The luxury goods market, once a symbol of unwavering growth and exclusivity, is facing significant challenges, old and new. According to a study* the global personal luxury goods market experienced a 2% decline in 2024, reaching €363 billion, marking the first downturn since the Great Recession. This only excludes the dip seen in the luxury goods market during the COVID-19 pandemic period.

This shift is attributed to several factors:

• Eroding customer loyalty: Consumers are becoming more discerning, with a noticeable decline in brand loyalty.

• Price sensitivity: Consumers find it increasingly difficult to justify sharp price increases for the same luxury products.

• Intensified competition: The market is witnessing heightened competition among luxury brands.

• Impact of the Chinese market: The absence of the Chinese market has created a crisis within the system.

• Creative stagnation: There is a perceived decline in “creative” originality, which leads to less appealing products.

Mauro Capriata, Managing Partner at Signium Italy, comments:

“Markets change. This is not new, and brands have always had to evolve to stay relevant. However, the current dynamic within the luxury market presents an opportunity for brands to reassess their business models and align with almost crystal-clear consumer expectations and aspirations.”

A shift in behavior – how have luxury consumers changed?

The luxury goods market is undergoing a considerable transformation in consumer behavior, with a marked shift toward value-conscious purchasing decisions. Historically, luxury consumers have been willing to pay a premium for the prestige, exclusivity, and craftsmanship associated with high-end brands. However, this willingness to pay top dollar is now being questioned as consumers increase their focus on the perceived value they receive in return.

Consumers are reacting to economic pressure

One major driver of this shift is economic pressure, particularly inflation. As living costs rise, consumers are more cautious with their discretionary spending. Many are reviewing their purchasing habits to determine whether paying a premium for luxury goods is still justifiable in today’s economic climate.

Capriata elaborates: “This pressure is especially felt among younger generations, such as millennials and Gen Z, who are often more financially burdened by student loans. Fewer of these generations are entering the luxury market, as they are so much more discerning about their budgets and the value of their hard-earned money. They’re also far less focused on luxury items and more interested in pursuing travel and food experiences.”

Consumers enjoy increased access to information

In the past, many consumers were loyal to specific brands due to the perceived exclusivity and status that came with owning high-end items. However, today’s consumers are empowered by the wealth of information available online.

With easy access to price comparisons, reviews, and product specifications, shoppers can now assess whether the luxury price tag is truly justified. This has led to a more informed and rational approach to luxury purchasing decisions, with many consumers becoming less willing to pay for a product simply because of its brand name or perceived status.

Influencer marketing is re-shaping consumer perceptions

The rise of social media and influencer marketing has also made consumers more attuned to the idea of value for money. While influencers often promote high-end products, they also emphasize the importance of sustainability, authenticity, and accessibility. Capriata quips: “Influencers are the tittle-tattles of our time. Luxury companies can’t simply rely on the exclusivity of their brand anymore. If their product isn’t up to the price tag, there’s an influencer out there willing to put it to the test.”

This reinforces the need for luxury brands to provide more than emotional appeal. Customers expect to feel that the price they pay reflects the quality of the product and the brand’s ethical practices.

Consumers are spoiled for choice

Increased competition among luxury brands has made it even more difficult for any single brand to maintain the same level of exclusivity and prestige it once did, apart from the brands that sit at the top of the luxury pyramid. With more brands offering high-quality, stylish products at competitive prices, consumers are no longer tethered to a specific luxury label. The rapid growth of “affordable luxury” brands, which offer a similar level of workmanship and aesthetic appeal without the premium price tag, is also challenging the perception of exclusivity.

Chinese consumers are shifting toward local spending

The absence of the Chinese market – a critical driver of luxury spending – has also placed additional strain on the sector. Traditionally, Chinese consumers comprise a substantial portion of the global luxury goods market. Brands now face the challenge of finding alternative markets and balancing their pricing strategies to maintain profitability without relying on China’s robust consumer spending power.

Capriata contemplates shifting consumer behaviors: “Today’s top brands are being forced to consider major changes to their business models, marketing strategies, and even product lines. Basically, we’re looking at the reinvention of some brands. When it’s done right, reinvention can be a good thing. Luxury companies should use today’s challenges to usher in a new era for their brands.”

Four ways to balance emotion and strategy

Luxury brands have long relied on emotional appeal to earn consumer attention and loyalty. Often centered around status, aspiration, and exclusivity, this emotional connection remains a key driver of brand power in the luxury sector.

In the current market climate, this model is being challenged. In response to the consumer’s increasing demand for authenticity, sustainability, and actual value, luxury brands must adapt and find a way to balance emotional appeal with strategic business decisions.

1. Maintaining exclusivity while offering perceived value

Luxury brands have historically thrived on the concept of exclusivity. In the words of renowned designer Miuccia Prada, “What’s really important in luxury is that it needs to be something that people feel is unique, that they can’t find anywhere else.”

The idea that a product is rare, difficult to obtain, or only available to a select few is a powerful emotional trigger. However, with increasing competition and a more informed consumer base, this exclusivity alone is not enough. Brands must work to ensure that their exclusive offerings are also perceived as valuable.

One way to achieve this balance is through personalized experiences. For example, high-end fashion houses might offer bespoke shopping experiences, where the consumer receives tailored recommendations, access to exclusive collections, and even private shopping sessions. This type of value adds to exclusivity and helps brands maintain their allure while delivering real, tangible benefits that consumers can appreciate.

2. Embracing sustainability as a key value proposition

Consumers are increasingly aware of the environmental and social impact of their purchases, and luxury brands are expected to reflect these values in their business practices. While luxury has traditionally been associated with excess and opulence, companies that continue to flaunt excess without a clear commitment to sustainability risk alienating a growing segment of their audience.

There are numerous ways that luxury brands can effectively integrate sustainability into their business strategies:

• Managing carbon footprint

• Ethical sourcing of materials

• Reducing waste

• Promoting transparent production processes

3. Digital engagement and the new consumer experience

In the past, luxury brands relied on exclusivity and a highly curated in-store experience. However, the rise of digital platforms has fundamentally altered how consumers engage with these brands. Enhancing digital presence could include providing immersive online experiences, such as virtual try-ons for fashion, interactive showcases for luxury watches, and personalized digital content that speaks directly to the consumer’s tastes.

The power of digital technology extends beyond marketing. Using data analytics, luxury brands can offer customized shopping experiences that mirror in-store interactions. By tracking customer preferences and purchase history, brands can make tailored recommendations, offer exclusive online deals, and even create bespoke digital collections for loyal customers.

4. The role of storytelling in emotional appeal

In the luxury market, storytelling has always been an effective tool for creating emotional connections with consumers. Brands like Chanel, Hermès, and Rolex have long used storytelling to reinforce their values of heritage and artisanship.

According to a Luxury Daily article, poor storytelling is one of the luxury sector’s greatest setbacks. Over and above mere opulence, storytelling should include elements of transparency, sustainability, and social responsibility to evolve with the values of today’s consumers. By doing so, brands can continue to evoke the emotions tied to luxury – aspiration, quality, and exclusivity – while appealing to the modern consumer’s broader set of personal values.

Capriata urges businesses to take a balanced approach to their luxury goods: “The luxury sector must evolve from a sole reliance on emotional appeal to a more nuanced balance that includes strategic business decisions. Ironically, these strategic decisions will help to nurture a deeper emotional connection with the consumer.”

Despite the broader downturn in the luxury market, some brands have managed to navigate the storm effectively. One such example is Richemont, the Swiss luxury goods company that owns renowned brands like Cartier and Van Cleef & Arpels. In its financial results for the period between October and December 2024, Richemont posted record sales of €6.15 billion, marking a 10% increase compared to the same period the previous year.

Some of the ways in which Richemont has ensured their success include the following:

• Focusing on core competencies and high-demand products 
  By prioritizing its jewelry, Richemont was able to offset declines in other luxury segments, such as watches, where demand has softened.

• Maintaining exclusivity and high-quality craftsmanship

Cartier’s approach to high-quality products continues to give peace of mind to consumers who are increasingly concerned about pricing and quality.

• Adaptation to changing consumer values 
  Richemont has invested in sustainability initiatives across its brands, allowing it to appeal to a broader demographic while maintaining its traditional, wealthy clientele.

• Innovation and digital engagement 
  Cartier has invested in high-end online experiences, offering virtual consultations, online exclusives, and digital showcases that cater to tech-savvy luxury buyers.

Adapt and thrive within the luxury sector

To navigate the challenges currently facing the luxury sector, brands must proactively implement strategies that align with evolving consumer expectations and market dynamics. The following actionable steps can help luxury brands stay competitive and resilient:

• Embrace FMCG Talent 
  Luxury brands should integrate talent from the Fast-Moving Consumer Goods (FMCG) sector to bring fresh perspectives on agility, consumer behavior, and operational efficiency. This expertise can help luxury brands better adapt to market shifts and improve responsiveness to consumer demands.

• Focus on customer-centricity 
  Brands should prioritize personalization and tailored experiences. By understanding their target audience and offering customized services, luxury brands can enhance customer loyalty and create more meaningful emotional connections.

• Leverage technology 
  Luxury brands should harness technology to improve customer engagement and streamline operations. Tools like data analytics, augmented reality, and virtual reality can provide deeper insights into consumer behavior while improving the shopping experience.

• Prioritize sustainability and ethics 
  Brands focusing on eco-friendly materials, fair labor practices, and transparency will build trust and appeal to a growing segment of ethically conscious consumers.

• Increase creativity

Innovate distinctive and unique collections that entice today’s younger generations to aspire to become the clients of tomorrow. Realigning more affordable price considerations will also allow a new generation of customers to enter the luxury market over the next decade.

The luxury goods market is at a pivotal juncture. According to an HSBC Global Research Report titled ‘A Cruel Summer,’ analysts predict a 7% growth rate in 2025 and a return to double-digit growth in Q2.

“These forecasts highlight the fact that, although there are challenges to face, there are also opportunities for brands to adapt and thrive,” says Capriata. “By understanding the changing market and consumer attitudes, luxury brands can navigate the current landscape and emerge even stronger.”