Even luxury is in crisis, 50 million fewer customers and a drop in sales (-2%) in 2024

A 2024 with more shadows than lights for the big luxury players. The sector has marked its pace all over the world following the sales boom recorded in recent years. For the first time since 2008, with the exception of the year of Covid, luxury goods are heading for a decline in sales of 2%, to 363 billion euros. This is the main data that emerged from the study by Bain & Company in collaboration with the Altagamma Foundation. All over the world, those who show greater “resilience”, obviously, are the wealthiest customers, on whom the marketing activities of the various brands, including Hermés, have focused. This has generated some growth “at the top of the pyramid” but also a sharp decline in the rest of the customer base, which decreased by 50 million buyers.

An increasingly polarized market, in short, in which only a third of luxury companies will end 2024 with positive growthunlike two thirds of the previous year. Just take a look at the accounts of the various fashion houses to confirm this setback. Kering’s 2024 operating profit is expected to be half of last year’s, due to a 25% third-quarter slump in Gucci’s sales, which make up nearly half of revenue and two-thirds of operating profit. . Even Lmvh, the largest luxury group in the world (including Louis Vuitton, Christian Dior, Celine, Loewe, Kenzo, Givenchy, Fendi, Emilio Pucci, Marc Jacobs, Berluti, Loro Piana) reported a drop in sales.

In the quarter to September 30, revenue fell 3% to 19.1 billion euros. The only one to go against the grain with a growth in sales above 10% is the French group Hermés, which targets wealthier luxury consumers with long waiting lists for its most popular bags but also because it pursues a more defensive business model. For 2025, analysts estimate a moderate recovery at a global level, even if sales growth will remain modest, with a company margin of around +3%. The recovery, according to some experts, could be driven by macro-environmental changes such as regulatory changes made by new governments or the end of some conflicts.

Meanwhile for this year the slowdown does not even spare Italy. According to the forecasts of the National Chamber of Fashion, the sector extended to eyewear, jewelery and beauty will close 2024 below 96 billion euros, down 5.3% compared to 2023. The leather goods and footwear sectors in particular will suffer with a decline of 8.1% (globally it will have a contraction between 3% and 5%, to 78 billion euros). Confirming the difficulty experienced by Made in Italy, the various tables open at Mimit and the extension of the redundancy fund to January 31st to accommodate the 30,000 SME employees affected by the crisis, as reported by Il Sole 24 Ore.

There are various causes that, at a global level, have caused a sector to slow down who seemed never to know the word ‘crisis’. One of the main ones is the slowdown in the key market of China, which is struggling with a sluggish economic phase that is reducing consumer confidence. So far the Asian giant has been the country that has spent the most on luxury, covering half of global sales. But there are also other factors that affect the so-called “luxury fatigue”. the “geopolitical risks”, from elections in different parts of the world that have led to changes in government to conflicts that still do not see an end.

Not only that, the increase in prices also played a key role. In summary, prices have jumped so much while the quality has remained unchanged or even decreased that even wealthy consumers are starting to no longer spend as much on these products. In Europe the average price of a luxury good has grown by 52% since 2019, and the surge has been similar across the rest of the planet. This is because, inflation aside, the big brands have tried to keep their margins unchanged in the face of increasing production and material costs.

Another “black swan” that could also impact 2025 are the investigations against various brands for exploitation of labor along the supply chains. Historic brands such as Armani, Dior, Loro Piana are under investigation for violations of this type. And for a sector that focuses entirely on image and reputation, as the Financial Times points out, this fact could also have a significant impact on sales. For this reason some groups such as Chanel and Only The Brave, owner of Maison Margiela and Diesel, have invested in the purchase of their suppliers and in their internalisation.

Faced with the various crisis factors, as reported by the FT, some online retailers have closed shop (Matchesfashion) or restructured under new owners (Farfetch and Coupang; Yoox Net-a-Porter and Mytheresa), while companies with declining profits sought to consolidate (Saks Fifth Avenue owner HBC acquired Neiman Marcus in a $2.65 billion deal; the Tapestry-Capri merger collapsed after months of court battles with antitrust regulators). Other brands such as Burberry and Mulberry have taken a different course with new management after the damage suffered by profit warnings and the decline in sales due to ill-timed shifts towards the high range.

Many groups have preferred to take a conservative path and focus on their iconic pieces, thus hindering innovation and creativity. Others preferred to revolutionize the creative summits. Bottega Veneta, Givenchy, Tom Ford, Celine, Lanvin and Calvin Klein are among the brands that are focusing on new designers. Fendi, Margiela, Helmut Lang and Carven are currently without a creative director, and will have to fill those spaces. As for Dior, Loewe and Gucci, it is not yet known whether they will make new appointments or continue with their current designers.