For the first time since the 2008 recession, the global luxury market is poised to shrink, according to a recent Bain & Company study for Italy’s Altagamma luxury goods association. The forecasted 2% dip in sales, anticipated to bring the market to €363 billion ($385 billion) in 2025, highlights a challenging landscape shaped by escalating prices, geopolitical tensions, and shifting consumer preferences. Former President Donald Trump’s proposed tariffs of up to 20% on imported goods may further complicate matters, making European luxury items prohibitively expensive for U.S. consumers.
Factors Contributing to the Downturn
Despite a strong post-COVID rebound, reaching 2019 sales levels by 2022, the luxury sector is experiencing a notable slowdown. Claudia D’Arpizio, co-author of the study, attributes this to brands’ strategic price hikes and a shift towards “subtle luxury,” which has failed to resonate with the new generation of affluent consumers. The luxury market’s customer base has declined by 50 million, shrinking to between 250 and 360 million consumers, as younger, discerning customers such as Gen Z have been alienated by a perceived lack of creativity in luxury products.
The industry’s current focus on exclusivity and high prices, while appealing to traditional affluent buyers, has proven less effective in capturing the interest of the younger consumer base, who seek originality and engagement with brands.
Impact of Trump’s Proposed Tariffs
Trump’s proposed tariffs, intended to spur domestic production and reduce the U.S. trade deficit, could have significant implications for luxury goods. A 20% tariff could make European luxury brands markedly more expensive for U.S. consumers, potentially diminishing their market share in the United States, which is currently the second-largest luxury market after Europe.
Although some luxury brands might consider moving production to the U.S. to offset tariffs, this shift could undermine brand authenticity and risk alienating core European customers. Alternatively, brands could focus on promoting purchases among U.S. tourists in Europe, but this alone may not fully compensate for lost sales.
Socio-Political and Economic Turmoil
In addition to tariffs, the luxury sector is grappling with socio-political challenges. Ongoing conflicts, economic uncertainty, and a slate of upcoming elections have created an atmosphere of consumer caution. Even wealthy buyers have become more hesitant, with many citing the lack of novelty in luxury offerings as a deterrent.
Despite the projected downturn, the luxury sector’s 2025 sales are expected to remain 28% higher than pre-pandemic levels in 2019, demonstrating resilience amidst changing market conditions. However, the challenges ahead underscore the importance of strategic adaptability and an understanding of evolving consumer expectations.
Source: Euronews
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