Luxury goods market to shrink for first time since the 2008 financial crash, research finds-OxBig News Network

The personal luxury goods market looks set to face its first slowdown since the Global Financial Crisis this year, as macroeconomic uncertainty and a pronounced slowdown in China weigh on consumer spending, according to the Bain & Company’s annual luxury report .

This is the first slowdown in demand for personal luxury goods — which include clothing, bags, jewelry and cosmetics — in 15 years, excluding the Covid-19 lockdown period, according to the Wednesday findings.

Higher costs and falling customer loyalty saw shoppers shun high-end brands in 2024, denting company profits and likely to cause the sector to contract by a projected 2% over the full-year period, the report showed.

It noted that overall luxury spending is forecast to remain flat year-on-year in 2024 at around 1.5 trillion euros ($1.59 billion), even as segments including autos, travel and fine wine record modest growth.

Global economic uncertainty and inflationary pressures have emerged as common threads in the earnings reports of luxury labels this year, with LVMH, Burberry and Gucci-owner Kering all posting repeated revenue misses.

But it’s dwindling demand from the key Chinese market that has proven especially concerning for the sector, as the economy has struggled to rebound from a Covid-19-era slowdown.

Even Cartier-owner Richemont, which had been an outlier in the wider sectoral downturn, last week reported a 1% fall in sales in the first half of its fiscal year, due in part to weakened demand from China.

“Mainland China has experienced a sharp slowdown, worsening throughout the year as domestic spending decreased due to lackluster consumer confidence,” Bain & Company noted.

Sustained weakness in the China market could weigh further on the luxury sector in 2025, according to the report, which nevertheless cited this as a lower probability outcome and instead pointed to a gradual recovery in the second half of next year as its more “realistic scenario.”

Luxury demand in Europe and the U.S. has shown signs of gradual improvement quarter-on-quarter this year, with Japan leading the way due to favorable currency exchange rates. As such, the report forecast the sector will grow slightly next year, barring any major economic headwinds.

The report also pointed to glimmers of light for the sector, with luxury cars and hospitality, fine wines and gourmet dining all recording gains this year.

Luxury travel particularly emerged as an area of growth, with consumers increasingly switching their spending toward experiences, social events and wellness.

Small personal items, such as eyewear and beauty, also saw an uptick, as shoppers opted for “small indulgences” rather than bigger buys, the report said.

Nevertheless, it noted that luxury brands would need to do more to attract and retain their increasingly fickle consumer base, especially within the younger Gen-Z segment covering people born between 1997 and 2012.

“50 million luxury consumers have either opted out of the luxury goods market or been forced out of it in the last two years. This is a signal for brands that it’s time to readjust their value propositions,” said Claudia D’Arpizio, partner at Bain & Company and lead author of the study.

“To win back customers, particularly the younger ones, brands will need to lead with creativity and expand conversation topics. Simultaneously, they must keep their top customers front and center, surprising and delighting them while rediscovering one-to-one human interactions,” she added.