Soaring luxury prices discourages consumers

After a lacklustre first quarter, global luxury goods sales are expected to grow by between 0 and 4% this year, a very slight fall on the predictions made in November 2023, according to the latest report by Bain & Company, produced in collaboration with Altagamma.

Is this a structural change for the sector? In their latest study, the experts at Bain & Company talk about the new concept of 'shameful luxury' in China, according to which the wealthy Chinese no longer flaunt their wealth as openly and prefer more discreet fashion. Since the early 2000s, China has been a formidable engine of growth for major Western groups, with the emergence of an upper middle class with a taste for luxury goods. In just a few years, the pandemic and the spread of Xi Jinping's new mantra - according to which "shared prosperity is an essential requirement of socialism and a key component of modernisation with Chinese characteristics" - have significantly impacted attitudes. Enthusiasm for status symbols has begun to wane.

The latest half-yearly report from Bain & Company and Altagamma confirms a less dynamic 2024 scenario for luxury goods. Last year, however, the figures generated by the sector gave major brands cause for optimism: the global luxury goods market had a record year, reaching a value of €1,500 billion, representing real growth of 8 to 10% compared to 2022.

The market was driven mainly by luxury personal goods, with sales of 362 billion euros, buoyed by the fashion and fine jewellery sectors. However, this record was tempered over the months by normalisation and lull in the markets following the euphoria of the post-Covid period. According to the Altagamma study published last year, around two-thirds of luxury brands recorded an increase in sales in 2023, while in 2022 (the year in which the confinement period finally ended), spectacular sales growth affected 95% of luxury brands.

Today, faced with the inflation that has hit several markets, particularly the American market, the major brands have applied a price increase strategy (known as "pricing power") that consumers seemed to have initially accepted but much less now. This price surge is the main reason for the difficulties experienced by the luxury goods industry, which is also faced with rising production and energy costs.

Bain & Company and Altagamma also attribute these difficulties to "macroeconomic pressures and customer polarisation." However, according to their analysts, this phenomenon could represent "a unique opportunity for luxury brands to define a new strategic direction." The solution? Ever-more-personalised offers and even greater interaction with customers.