In 2024, China will Lead Luxury Fashion Growth, according to McKinsey

Overall, uncertainty will cloud positive prospects in the new year as low consumer confidence, rising inflation and poor economic growth persist. Prices of luxury fashion goods are forecast to rise in 2024 as brands combat unrelenting inflation.

Luxury fashion retail sales will see slower growth in key markets in 2024 due to a range of issues, Most dominant being geopolitical instabilities according to the majority of the fashion executives surveyed in the 2024 State-of-Fashion report by McKinsey. Weaker economies and inflation will also continue to curb high growth in most key markets.

The US will see the lowest growth among all key markets at 2-4%, due to a slow GDP growth expected in 2024, from 2.1% down to 1.5 %. The new year will see low spending of savings as the excess savings accumulated during Covid-19 will likely be exhausted by the end of 2023. In absolute terms, savings will still remain reasonably high but discretionary spending will be low, as rising inflation causes savings to devalue.

In a survey conducted by McKinsey, the net intent to purchase apparel in the US was negative 25 in the third quarter of 2023,. The little growth that luxury fashion may see in 2024 in the US will be driven by higher-end aspirational brands.

Europe could see 3 to 5% growth in 2024 with the upcoming Olympics in Paris expected to attract more tourists. New luxury stores opening in tier-2 and 3 cities across the continent will also contribute to its subtle growth.

China will haul the luxury fashion’s growth by 4-6% in 2024, despite the country’s prevailing macroeconomic issues. According to the World bank, China has the highest savings-to-GDP ratio among large economies. In 2023, these savings grew further as the Chinese continued to build them for safety. The new year is likely to see a surge in overseas travels by Chinese and may even reach the pre-pandemic levels by the end. However, their spending on luxury fashion goods will continue to be concentrated domestically, next year.

In the survey conducted by Mckinsey in September 2023 for markets other than key markets that showed promising growth in 2024, executives cited the Middle East (51 percent net intent), India (39 percent net intent) and Asia Pacific (34 percent net intent).

In India, consumer confidence reached a four-year high in September 2023. The country is also seeing high investments in the luxury sector as compared to previous years.

Discretionary spenders in 2024 will bet more on goods that are likely to appreciate or maintain in value. Jewellery, Watches and leather goods will be the key focus categories among hard luxury goods.

In 2023, in China, Jewellery and Watches took over handbags as the top-spending category in personal hard luxury, as these products are considered safer purchases in uncertain economic conditions because of their potential to retain value.

To combat inflation, luxury fashion brands are likely to increase the price of their products between 1 to 5 % . While 25% of the industry executives surveyed expected prices to increase above 5% in 2024.