‘ }
The Economist
5 min
read
27 Feb 2025, 05:18 PM
ISTSome in the industry fret that the days of heady growth may not return. Photo: AFPWorries that the luxury business is peaking are overblown
There will be fewer designer handbags and high heels under Christmas trees this year. Spending on personal luxury goods is set to fall by 2% in 2024, according to Bain, a consultancy. Sales of fashion and leather items at LVMH, the world’s biggest luxury conglomerate, have tumbled. Kering, which owns Gucci, has issued a string of profit warnings. Anyone who receives Versace goodies from Santa may feel a little less flattered than usual. The luxury brand is selling 40% of its products at a discount.
These travails follow an extraordinary rise for the luxury industry. For two decades it expanded smartly as brands reached new customers. In 2023 global sales of personal luxury goods hit $400bn, up from a little over $100bn in 2000, according to Bain. The combined market capitalisation of the ten most valuable Western luxury firms approached $1trn, compared with around $300bn in 2013. Over the past 12 months, however, their value has fallen by more than a tenth and growth has reversed. Can luxury recapture its lost allure?View Full Image
Graphic: The Economist
Two trends fuelled the growth of the luxury business. The first was globalisation. Brands that began life catering to Western elites in places such as London, New York and Paris increasingly turned eastwards for growth—and to China in particular, for good reason. In 2000 there were 39,000 dollar millionaires in the country, according to UBS, a bank; by 2023 there were 6m, more than anywhere else other than America, and twice as many as in Britain, the third-biggest home for millionaires. The Chinese market made up around 15% of global personal-luxury-goods sales in 2023, about five times its share in 2000.
The second trend propelling growth was what industry types call “democratisation”. To serve the merely affluent, as well as the stinking rich, luxury brands began selling a selection of items at less lofty prices. Gucci, for example, started peddling white socks, which will set you back a mere $200 (a steal compared with a $3,600 Gucci handbag). Brands from Armani to Valentino launched cheaper sub-brands, often focused on more casual attire. “Until 30 years ago, luxury had no adjectives attached to it,” says Brunello Cucinelli, who runs the luxury brand that carries his name. The industry now talks of “aspirational” or “accessible” luxury. According to BCG, another consultancy, shoppers who spend €2,000 ($2,100) or less a year on luxury goods and services—a trifling sum by industry standards—account for nearly two-thirds of total sales.
Those two engines of growth are now sputtering. Middle-class shoppers in the West have been squeezed by high interest rates and cooling job markets, leaving them with less to sp
