Luxury in Flux: Navigating the Market Slowdown and the Path Ahead

The luxury market is facing multiple challenges, with recent industry insights revealing factors beyond economic pressures contributing to a flat growth rate in 2024.

In this article we explore the latest reports from Deutsche Bank, Bain & Co and Altagamma on the challenges luxury brands face, and some recommended strategies for a profitable path ahead.

Current Findings: What’s Driving the Slowdown?

Recent reports indicate a significant shift in luxury consumption patterns, driven by both economic and cultural changes.

• China’s Luxury Market: China, traditionally a powerhouse for luxury spending, has seen a decline in spending. The slowdown is influenced by factors beyond just economic conditions, with cultural shifts in consumer behaviour playing a role. While macroeconomic factors contribute to this, a growing number of consumers are also rethinking luxury as a display of wealth. In fact, in a new study by Deutsche Bank, 20-30% of Chinese consumers are choosing to be more discreet about wealth, while another 20% say luxury goods feel too expensive. This points to a change in how luxury is perceived in China, where exclusivity is under new scrutiny
• Shifts in Brand Loyalty: Bain & Company and Italian luxury trade association Altagamma’s latest report highlights the alarming decline of customer advocacy, particularly amongst younger generations. On top of continuing economic uncertainty, customers are beginning to question whether luxury brands are delivering enough value, and as a result, there’s a clear signal that brands must adjust their value propositions to retain high-end clients while also attracting younger, more price-sensitive consumers
• Consumer Outlook on Spending: Recent survey data shows that if economic stability improves, 50-60% of consumers are willing to increase luxury spending, with 20% saying they would do so if luxury became more culturally acceptable. However, a full market recovery is anticipated to take at least 6 to 12 months, and will be influenced by both economic policy and geopolitical factors

The Challenges: Keeping Customers Engaged and Valued

Luxury brands today face a complex set of challenges. In a market once defined by aspirational exclusivity, there is now a pressing need to adapt to consumers’ evolving expectations, particularly those related to authenticity, personalisation, and discretion. The biggest challenges include:

• Re-evaluating Exclusivity: Exclusivity in luxury must be redefined in a world where traditional displays of wealth are no longer universally appealing. Brands need to explore new ways to convey uniqueness and value that don’t rely on overt signals of status
• Balancing Personalisation with Scale: Luxury consumers today expect highly personalised experiences, yet delivering these at scale requires advanced technological solutions that many brands haven’t prioritised
• Winning Back Younger Consumers: Younger consumers are becoming a key demographic for luxury, but they are more discerning and less willing to commit to a single brand without a clear, differentiated value proposition. They crave authenticity, experiences, and innovation—values that luxury brands must integrate into their strategies
• Experiences matter: Retail experiences continue to gain momentum as consumers redirect spending toward travel and social events, prioritising personalised service and wellness over physical goods. Brands that can combine experiences like hospitality, events and appointments into their stores are experiencing growth. One example is House of Rituals in Amsterdam – a holistic shopping and lifestyle concept store that saw 22% growth last year.

What’s Next: The Path Forward for Luxury Brands

To address these challenges, brands must evolve in their approach, focusing on customer experience, personalisation, and technology to re-establish luxury as a valued and desirable investment. Key areas of focus include:

Doubling Down on Personalisation:

• Personalisation is now essential for luxury brands looking to engage clients across demographics. For top clients, this means intimate, one-on-one interactions that go beyond the transaction to create memorable, relationship-building moments. For all customers, this means leveraging data to curate highly individualised experiences that reflect personal tastes
• Brands that prioritise personalisation through advanced tech solutions will be best positioned to make each customer feel uniquely valued

• “For all customers, it will be critical to double down on personalisation, leveraging technology to achieve it at scale” Bain-Altagamma Worldwide Luxury Goods Market Study

Leveraging Technology for Scalability:

• Investing in digital tools allows luxury brands to deliver personalised experiences on a larger scale. From AI that anticipates purchase behaviours to tools that empower sales advisors, technology enables brands to create consistent, tailored experiences across global markets
• Tools that allow store associates to customise products, send styling recommendations and access relevant data and content quickly can foster a feeling of one-to-one connection with the brand, even if they’re not instore

Repositioning Exclusivity with Creativity and Value:

• As luxury consumers shift away from overt displays of wealth, brands can win their loyalty by focusing on creativity and subtlety. This may involve introducing unique, limited collections or embracing collaborations that elevate craftsmanship rather than focusing solely on the brand name
• To resonate with younger audiences, brands should also expand the conversation to include topics like sustainability, social impact, and inclusivity—values that add to the perceived value of luxury items without relying on traditional status symbols

Reinforcing Emotional Connections:

• With customer expectations shifting, reinforcing the emotional connection through “surprise and delight” experiences is a powerful way to build loyalty. This can include exclusive in-store events, bespoke gifting, or dedicated advisors who understand customers’ preferences
• As the report highlights, rediscovering human interactions is crucial; luxury is no longer just about the product but the entire experience surrounding it

A New Era of Luxury

The luxury market may be facing challenges, but this period offers brands an opportunity to reinvent what it means to be exclusive, desirable, and customer-centric. By emphasising personalisation through technology, like Proximity’s Retail Super-App, luxury brands can adapt to the changing landscape and emerge stronger, with a value proposition that resonates with both loyal clients and a new generation of discerning consumers.