Challenges in the Personal Luxury Goods Market
The personal luxury goods sector is projected to experience a decline of up to 5% this year as consumer interest diminishes, according to recent analyses by Bain & Company in collaboration with Altagamma. This downturn marks the first significant contraction in the luxury market since the financial crisis of 2008-2009, excluding the temporary slump due to the Covid-19 pandemic in 2020.
Several factors contribute to this notable decline, including escalating geopolitical tensions, currency volatility, and fluctuating economic conditions. Moreover, luxury consumers are becoming increasingly disillusioned with the industry, particularly following post-pandemic price hikes that disrupted the traditional price-value perception of luxury items.
As Federica Levato, a senior partner at Bain, notes, “There’s a sense of emotional detachment, even among wealthier consumers who find it hard to justify why the same handbag that cost $1,200 previously now comes with a price tag of $2,000. Prices have escalated without a corresponding level of creativity.” This sense of disillusionment is especially pronounced among younger consumers.
The Current State of the Luxury Market
The year 2022 reflected the growing detachment among luxury consumers, evidenced by a 1% decrease in the luxury market at current exchange rates, bringing total revenues to $418 billion (€364 billion). Remarkably, this poor performance has resulted in a loss of approximately 50 million luxury customers over the past two years, with current estimates placing the global luxury consumer base at around 353 million—a significant drop from 400 million in 2022.
Levato has commented on this phenomenon, stating that “true alienation” is evident, suggesting that many individuals are simply no longer engaging in luxury purchases. The reduced interaction with luxury brands spans demographics, not just those of younger, emerging consumers.
Brand-related searches and consumer engagement have fallen by over 40%, while growth in social media followership has dwindled by a staggering 90%. This decline has been largely attributed to “price fatigue” and stagnation in creativity.
The Impact of Creative Churn
In an industry that heavily relies on artistic innovation, frequent turnover among senior executives and creative directors is adversely impacting luxury brands. Though consumers may remain unaware of these behind-the-scenes transitions, they experience the fallout in stores and in the brands’ overall performance.
Moreover, there exists a 50% chance that any new collection may fail to resonate, as evidenced by recent missteps from some high-profile brands.
Profitability Pressures in Luxury Brands
This combination of circumstances is increasingly impacting the profitability of luxury brands. Bain’s findings point out that margins, calculated as earnings before interest and taxes, have remained stagnant or declined since 2021, even among top-performing companies, with further margin erosion anticipated by 2025.
Levato notes, “A confluence of macroeconomic uncertainties, increased tariffs, diminished foot traffic, and fewer new product launches—over 70% of luxury brands are decreasing their volume from multi-brand retail platforms—has repercussions on revenue and a disproportionately negative impact on bottom-line profitability.”
In a somewhat positive light, Levato mentions that brands have not completely halted investments in areas like technology, marketing, client interactions, and physical storefronts, though they still face significant cost absorption. Given the current climate, additional price increases seem unlikely.
Adapting to a Global Luxury Reset
Bain’s report highlights the vast challenges facing the luxury market, labeling them as “far-reaching disruptions.” Nevertheless, Levato points to the industry’s inherent resilience, confirming that stakeholders cannot afford to become complacent.
“This transformation involves redefining what value and meaning signify for luxury consumers—those shaping the market today and future generations that will influence it,” she further explains.
The U.S. Luxury Market: A Bellwether
The United States remains the world’s most affluent market. Remarkably, last year, around 1,000 new millionaires emerged daily, contributing to a total nearing 400,000, with the U.S. accounting for the lion’s share of the $115 billion luxury market in the Americas—contrasted with $51 billion in Mainland China. Therefore, fluctuations in the U.S. market are likely to significantly affect the global luxury landscape.
According to a recent survey from the Affluent Consumer Research Company (ACRC), a measurable decline in luxury consumer enthusiasm has been observed. Specifically, around 52% of affluent Americans earning $250,000 or above expressed disappointment with current luxury offerings, while 46% felt unable to justify new purchases.
Interestingly, among the affluent demographic that frequently opts for luxury products, 55% are currently biding their time, signaling that the available luxury options do not resonate with them.
Chandler Mount, founder and CEO of ACRC, reflects on these findings: “Purchase hesitation can vary among affluent consumers. At the top of the market, it is not an affordability issue but rather a question of emotional connection. The affluent are waiting for options that genuinely resonate with them, reflecting a signal of flexibility rather than outright resistance.”
As U.S. consumers wait for more compelling luxury offerings, Bain reveals that the market for luxury experiences, such as hospitality, fine dining, cruising, and private aviation, is thriving. This shift highlights a preference for meaningful experiences over mere ownership of luxury goods, particularly among older consumers, where wealth is more likely to accumulate.
Redefining Luxury: A Focus on Personal Transformation
Luxury, at its essence, is a cultural construct intertwined with personal significance, social hierarchy, and self-worth expression. While possessing a multitude of luxury items can convey such advantages, a growing number of affluent individuals are redirecting their focus toward personal development and well-being.
This cultural shift among consumers signals profound implications for the goods-oriented luxury market. Mark Miller, chief strategy officer at Publicis Groupe’s Team One agency, articulates, “This isn’t just a trend; it represents a complete transformation in how the world’s most affluent individuals define success.”
In discussing his agency’s latest study titled “Worth Beyond Wealth,” which reflects the views of the elite Global Affluent Collective, Miller emphasizes this transformation. “A striking finding is the shift from questioning ‘What do I own?’ to ‘Who am I becoming?’ This evolution mandates a reevaluation of approaches taken by premium brands.”
Emerging Values Among Affluent Consumers
Noteworthy findings from the study, combining qualitative and quantitative research, indicate a prioritization of:
- Emotional fulfillment and human connection through pivotal life moments (89%) and relationships that enhance one’s life (90%).
- The continuous quest for growth and self-discovery, with 95% identifying ongoing learning as a fundamental luxury, while 75% view personal growth as the most critical life experience.
- A shift in belief that status derives from knowledge and respect rather than material possessions (88%).
This shift toward pursuing high-life worth through impactful experiences necessitates that luxury brands rethink their value proposition beyond mere price-point relationships. Miller describes this new paradigm as a “selective abundance” approach where affluent consumers are inclined to invest lavishly in items that hold unique significance while opting to economize on more replaceable goods.
“In an age of selective abundance, luxury brands must go beyond mere functional excellence. Consumers have become discerning and expect a value proposition that transcends the basic utility of products,” he stresses. This shift calls for extensive storytelling around high-life worth that moves beyond mere product features and benefits.
Candelaria, Team One’s director of cultural anthropology, adds, “Luxury is not merely about possessing exceptional items; it’s about merging excellence with impact. The most successful premium brands won’t just sell luxury; they will help facilitate meaningful, high-worth lives.”
Miller concludes, “Luxury is no longer confined to possessions; it is about gaining the knowledge and relationships necessary to evolve into a more developed version of oneself over time.”
Value Beyond Monetary Wealth
While Bain recognizes many of these shifts in its analyses, stating, “Drivers associated with self-reward, status, personal identity, and celebrating achievements will continue to drive engagement and strengthen the lasting relevance of luxury within consumers’ lives,” Team One’s insights push the concept of luxury beyond mere monetary valuation.
This demands that luxury brands redefine their value propositions, moving from a traditional price-value framework toward a “return on worth” perspective. “The notion of worth is increasingly defining how affluent consumers present themselves. Luxury consumption is evolving to become more conscious, purposeful, meaningful, and impactful—aligned with future aspirations rather than past glories,” Miller concludes.