Luxury Slowdown May Continue Till 2027 According to McKinsey

China’s economic slowdown will continue to weigh heavily on the industry while emerging markets India, Middle East and some Asia pacific regions will see notable growth. However, their growth will not offset the deceleration expected to continue in China and Europe.

The U.S. stands out as the only major market poised to sustain respectable growth in luxury sales, buoyed by favorable economic conditions. McKinsey projects Europe’s luxury market to grow by 2-4%, while China and the U.S. are expected to grow 3-5% and 4-6%, respectively, until 2027.

In 2025, smaller markets - Japan and the Middle East, are anticipated to deliver dynamic growth with projections ranging between 6-10% and 3-7%, respectively. India, however, could emerge as a standout player in the evolving luxury landscape with double-digit growth of 15-20%, making it the fastest-growing developing market.

In key luxury fashion categories, while fashion and watches are estimated to grow between 2-4%, leather goods and jewellery could clock-in 4-6% growth, annually, in the next three years. The watch industry’s growth in the next four years will be driven by the anticipated increase in production capacity of major brands such as Rolex, Patek Philippe and Audemars Piguet.

Big spenders represent only 2-4% percent of the luxury clientele, yet they currently contribute to 30-40% of market spending. By 2027, they are likely to drive 65-80% of global luxury goods growth!

Looking back, the luxury goods market comprising watches, handbags, fashion, and jewellery saw a CAGR (compound annual growth rate) of 5% from 2019 to 2023. Notably, over 80% of the growth for luxury brands with annual revenues exceeding €5 billion came from significant price increases rather than an increase in volume. China, a key market during this period, delivered an impressive 18% CAGR, underscoring its pivotal role in the luxury industry.

The report highlights that while these brands gained greater visibility, their rapid expansion resulted in overexposure, undermining the industry’s commitment to exclusivity, creativity, and craftsmanship. In their effort to meet surging demand, they raised prices but failed to implement innovative strategies, ultimately diluting their core value proposition. These strategic missteps impacted the sector and are expected to continue hindering growth over the next three years, the report notes.