With profits on the slide, cost management becomes a priority for luxury companies
The recent economic slowdown is weighing on the growth prospects and profitability of the world’s largest luxury companies. New research from procurement and supply chain consultancy Inverto suggests the time has come for a renewed focus on smarter cost management.
Since the Covid-19 pandemic, the global personal luxury goods industry has experienced remarkable highs. According to data from Altagamma, the market’s value climbed from a low of €223 billion in 2020 to roughly €365 billion today.
During this period, major brands expanded their revenues and customer bases. But the strong growth has largely been on the revenue side.
Analysis by Inverto finds that profitability has not kept pace. Profit margins at the world’s 20 largest luxury goods groups have fallen sharply, dropping from an average of 24% in 2022 to around 13% today. Digging deeper into company financials, Inverto found that 10 of the 20 luxury companies analysed have seen their profit margins decline in recent years, while another five are currently operating at a loss.
For much of the post-pandemic boom, this trend remained largely hidden behind strong demand. Over the past year, however, as the luxury market softened, attention is increasingly being shifted to cost containment and trimming.
In the first months of 2026, several luxury group leaders reported weaker results and issued cautious outlooks.
A potential slowdown across key markets – including Western economies, China and the Middle East, which has become an important strategic growth region for luxury brands – is further weighing on the sector’s outlook.
Trimming costs with discipline
According to Daniela Klotz, managing director at Inverto and lead author of the research, luxury companies have several opportunities to improve profitability by managing costs more systematically. Importantly, many of these savings can be achieved without undermining core operations or the customer or brand experience.
“With a clear cost management strategy and a focus on what is essential and what is not, fashion and luxury brands can significantly improve their margins,” she says.
One area of opportunity lies in so-called secondary processes such as IT, logistics and marketing, where efficiency gains can often be achieved without affecting the product or customer.
In IT, for example, rightsizing software licences is a common opportunity. “Companies often pay for dozens of unused or oversized software licences. One client we worked with implemented a rightsizing strategy and reduced its software spending by around 15%,” says Klotz.
Marketing is another area where efficiencies can be found. Luxury brands frequently produce seasonal window displays and promotional materials centrally and ship them worldwide – a process that can generate significant costs. “This approach is often driven by the desire to maintain a consistent look and tightly controlled quality across global markets,” Klotz explains.
However, a more decentralised model can deliver major savings. Under this approach, qualified regional suppliers produce marketing materials according to centrally defined standards and specifications, before distributing them locally. “Using this model can reduce marketing spend for these items by up to 30%,” Klotz says.
The untapped potential of indirect procurement
More broadly, luxury companies have significant opportunities to reduce spending in indirect procurement categories – goods and services purchased to support business operations but not directly used in the production of luxury items. These categories include retail operations, marketing services, IT, telecommunications, office supplies and logistics.
According to Inverto, indirect procurement can account for as much as 40% of total corporate spending in large multinational companies. In the luxury sector, the share may be even higher, as brands often rely on premium solutions across many aspects of their operations.
“In indirect categories, systematic management can unlock savings of 8% to 10% – or even more – per category,” Klotz says.
Achieving this requires a clear, data-driven strategy to identify which elements of the supply chain are truly essential and where efficiencies can be gained. This includes mapping indirect spending categories and analysing procurement performance across suppliers, markets and cost areas.
Once this strategic groundwork is in place, technologies such as artificial intelligence can help companies identify specific operations that can be streamlined.
Klotz points to a recent project where Inverto helped a global luxury group use AI to optimise transportation and logistics by identifying the most efficient routes, timings and shipping methods.
AI can also help reduce waste in production. Fashion companies often struggle to produce the right number of products across different sizes, colours and variations. By improving demand forecasting, AI can help companies better align manufacturing with actual demand – reducing both excess inventory and unnecessary costs.
“Taken together, these measures can help luxury companies strengthen margins without compromising the quality and exclusivity that define their brands. By adopting a more strategic and data-driven approach to indirect procurement, leveraging AI to optimise logistics and operations, and improving demand forecasting, companies can unlock significant efficiencies and cost savings”, Klotz concludes.
