical areas of the business—even if the returns may not be immediate. In our view, there are five strategic imperatives for luxury executives in the coming years:

1. Conduct a strategic reset

• Clarify core values and align on priority clients to sharpen the brand’s long-term strategy and differentiated value proposition, including assortment, communication, price architecture, and experience.
• Review the synergies large groups may achieve by launching initiatives jointly, be it on growth acceleration or cost excellence.

2. Restore product excellence

• Continue to invest resources in creating iconic products that will resonate with target clients and uphold luxury’s promise of quality and value.
• Realign business scale with craftsmanship heritage by investing in long-term supply chain stability (through vertical integration, for example) and by implementing best-in-class sourcing and manufacturing practices.

3. Rethink client engagement strategy

• Continue to develop unique “money can’t buy” experiences, both inside and outside stores, for the most loyal and for those with the highest potential that may have been underserved in recent years. These experiences must align with the brand’s ethos and not simply chase the latest trends.
• Invest in tech, AI, and data capabilities to uncover powerful client insights to help better personalize client journeys and drive decision-making across the organization.

4. Bridge the talent capability gap

• Attract, develop, and retain the best talent across every critical function, not just in creative roles. Executives should focus on building great brands not only for their clients but also their employees. This means having a best-in-class talent management system and evolving operating models and corporate culture to cultivate a high-performance environment where exceptional people thrive.
• Professionalize operations across major business units—including digital, data, technology, supply chain, and procurement—by emulating best practices from other sectors. Adopt an out-of-the-box approach to bridge capability gaps in these functions, and also look outside luxury for highly skilled talent.

5. Future-proof the portfolio

• Review exposure to different luxury categories and regions. Define a clear role and goals for expansion into adjacent categories (including travel and hospitality) to maximize client engagement while staying true to the brand. Allocate focus and resources to these new ventures without neglecting the core business.
• Assess the portfolio and consider divestitures where relevant or seek complementary acquisitions to build resilience and secure an edge in a more competitive market. The scale and speed of these shifts will likely continue to shape the industry in the coming years.

The luxury industry is at a critical juncture. Executives can ensure the continued success and growth of their brands if they lead with vision, creativity, and a renewed commitment to excellence, while also focusing on building great companies that will attract top talent. If they do not make these necessary changes, they risk becoming irrelevant and sacrificing market share for years to come.

Download The State of Luxury, the full report on which this article is based.