BrazilGlobal luxury sector braces for downturn as demand weakens
The ongoing uncertainty in the global economy, combined with the effects of Trump-era tariffs, is proving challenging for luxury brands like Louis Vuitton, Hermès, and Gucci. According to data from Bain & Company and Altagamma, the luxury sector is set to experience its second-largest downturn since the financial crisis.
After a strong post-Covid growth phase, the global market for luxury goods is entering a more difficult period. In the first few months of the year, several prominent players in the industry have already indicated that their sales are under pressure – and so are their margins.
An uncertain and slower-growing global economy is the main driver of this decline. The luxury sector is highly sensitive to economic cycles – when times are good, consumers have more disposable income and are more willing to invest in luxury items such as high-end watches, designer shoes, handbags, or fine jewelry.
This drop in spending is especially visible in China (the world’s largest market for luxury goods) and the United States, which holds the second-largest share. This trend is also reflected in the Bain & Company and Altagamma study: they predict the luxury market could shrink by as much as 9% this year. That would be the worst-case scenario; the more likely outcome is a contraction between 2% and 5%.
Last year, the market also saw a slight dip, declining from €369 billion at the start of 2024 to €364 billion by year-end. “The luxury sector is facing a tough environment due to weakening consumer demand,” says Michelle Paratore, a partner at Bain & Company in Amsterdam.
Changing consumer behavior
But it’s not just macroeconomic forces at play. The market is also grappling with price fatigue – a growing skepticism among consumers regarding the ever-increasing prices of luxury goods. This phenomenon has been amplified by the tariff conflict, which has made pricing across the supply chain more transparent.
Another key factor is the evolving definition of luxury, especially among younger generations. “Generation Z, in particular, views luxury differently and places greater importance on sustainability and experience,” Paratore explains.
A strategy is no longer a luxury
For luxury brands, swiftly and strategically responding to major market trends has become essential. Those that succeed in doing so continue to thrive, even as the market contracts and evolves. Demonstrating this, the research found that the performance gap between industry leaders and laggards is widening further.
“In Q1 2025, the difference in revenue growth between top-performing brands and others was 1.5 times greater than a year earlier. Leading brands continued to grow, while weaker players lost ground,” Paratore notes.
In their report, Bain & Company and Altagamma delved into what sets the top performers apart. According to the analysis, their success boils down to four key factors: aligning closely with consumer values, adopting a modern strategy focused on the right products and markets, offering distinctive value propositions, and running efficient and agile operations in the face of rising costs and supply chain pressures.
