After a banner year, the luxury goods market faces a pivotal moment, according to a recent report from Bain & Company. The sector, which saw unprecedented growth during the post-pandemic recovery, now confronts the challenge of sustaining momentum amid a complex global economic backdrop.
In 2023, the luxury sector achieved a milestone, growing to around €1.5 trillion ($1.6 trillion). However, expansion is slowing. According to Bain and Altgamma, the global market for luxury personal goods will grow by only 0-4% in 2024.
The dilemma for luxury brands is twofold: continue to cater to their highest-spending customers, or broaden their appeal to attract new demographics. While the luxury market is navigating macroeconomic headwinds such as inflation and geopolitical tensions, the spending habits of the wealthiest consumers have shown resilience.
The report predicts the weakest global luxury market expansion since the pandemic, with global sales of high-end personal goods expected to grow by low to mid-single digits YoY, the slowest since 2020.
Whispering wealth
China’s most affluent individuals are opting for more discreet fashion to avoid flaunting their wealth.
The country’s recent crackdown on “money worship” has led to the disappearance of top luxury influencers Wang Hongquanxing, Baoyujiajie, and Bo Gongzi from major social media platforms.
Internet authorities aim to curb conspicuous consumption and promote “common prosperity,” and the influencers, known for flaunting their opulent lifestyles, have had their accounts shut down for violating community guidelines.
Social platforms like Weibo and Douyin are reportedly also removing content showcasing extreme wealth, or money worshiping lifestyles. Does this move pose challenges for luxury brands as China seeks to create a more equitable digital and economic environment?
It depends on how brands are marketed. The crackdown could boost quiet luxury and more meaningful/conscientious consumer trends as well as aligned brands, while rampant logomania and ostentatious luxury are likely to fall further out of favor. The initiative seems more targeted at China’s internet and social media culture than brand activities, but luxury marketeers would do well to stay vigilant.
This is not the first, nor likely the last, time authorities have intervened in China’s online culture. In 2022, the country’s Cyberspace Administration launched a monthlong campaign targeting money worship, celebrity fan groups and child influencers, telling platforms to prevent lawbreaking and “immoral” stars and artists from making use of evening broadcasts or livestreaming to stage comebacks.
‘Luxury shame’
Economic uncertainty in China has led middle-class shoppers to turn cautious as confidence drops. Additionally, the wealthy are spending more abroad. The trend of “luxury shame,” has resulted in a shift away from ostentatious items.
But despite a slowdown in the Chinese market, top tier luxury brands like Hermès and Brunello Cucinelli, which cater to high-end consumers, have seen gains. Meanwhile US and European markets show signs of recovery driven by affluent clients and returning tourists, according to Bain.
“The luxury market is at a crossroads,” said Claudia D’Arpizio, a partner at Bain & Company. “While the core high-net-worth individuals continue to drive significant sales, there is a growing need to tap into emerging markets and younger consumers who interact with brands in fundamentally different ways.”
To address these challenges, luxury brands are exploring a variety of strategies. These include leveraging digital innovation to enhance the customer experience and integrating more exclusive services for affluent VIPs.
Furthermore, brands are investing in localized marketing, such as Balenciaga and Louis Vuitton’s recent Shanghai runway shows, and accompanying activations, personalization services, such as Zegna’s Triple Stitch shoe service in Beijng and localized experiences to captivate a broader audience.
“Brands need to balance exclusivity with accessibility,” Bain’s D’Arpizio added. “The future winners in the luxury space will be those who can manage this balance while staying true to their heritage and maintaining the quality and craftsmanship that their customers expect.”
As luxury adapts to China’s evolving dynamics, the ability to navigate the interplay between tradition and innovation, while tapping into the nation’s geographic complexities and opportunities, will likely dictate success in the coming years.