The luxury sector is in for a long and rocky recovery as it deals with the aftermath of recent recessions. Yet McKinsey’s report forecasts that the sector will barely grow at all between 2024 and 2027. It looks for an annual increase of just 1% to 3%. Although the growth projection sounds big, it’s very modest. This is especially concerning as trade tensions between the United States and China continue to rise, putting the industry’s recovery at grave risk.
With the trade war escalating, President Donald Trump’s tariffs have sent most of the luxury sector into a panic. In early 2018, the U.S. began imposing punitive tariffs on a wide range of goods. In retaliation, China countered with its own tariffs, pushing duties on U.S. goods all the way up to 125%. U.S. tariffs on European Union imports previously reached as much as 20%. Most recently, these cuts were extended to 10% for all carriers, but only for 90 days. These ups and downs add up to a volatile market climate that has suppressed consumer confidence.
Impact on Major Brands
Recent earnings statements from top luxury brands further reaffirm the impact of the current trade war. Luxury conglomerate Kering, known for its fashion and leather goods, saw a 4% decline in revenues. Its fragrance and beauty segment experienced zero growth. LVMH, the world’s biggest luxury conglomerate by revenue, recently reported a 2% fall in overall sales for Q1 2025. This sharp drop in passenger numbers reduced their operating income to €20.3 billion.
The luxury sector’s struggles are compounded by a slowing global economy, particularly in China, which accounted for 22% to 24% of global luxury consumption in 2023, as estimated by Bain and Company. Coupled with consumers tightening their purse strings, spending on luxury products has plummeted. Demand for perennially best-selling luxury categories including shoes, handbags, leather goods, fragrances and beauty products has slowed in both markets. Americans are moving to stop buying these harmful products.
Market Reactions
The continued announcements and changes in these tariffs have caused a stark overreaction in our stock markets. In just the past month, Kering’s shares have tanked, down 26.3% on the Euronext Paris exchange. At the same time, LVMH’s drop was striking at 19.9%. In the United States, Lululemon Athletica’s shares tumbled 20.7% on the Nasdaq. On the flip side, Prada Group had the biggest loss with a drop of 23.4% on the Hong Kong Stock Exchange.
The increase in volatility, as seen through drastic changes in stock prices, is indicative of wider fears about consumer sentiment and overall economic stability. Analysts are claiming that global stock markets have lost trillions. Investors are responding sharply to the increasing turmoil about the overall U.S.-China relationship. As companies work through these challenges, they’ll need to contend with changing consumer preferences and an increasingly competitive environment.
Consumer Trends and Future Outlook
Though the current challenges new and old luxury brands face, up-and-coming platforms like DHgate are attracting customers looking for Affordable Luxury. This Chinese online wholesale marketplace has recently shot up to number two on the U.S. Apple App Store. This boom shows the new ways in which consumers are increasingly seeking out high-end products today.
Looking forward, the luxury industry will need to adjust to the new dynamics of the market and face increasing pressure from consumers. The forecasted growth of 1% to 3% from McKinsey reflects a cautious optimism but underscores the need for brands to innovate and differentiate themselves in a crowded market.
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