Editor’s Note
The luxury sector’s landscape is shifting, with historic brands like Hermès and Prada making strategic moves to secure their futures. As a new McKinsey report indicates, the era of easy growth is over, forcing a fundamental rethink of what drives value in high-end markets.
In April, Hermès surpassed LVMH to claim the top spot in market capitalization among luxury companies for the first time. Italian luxury brand Prada emerged as a new global powerhouse by acquiring Versace for approximately 2 trillion won. A recent report by McKinsey sheds light on the rapidly changing global luxury industry.
Over the past five years, the luxury industry has recorded dazzling value creation. From 2019 to 2023, driven by unprecedented demand for personal luxury goods like fashion, bags, watches, and jewelry, along with robust supply flows, the luxury sector achieved an average annual growth rate of 5%. Luxury brands outperformed the global market average and set record profitability.
However, in 2025, the luxury industry is experiencing significant stagnation, with even top brands facing difficulties. For the first time since 2016 (excluding 2020), the scale of value creation in the luxury sector has declined. Some engines that drove the industry’s growth have stalled. Macroeconomic headwinds in China, a core market that grew over 18% annually from 2019 to 2023, are putting immense pressure on the sector.
The luxury customer base is diversifying, forming more complex relationships with luxury goods than ever before. A key challenge for luxury companies is building product and marketing strategies that attract younger customers without alienating existing ones.
Interest is also growing across all age groups in luxury experiences beyond just products. As customers consider new trade-offs, personal luxury goods companies must exceed higher customer expectations to drive spending in areas like luxury travel or wellness experiences.
Some of the sector’s difficulties are self-inflicted. Rapid expansion over the past five years led to overexposure, diluting the exclusivity, creativity, and craftsmanship the industry promises. As demand surged, brands raised prices but failed to sufficiently adjust creative strategies and supply chains to meet new scale requirements, weakening their core value proposition.
Compounded by economic headwinds, the industry’s growth is expected to slow in the coming years, with global average annual growth from 2024 to 2027 projected at just 1-3%. Performance in emerging markets like the Middle East, India, and other Asia-Pacific countries is insufficient to offset single-digit growth in key markets like China and Europe.
The luxury sector is moving past a period of rapid expansion. The personal luxury goods (fashion, leather goods, watches & jewelry) industry grew at 5% annually from 2019 to 2023, 2 percentage points higher than GDP growth. Explosive growth in China’s domestic market, which nearly doubled in size with 18% annual growth from 2019 to 2023, and large disposable income in the US post-COVID-19 supported this.
Top-spending consumers, including ultra-high and high-net-worth individuals, who represent only 2-4% of the total luxury customer base, drove 40-50% of market growth from 2019 to 2023. In response to unprecedented demand, brands increased investment in marketing and store network expansion.
Specific pricing strategies, regions, and categories drove exceptional growth. Brands that maintained modest 1-2% price increases for years implemented significant hikes from 2019 to 2023, driving about 80% of the industry’s growth. Leather goods and other iconic products saw the largest price increases, with some brands raising prices for specific items by up to 50-100% over those four years.
From 2019 to 2023, luxury sales in China drove about 40% of global luxury growth, while the US accounted for about 30%, and Europe about 10%. Other regions also grew about 4% annually, with Japan and Korea growing 4% and 8%, respectively.
Driven by increased demand for investment-grade products, leather goods and jewelry were the fastest-growing categories from 2019 to 2023. Leather goods growth was fueled by an expanding aspirational consumer base and continuous price increases, while jewelry growth was led by rising demand for branded jewelry.
During the rapid expansion, the industry experienced fundamental changes. The growth of ‘mega-brands’ (with revenue over €5 billion) accelerated, with an 11% annual sales growth from 2019 to 2023, significantly outpacing the overall market’s 5% growth. Consolidation also progressed through acquisitions like LVMH’s Tiffany and Kering’s stake in Valentino.
Some luxury brands doubled in size since 2019 through expansion into new categories, necessitating significant improvements in supply chain and operational models. This includes sophisticated processes to scale effectively and address growing concerns for more sustainable and ethical operations.
Omnichannel expansion and increased digitalization, partly accelerated by the pandemic, impacted brands’ distribution strategies, highlighting the need to combine online and offline experiences to meet customer expectations for seamless, personalized shopping. Brands also significantly expanded retail space, particularly in the Americas, East Asia, and Greater China.
Some luxury companies have invested heavily in vertical integration for more effective supply chain management, acquiring suppliers and distributors and developing in-house manufacturing capabilities. This expanded control over product quality, order volumes, and socio-environmental impact while optimizing margins.
As the industry’s reach expanded, so did customer expectations. Luxury brands focusing on ‘always-on’ digital-centric marketing strategies invested heavily to expand reach, move beyond seasonal marketing cycles, and increase brand visibility. Some brands significantly increased marketing budgets.
Some fashion brands attempted innovative shifts in creative direction from brand heritage to the personal vision of creative directors, which could impact brand identity and long-term performance. Executive turnover also occurred, with 10 out of the top 15 global personal luxury brands appointing new CEOs in the past three years.
Increased supply, marketing investment, and customer base expanded the visibility of luxury products. The rapid growth of diffusion lines, luxury beauty, hospitality businesses, and especially the resale market further increased the sector’s exposure.
Faster trend cycles and instant access to brand content on social media have created constant demand for novelty. Luxury brands rely on collaborations, product ‘drops,’ and brand ambassadors to meet this demand. However, this approach risks diluting the brand’s core identity or alienating long-standing customers.
Following supply chain scandals surrounding luxury brands, customer skepticism about ethical manufacturing in the industry is growing. Simultaneously, online criticism targets greenwashing by several luxury brands, and the overstock problem remains a challenge. While sustainability may not be a key factor in most purchase decisions, ethics and sustainability issues threaten the ethical craftsmanship that luxury brands promote.
The luxury industry now stands at a critical inflection point. Having gone through a period of rapid expansion, the sector is experiencing severe growth deceleration. Macroeconomic factors and reduced consumer spending have hit key luxury markets. China’s domestic luxury market has also slowed significantly.