Over the past five years, the luxury goods industry has experienced a period of extraordinary value creation. From 2019 to 2023, unprecedented demand for personal luxury items such as fashion, handbags, watches and jewellery, combined with abundant supply, could help the sector achieve a compound annual growth rate of 5%. I did. Luxury brands outperformed global markets and achieved new revenue records.
While the pace of growth for the industry as a whole has been impressive and fast, luxury “mega-brands” with annual revenues of more than €5 billion ($5.3 billion) are leveraging their global presence to further increase their visibility and desirability. I raised it. More than 80% of growth during this period was due to price increases, while volume growth was more modest.
As we enter 2025, the luxury goods industry is facing a significant slowdown, and even top brands are being hit hard. For the first time since 2016 (excluding 2020), luxury value creation has declined.
Some of the industry’s growth drivers have stalled. Macroeconomic headwinds are weighing on the sector, particularly in the key Chinese market, which grew more than 18% annually from 2019 to 2023.
Meanwhile, the customer base for luxury goods is becoming more diverse, and the relationship between customers and luxury goods is more complex than ever. To that end, one of the challenges luxury brands face is how to attract younger customers without alienating older customers, both through the products they produce and their marketing strategies. Additionally, customers of all ages are increasingly interested in luxury experiences, not just luxury goods. This move creates new trade-offs for customers to consider. This means that personal luxury players must exceed ever-higher customer expectations to capture spending on luxury travel and wellness experiences, for example.
But some of our luxury woes are self-inflicted. The sector’s rapid expansion over the past five years has led to overexposure and weakened the industry’s promise of exclusivity, creativity and craftsmanship. As demand soared, brands raised prices but failed to sufficiently adapt their creative strategies and supply chains to meet new scale requirements, thereby weakening their core value proposition. , and ultimately failed to keep promises to customers.
As a result of these strategic choices and economic headwinds, growth will be slower in the coming years. We expect global luxury goods sales to grow 2% to 4% annually from 2025 to 2027, with a gradual recovery from 0% to 2% year-over-year growth in 2024. The dynamism of emerging markets such as the Middle East, India and the rest of Asia-Pacific The region will not be able to offset single-digit growth in core luxury markets such as China and Europe, but the overall outlook is expected to improve I’m more bullish on the US. The industry needs to use the economic slowdown as an opportunity to reflect and recalibrate, as sector recovery will not be achieved until late 2025 or 2026. Luxury leaders must play the long game rather than relying on stopgap solutions to the most pressing challenges.
Now is the time to take bold risks, reconnect with customers, and invest in key areas of your business, even if you don’t see immediate returns. In our view, there are five strategic imperatives for luxury executives in the coming years.
1. Perform a strategic reset
Define core values and partner with priority customers to strengthen the brand’s long-term strategy and differentiated value proposition, including assortment, communications, pricing, and experience. Consider the synergies, such as growth acceleration and cost, that can be achieved when large groups start working together. Excellence.
2. Restore product excellence
Continuing to invest resources in creating iconic products that resonate with our target customers and uphold the promise of luxury quality and value. Re-scaling operations in line with our craftsmanship heritage by investing in long-term supply chain stability (e.g. through vertical integration) and best implementation. -In-class sourcing and manufacturing practice.
3. Rethink your customer engagement strategy
We will continue to develop unique “money can’t buy” experiences inside and outside of our stores for our most loyal and promising customers, who have been underserved in recent years. These experiences should align with your brand’s ethos, not just follow the latest trends. Develop a new customer acquisition strategy. Invest in technology, AI, and data capabilities to uncover powerful customer insights and better personalize customer journeys.
4. Close the talent gap
Attract, develop and retain the best talent across all critical functions, not just creative roles. Evolve your corporate culture and update your operating model to match the growth in size and complexity of your business, as well as potential succession planning. Professionalize your operations across key business units, including digital, data, technology, supply chain and procurement, by emulating best practices from other sectors. Look outside of luxury to find talent that can help fill capability gaps.
5. Future-proof your portfolio
Check exposure to different luxury categories and regions (within large groups). Define clear roles and goals for expansion into adjacent categories such as travel and hospitality to maximize customer engagement without neglecting your core business. Allocate focus and resources to these new businesses without impacting your core business. Explore complementary acquisitions to build resilience and ensure competitiveness in a more consolidated market. Due to the nature and scale of these changes, industry reconfiguration is likely to continue.
The luxury goods industry is at a critical juncture. Executives can ensure the brand’s continued success and growth by leading with vision, creativity, and a renewed commitment to excellence, while also focusing on long-term investments and multi-year initiatives. can. If you don’t make these necessary changes, you risk sacrificing your brand’s relevance and market share for years to come.
BoF Insights is The Business of Fashion’s in-house consulting firm. We partner with leading fashion and beauty brands and investors to support long-term, sustainable growth. Contact us to find out how we can support your business.
