Luxury confronts slowdown amid economic headwinds and market disruptions, while industry resilience and strong fundamentals underpin future prospects

Turbulence set to be sector's new baseline for extended period as economic uncertainties and cultural shifts impact demand. But positive longer-term outlook requires brands to decode the new market rhythm and go back to fundamentals on brand value propositions

MILAN, June 19, 2025 /PRNewswire/ -- The global luxury sector this year confronts its most far-reaching disruptions – and its biggest potential setbacks for at least 15 years – amid mounting economic turbulence, alongside complex social and cultural shifts, Bain & Company, in partnership with Altagamma, the Italian luxury goods industry association, reports today.

Worldwide luxury spending, historically sensitive to uncertainty, is coming under intensified pressure as luxury consumers' confidence is eroded by current economic upheavals, geopolitical and trade tensions, currency fluctuations, and financial market volatility, today's report warns. This is despite a relatively upbeat end to 2024 for the luxury sector, bolstered by a double-digit rise in tax-free spending in Europe, as well as decreased US market volatility at the time.

Heightened volatility for the luxury industry is being exacerbated by increasingly exposed cultural fractures for the sector, today's report cautions. Luxury brands are contending with not only weakening consumer sentiment but also a growing disillusionment with their offerings among younger generations, notably Generation Z. This trend is calling into question the luxury sector's long-standing price-to-value equilibrium as a growing group of younger consumers reassess their relationship with luxury.

A series of further, critical stresses are also weighing on the luxury industry, Bain reports. Distribution channels – especially physical and digital multi-brand outlets – are grappling with financial pressures as industry players seek to stabilize debt and preserve liquidity, with some engaged in restructuring. Alongside, the industry's innovation engine appears to be losing momentum and appeal, while the creative leadership that is vital to the sector is under strain and rotating across brands. Supply chains are also under growing stress as geopolitical challenges grow and regulatory oversight increases.

As these disruptive forces converge as headwinds for luxury businesses, the report cautions that turbulence may be luxury's new baseline for an extended period – and that the €1.5 trillion revenue industry faces its first slowdown since the global financial crisis of 2008-09, excluding the temporary shock of the Covid-19 pandemic. For the personal luxury goods segment, a potent post-pandemic rebound saw the market reach €369 billion in 2023. But this slipped last year to €364 billion, down 1% at current exchange rates (flat when adjusted for currency movements) and Q1 of this year is expected to have seen a further slide of between 1% and 3% at current exchange rates.

Long-standing resilience buttresses future performance

Yet despite volatility becoming 'business as usual', today's analysis underlines the luxury industry's long-standing resilience in the face of such challenges, as well as significant outperformance by some key segments and geographies. Bain urges the industry to respond to present disruptions by refocusing on the fundamentals of the luxury business, grounding value propositions in clear and differentiated brand identities, anchored in strong product quality and thoughtful price architectures. Brands should pursue efforts to nurture consumers' desire and shape clear and unique positioning towards their customers.

"Although demand is easing in the short term, the luxury sector has consistently demonstrated an extraordinary resilience – buoyed by a growing global consumer base and deeply rooted emotional drivers," Claudia D'Arpizio, Bain & Company senior partner and global head of the firm's Fashion and Luxury practice, said. "Across generations, drivers linked with self-reward, status, personal identity, and the celebration of achievements will continue to drive engagement, reinforcing and building the lasting relevance of luxury within its consumers' lives."

Federica Levato, Bain & Company senior partner and leader of the firm's Fashion & Luxury practice in EMEA, added: "As the industry faces an increasingly complex global landscape, luxury brands are entering a pivotal new chapter – one that demands sharper focus, greater cultural relevance, and growth rooted in purpose. At the heart of this transformation is a redefinition of value and meaning that resonates across all generations – with those shaping luxury today, and those who will define it tomorrow."

Personal luxury goods likely set for a 'continued slip'

With the personal luxury goods segment still confronting a deceleration this year despite the resilience of the industry, Bain maps out three possible scenarios for market this year. On what the report sees as the likeliest projection, of a "Continued Slip", it envisages a further, moderate decline for the market and a full-year contraction of between 2% and 5%.  A more optimistic scenario, for an "In-year Rebound" – one that is not considered overly likely by Bain– would see 2025 end with the market somewhere between 2% smaller and 2% larger. On the report's most severe scenario, for a "Demand Dip", also not seen as the most likely, personal luxury goods would endure a prolonged downturn, with the market shrinking by 5% to 9%.  

Experiential goods lead the field as some segments outperform

Despite the weaker outlook for luxury goods, some important luxury segments continue to outperform, the report highlights. In the first quarter of 2025, experiential luxury notably continued to outpace its tangible counterpart.

Luxury hospitality remained especially buoyant in Q1, fueled by rising hotel occupancy rates and extended stays, reflecting consumers' appetite for personalized experiences. Luxury cruises, meanwhile, sustained interest in immersive, slower travel on smaller vessels, while private jets and yachts enjoyed solid order backlogs and growing charter demand. Gourmet food and fine dining capitalized on curated, restaurant-style offerings at home. But not all categories were spared setbacks. Fine wines and spirits suffered stagnating demand. Car sales became increasingly polarized, with the ultra-luxury segment thriving as aspirational segments faltered. The fine arts market began the year sluggishly, though signs of normalization have since emerged. The high-end furniture market showed early stabilization, thanks in part to the contract channel (mostly within the hospitality and residential segment).

Polarization and divergence mark market evolution

As luxury businesses grapple with the new uncertainties, Bain notes a widening performance gap between leaders and laggards in the industry. In the first quarter, this gap – measured by relative revenue growth of brands – widened to 1.5 times the size versus Q1, 2024. Top performing brands' growth rates remained steady versus last year, while a smaller group of laggards lost momentum.  

This divergence in performance is one important facet of growing polarization in the luxury industry also manifested by varied performance between geographies and in important generational shifts, Bain's report highlights.

The global geography of luxury presents a complex landscape. Both the US and mainland China, two of the most important luxury markets, are undergoing a period of softened demand due to current economic turbulence. Tariff-induced volatility is affecting the US market and consumers' willingness to spend. In China, the country's key middle-class markets are in "wait-and-see" mode. Despite this, the report points to glimmers of hope for the medium-to-longer term, with American consumers signaling appetite for accessible luxury while high-spending customers remain resilient. Meanwhile, in China, consumer interest for 'new' local luxury brands is progressively picking up (although still small in absolute terms), while "essentials products" are outperforming the market average, and an outdoor craze is driving growth for experiences.

In both Europe and Japan, markets are impacted by weakening tourism, but local demand is partly offsetting the decline. Europe is seeing continuing interest in jewelry and ready-to-wear clothing, particularly in destination markets and for value-driven formats. In Japan, limited editions and beauty products are driving momentum. Conversely, luxury markets in the Middle East, Latin America, and parts of Southeast Asia remain robust. Countries such as the UAE, Mexico, and Indonesia are benefiting from strong local demand as well as new tourist inflows.

Generational complexities unfold amid age-driven trends

Demographic divergence in consumer behavior across age groups amid softening luxury spending is another critical trend, the report observes. "Generation Z" is split between a perceived need for self-expression and a desire for conformity. These young consumers are seeking creativity, excitement, and emotional re-engagement. Millennials are, meanwhile, more cautious due to financial pressures but still responding to fresh brand engagement. Older consumers are prioritizing meaningful experiences over goods. Overall, engagement with brands across demographics has declined since 2022: brand-related searches are down for more than 40% of the brands, social media follower growth has plummeted 90%, and engagement rates are off by 40% –largely due to price fatigue and stagnant creativity, Bain concludes. In turn, brands have begun to pursue efforts to nurture consumers' desire through new, experiential formats, category diversification, "beyond product" experiences, and increasingly through a new wave of creative change.

Within the personal luxury goods market, divergence is also apparent in varying performance across categories, the report notes. Jewelry, apparel, and eyewear remain strong, with positive performance for "uber-luxury" items, as well as in the aspirational segment. The fragrances market is benefiting from "premiumization", while the skincare market is holding steady but the makeup segment lags. Watches, leather goods, and footwear are facing headwinds unless backed by true innovation, the report says. Even if the price points continue growing by 2 to 3% on average, brands are subtly reinforcing entry-price strategies to broaden their appeal without eroding brand equity, with winning cases underpinned by combination of true newness and a unique brand point of view, Bain notes.

Competition intensifies while channels evolve

Amid these extensive shifts in global luxury, competitive forces are also changing fast, the report finds. Traditional brands, stuck in diluted identities and lookalike aesthetics targeting the same consumer pools, are losing ground to more agile, culturally-rooted luxury rivals. These insurgent brands are blending authenticity with modern strategy. In the West, newer players are gaining traction with strong value propositions and more accessible pricing, presenting a real opportunity for brands capable of redefining relevance in today's fragmenting market. Retail is also being reimagined. The multi-brand channel, long valued for discovery and curation by luxury brands, is under mounting pressure. Despite continued consumer interest, over 70% of luxury brands are pulling back volume from these retail platforms amid their financial struggles. To remain vital, multi-brand players must evolve – deepening customer engagement, supporting emerging brands, and delivering standout service across the journey, the report recommends.

Profitability remains under pressure

Profitability across the overall luxury industry remains under pressure. Despite the revenue peaks seen between 2018 and 2021, margins (defined by earnings before interest and tax, EBIT) have consistently lagged. From 2021 on, margins either stagnated or declined, even among top performers, highlighting the need for a more disciplined focus on performance improvement by the industry's players to sustain short-term results while enabling longer-term strategic investments. To guarantee future profitability and operational resilience for luxury businesses, technology – especially the use of AI – along with advanced clienteling, supply chain modernization, marketing technology, and more sophisticated pricing analytics, will be essential levers, Bain advises.

Expanding markets map the road ahead

Despite short-term volatility for the luxury industry at present, its long-term fundamentals and prospects remain strong, today's report concludes. Over the next five years, more than 300 million new consumers – over half of these in Generation Z or Generation Alpha – are expected to enter the market. Rising global incomes, generational wealth transfers, and a projected 20% increase in the number of high-net-worth individuals will further expand the pool of potential luxury buyers, Bain notes. But it cautions that realizing the potential growth of this expanding market will require action from the industry's players. Brands will need to rethink how they engage younger consumers, avoid over-reliance on top spenders, and build emotional connections that go beyond transactional loyalty.

Claudia D'Arpizio commented: "To navigate today's uncertainty, brands must anchor themselves in their core strengths – prioritizing quality, creativity, and authenticity. Deepening consumer relationships is essential, shifting away from push marketing toward seamless, customer-centric experiences across every touchpoint."

Federica Levato added: "At the heart of this shift lies a more fundamental question: who are we as a brand, and what do we stand for? Answering this with clarity and conviction will be critical for any brand aiming not just to endure, but to lead in this new era of transformation."

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