Luxury items are having a bad year
The luxury goods market has not had a sparkling year.
According to the Bain & Company’s annual luxury report, the industry as a whole is expected to decline in 2024, as China and South Korea both experience challenging economic headwinds.
The consulting group’s analysis, in conjunction with Italian luxury goods body Fondazione Altagamma, predicts a 2% dip in the market this year. Only one third of luxury retailers are expected to see positive growth in 2024, compared to two thirds of brands last year.
This report comes days after luxury department store chain Saks Fifth Avenue suddenly canceled its annual holiday light show at the brand’s flagship Manhattan building.
“For many years, the holidays at Saks Fifth Avenue included a light show at our flagship store, and for some time, we have contemplated changing our approach,” a spokesperson told the New York Post.
The representative added that “it has been a challenging year for luxury, and, like others, we are carefully managing our business to ensure the company is best-positioned for the future.”
This year’s decline marks the industry’s third slowdown in 20 years. The previous instances were in 2009, at the height of the financial crisis, and in 2020, during the initial months of Covid-19 pandemic.
The 2020 decline saw the global personal luxury goods market drop from $300 billion to $236 billion. This decline is smaller than the pandemic-era drop off – the industry was worth $390 billion last year and is expected to be worth $384 billion this year.
In addition to the slowdown in mainland China, the Bain report also highlighted shifting purchasing patterns – particularly among younger consumers. Gen Z’s declining interest in luxury goods represents a portion of the shrinking of the luxury customer base by an estimated 50 million.
The industry is also seeing a continued shift towards spending on experiences, like travel, or experiential goods, like yachts and cars.
“Luxury spending has shown remarkable stability this year, despite macroeconomic uncertainty, largely driven by consumers’ appetite for luxury experiences,” said Claudia D’Arpizio, the study’s lead author, in a statement.
“And yet, 50 million luxury consumers have either opted out of the luxury goods market or been forced out of it in the last two years. This is a signal for brands that it’s time to readjust their value propositions.”
Customers also continued to purchase “small indulgences,” like beauty, fragrance, and eyewear. This could be an example of the “lipstick effect” – a phenomenon wherein people spend more on smaller goods, like cosmetics during times of economic stress.
