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The luxury sector is facing slowing sales this year as its growth-driving engines have stalled, especially in China, The Wall Street Journal reports.
That’s according to The State of Luxury report by McKinsey & Co and The Business of Fashion.
From 2019 to 2023, the industry experienced a boom in demand, which was assisted after the peak of the Covid-19 pandemic by high-end shoppers spending their disposable income and savings on pricey goods.
The sector also benefited from a surge in luxury consumption in China, which fueled around 40% of global luxury goods growth during those years, according to the report. However, Chinese consumers have since tightened their luxury budgets.
Last year, luxury brands entered a period of slowing demand, which is expected to continue this year.
“The times of hyper growth that the industry has experienced in the past few years are not coming back anytime soon,” Gemma D’Auria, senior partner at McKinsey & Co and leader of the firm’s global apparel, fashion and luxury sector, said in an interview.
The situation in key market China is key for understanding the current context of the industry. “At the earliest, we think there will be a pickup by last quarter of 2025,” she says, helped by government initiatives as well as a very high savings rate.
While the recovery in China might take time, luxury brands have other growth opportunities. “There is a bright spot in the U.S.,” D’Auria says.
“The U.S. is going to be a much more important market for luxury than perhaps it has been in the past,” she comments, crediting decreasing inflation, wealth creation, more disposable income and less uncertainty. “For the past year and a half there was all this uncertainty linked to the election, which is at least now behind us, and I think that will also propel consumption and luxury spend.”
