6 Major Factors Contributing to Slowing Luxury Demand

The recent sales reports from major luxury brands indicate a challenging period for the luxury industry. LVMH's fashion and leather goods division experienced a 5% decline, while Ferragamo and Ermenegildo Zegna Group reported drops of 7.2% and 7.8%, respectively. Kering faced a significant setback, with overall sales down 16% and its flagship brand Gucci suffering a dramatic 25% decline in revenue, amounting to €1.64 billion. These numbers suggest a broader trend of reduced consumer spending in the luxury market, potentially influenced by economic factors and shifting consumer preferences.

 The slowdown in luxury spending, especially from key markets like China, has raised concerns about the underlying causes and potential consequences for the industry. Following is the key question that arises: Is slowing demand entirely due to weaker economic conditions or can it be attributed to other factors?

  1. Target Audience Dilemma: Luxury brands are facing the dilemma between serving to the top of the pyramid or focusing on  nouveau rich. Brands like Hermès that maintain exclusivity by focusing on affluent consumers seem to be faring better than those like Gucci and Burberry, which are attempting to appeal to a broader audience. This shift towards massification may dilute brand identity and alienate traditional luxury shoppers.

Note: Luxury Brands need to have a clear-cut long-term vision and should stick to their core values and brand DNA.

    2. Experiential Luxury: There is a growing breed of luxury consumers moving away from the traditional notion of material possessions, instead they are more inclined towards spending on experiences. As per Bain & Company report about 78% of millennials prefer experiences over products. Whether attending their favourite singer’s concert or going for a sports event or exploring local culture of a new destination, experiences are increasingly taking precedence over luxury goods. Hence, brands must consider how to integrate experiences into their offerings, whether through events, collaborations, or unique consumer engagements that go beyond traditional product sales.

Note: Going forward, luxury brands need to emphasize on creating experiences that align with customers' interests, values and beliefs.

3. Second-hand Luxury Market Growth: As per IMARC group, the global second-hand luxury goods market is expected to reach US$ 72.3 Billion by 2032 from US$ 34.2 Billion in 2023, showcasing a growth rate of 8.9% during 2024-2032.  The increasing popularity of second-hand luxury items highlights change in the mindset of young consumers who believe in circular economy and affordability. This trend not only challenges new luxury sales but also emphasizes the need for brands to adapt to changing consumer preferences.

Note: Brands need to beware about second hand luxury market becoming mainstream in the years to come.

    4. Evolving Consumer Choices: Younger consumers prioritize brands that reflect their values. A report by First Insight's reveals that 62% of Gen Z shoppers prefer to buy from sustainable brands, and about 73% are willing to pay more for sustainable products. They are the most likely to make buying decisions based on personal, social and environmental values. This change demands that luxury brands evolve not just their products, but also their brand narratives to resonate with this audience.

Note: Consumers have strong urge for unique, authentic and meaningful brands.

    5. Luxury Shame: Lately, softening demand for luxury in China has raised alarm bells for the industry. The emergence of luxury shame suggests a cultural shift where ostentatious displays of wealth are increasingly scrutinized. This is a trend where people feel embarrassed or ashamed to consume luxuries or display wealth. This has prompted consumers to be more selective and thoughtful about their luxury purchases, making it essential for brands to foster a sense of authenticity and discretion.

          Note: Today affluent consumers’ are seeking for guilt-free pleasures that are more subtle and less visible.

     6. Unimaginable price hikes: According to HSBC, the average price of personal luxury goods in Europe has grown by whooping 52% since 2019. Chanel 2.55 large flap bag prices have increased by 91%, from € 5800 in 2019 to € 11,100 in 2024. Similarly, Prada Galleria Saffiano leather bag prices have increased from € 1750 to € 3700, marking 111% price rise since 2019.

  Note: Unreasonable price hikes not backed with innovation, high quality and craftsmanship may result in customer backlash and prove to be suicidal for luxury    brands in the long run.

 Given these factors, luxury brands must reevaluate their strategies. Emphasizing exclusivity, authenticity, and integrating experiences into their brand identities may be critical for navigating this challenging landscape. By focusing on right target audience, innovation, ethical sourcing and sustainable production processes, luxury brands can not only navigate these tough times but also position themselves for long-term growth. It's a pivotal moment for the industry, and those that successfully pivot will likely emerge stronger.