Sales of personal luxury goods are expected to take a hit again this year as wealthy shoppers rebel against extravagant price hikes and global turmoil shakes confidence.
The dip would mark the first two-year slowdown since the 2008-09 global financial crisis.
“It is not a disaster scenario, yet you see consumers are trading down to accessible brands, not because they don’t have the money but because I think they are looking for something that is more ethical in the value-price proposition,’’ said Bain partner Claudia D’Arpizio, who co-authored the study.
Post-pandemic sales hit 369 billion euros in 2023 in a rebound that Bain analysts now read as a bubble. Despite the recent dips, the market still remains about 25% larger than 2019, before pandemic lockdowns tanked sales.
FILE – A Bonhams employee displays a Hermes: a Bambou Swift Leather Birkin 25 bag, left, and a Bottega Veneta: a Parakeet Green Lambskin Mini Jodie, right, at the auction rooms in London on Feb. 26, 2024
Looking ahead, Bain is forecasting a rebound of 3% to 5% next year to 365 billion euros to 375 billion euros, which assumes U.S. growth backed by strong financial markets and recovery in China.
The U.S. market is forecast to be flat this year at around 101 billion euros, while Europe is under pressure and expected to contract slightly to 108 billion euros. Mainland China and Japan are both headed for slowdowns of up to 8%, to 42 billion euros and 31 billion euros, respectively. Only the Middle East is expected to grow, from 4% to 6% to 23 billion euros, powered by the shopping mecca of Dubai.
Globally, inflated prices and a creativity crisis have cost brands 60 to 70 million customers over the last two years, reducing the customer base by some 18% to 330 million shoppers who feel much less loyal than they used to be, according to Bain.
The categories that have suffered the most – footwear and handbags – are those where the price hikes were the stiffest, D’Arpizio said.
“These customers have plenty of bags in their wardrobes, including the same ones they can buy now,’’ she said.
Just like in politics, the luxury world is experiencing a period of extreme polarization, with ultra-high-net-worth individuals proving the most resilient in their purchasing power. With personal wealth above 30 million euros, they number some 400,000 people, with family members extending the category to some 1.5 million people.
“The ongoing polarization is not helping luxury consumption,’’ D’Arpizio said. “The rest of the customers felt alienated because brands focused too much on these ultra-high-net-worth individuals, not only with the price elevation but also with the customer experience that was meant for few and not for the many.”
Social media is also amplifying questions about whether “it is ethical to buy at these prices,’’ D’Arpizio said. She added that the strategy of hiking prices “in our opinion has been very dangerous,’’ creating a misalignment between price and value.
Brands need to decide “which customers they want to serve” and also reestablish themselves as harbingers “of self-actualization and social improvement,’’ which powered the luxury market through recent decades, D’Arpizio said.