ALL THAT GLITTERS ISN’T SOLD

AS LUXURY LOSES ITS LUSTER, ONCE ASPIRATIONAL BRANDS FACE A CROSSROADS: EVOLVE OR RISK IRRELEVANCE.

​​By Dana Thomas

For more than three decades, the personal luxury market, which includes fashion, leather goods, cosmetics, perfumes, jewelry, and watches, has been soared: from roughly $77 billion a year in sales in 1995 to $400 billion today.

The growth for much of that time was powered by globalization and the tech boom: As middle-market consumers prospered, they wanted to pamper themselves like the wealthy have for centuries and possess all the signifiers of that affluence, from Porsches to Louis Vuitton handbags. These shoppers became known as “aspirational customers,” and luxury tycoons were there to fulfill their desires.

“We are here to sell dreams,” explained Bernard Arnault, chairman of LVMH, the French luxury group that owns more than 70 brands, including Christian Dior, Louis Vuitton, Tiffany, Moët & Chandon, and Belmond hospitality group. “When you see a couture show on TV around the world, you dream. When you enter a Dior boutique and buy your lipstick, you buy something affordable, but it has the dream in it.”

“Brands emerged from COVID confronting consumers who had decided to spend a lot more,” explained Luca Solca, luxury analyst for Bernstein. Between 2019 and 2023, personal luxury goods enjoyed a healthy compound growth of five percent annually.

But the post-pandemic rally eventually hit a speed bump—zero to two percent growth in 2024, and a projected increase of only two to four percent annually for the next three years—putting executives and shareholders on edge. “It’s as uncertain as it’s ever been in my 22 years in the luxury business,” said Milton Pedraza, CEO of the Luxury Institute, a consultancy and training firm in New York.

Some experts and analysts wonder if luxury hasn’t reached its tipping point—that the sector has finally oversaturated the market with all its logo-covered, overpriced, mass-manufactured non-essentials. And dedicated luxury clients—those who have the money to spend, and do so freely—are more interested in one-of-a-kind experiences, like staying in the $50,000-a-night apartment in the Dior flagship on Avenue Montaigne or cruising the world on a gigayacht, than possessing more stuff.

Only a handful of brands, including Hermès, Brunello Cucinelli, and the Richemont group, which owns Cartier and Van Cleef & Arpels—all companies that have maintained their creative and business integrity, and have dedicated social and cultural missions—have bucked the downward trend. Hermès reported 14 percent sales growth in the first nine months of 2024; Cucinelli, a 12.2 percent increase for all of 2024; and Richemont saw an 11 percent increase in its third quarter to close out 2024.

The rest?

“They have gotten a little complacent,” Solca said. After the post-pandemic mini-boom, brands continued “to sell more of the same at increasingly higher prices,” he continues. “I believe there is a need for better value for money and new ideas. I walk down the luxury goods streets and I am not intrigued by this or that. I see a lot of look-a-like Loro Pianas and Cucinellis. Where is invention? Where is surprise? Where is wow?”

How did this happen?

Throughout the 1990s and early 2000s, luxury’s two key consumer groups, the aspirational and the wealthy, “were working very well together,” said Guia Ricci, managing director for the Boston Consulting Group in Milan. Everyone bought the logo-stamped handbags, scarves, sunglasses, cosmetics, and perfumes—the entry-level products and the cash cows of the business—while the wealthy bought the more costly ready-to-wear and made-to-order haute couture. The business was humming along nicely.

Then came the Global Financial Crisis of 2008, and with it, “a bifurcation of the economy,” Pedraza said. “The wealthy are getting a lot wealthier, and the aspirational are not making money. They don’t have the money to spend on luxury lipstick or sunglasses or belts anymore.” Ricci concurs: “The Beyond Money consumer”—the billionaire class, with an annual personal luxury spend of more than $50,000—“is still growing, and the aspirational segment is suffering,” she said.

Luxury brands—the LVMH group in particular—began to ignore the aspirational, and turned their attention to Very Important Customers, or VICs, who represent two percent of the luxury customer base and 40 percent of sales. The tippy-top of the customer pyramid is the Beyond Money customer, also known as Extremely Important Clients, or EICs. Though Beyond Money clients represent less than one percent of luxury’s total consumers, they account for 21 percent of revenue—“more than 200 times the average consumer”—and are expected to generate 65 to 80 percent of global luxury market growth through 2027, according to Altagamma Consumer and Retail Insight 2024. “The Beyond Money segment is the most significant for brands. They are immune to economic cycles and geopolitical crisis, [and] consider luxury an essential.”

They also have a habit of not looking at price tags, which has contributed to “greedflation”—the practice of raising prices dramatically, without offering better products or services. Some luxury brands have increased the cost of core items, such as iconic handbags, by two to three times in a matter of seasons, simply because VICs and EICs were willing to pay. According to the State of Fashion report, between 2019 and 2023, “price increases accounted for more than 80 percent of growth, while volume gains were more moderate.”

In addition, luxury swiftly expanded in mainstream culture: Major airports or city centers are luxury shopping malls; the Paris Summer Olympics, in part sponsored by LVMH, was a luxury brand extravaganza; social media feeds are a stream of luxury ads—which has “led to overexposure and weakened the industry’s promise of exclusivity, creativity, and craftsmanship,” the report states.

In response, consumers across the board are reevaluating what true luxury is today, and rejecting a lot of what has been peddled as “luxury” for decades.

“Luxury has broadened in meaning,” said Julie Gilhart, fashion retail veteran, and founder and president of consultancy GILHART & Co. “In many cases, the word ‘luxury’ is now too easily equated with high prices and high-end marketing. We are beginning to realize that true luxury has limited access and is about a very personal process of engagement with the customer, from beginning to end, that is soul-feeding and more lasting and purposeful.”

“Because of all the product choices and the blur of so many ‘luxury’ brands, our souls crave more meaning and purpose in our purchases,” Gilhart continued. “People are increasingly prioritizing self-care and understand more about giving back through their buying choices. When you have a ‘greater purpose’ in your purchases, such as supporting an environmental endeavor, community, or other cause, it feels more satisfying to buy.”

It’s true. Since the advent of luxury as we know it today—rooted primarily in 18th- and 19th-century European royal courts—the value of luxury products, be it furniture, watches, jewelry, leather goods, or clothing, has been based on craftsmanship, the cost and rarity of the materials—an ostrich or python Birkin bag is far more expensive than a cowhide one—and the time invested in production. Indeed, haute couture houses still quantify and justify the cost of their made-to-measure fashion by the hours each item took to produce.

But today, value is taking on other meanings. What’s the item’s carbon footprint? Were the gems in that bracelet mined responsibly, and the gold recycled? Were the workers paid a fair wage and treated with respect? Basically, can we trust the brand and its marketing message?

In fact, Pedraza believes trust is more valuable than wealth in our interconnected world. In the new book High Trust Worth, Pedraza and his co-author, the luxury brand strategist Erica Wertheim Zohar studied the behavior of multi-billionaires and found that these EICs are eschewing the traditional “personal luxury” trappings for something more experiential, with a lasting positive impact.

“The percentage of wealthy who send their children to private schools has gone up,” Pedraza says. “The percentage of income they spend on tech for their home, from computers to alarms to home cinemas is huge. Travel is much more luxurious than it used to be, and there are so many more choices. And the percentage they spend on luxury goods has gone down. There are many other things that are more important to wealthy people. Luxury goods do not have as high a place in this hierarchy as they once did.”

It hasn’t helped that some luxury brands “have brought in cheap labor,” Pedraza said—an illicit labor tactic that made headlines last year when contractors for Giorgio Armani and Christian Dior were busted by authorities in northern Italy last year for producing handbags in sweatshop-like conditions.

“They have moved manufacturing offshore to cheaper countries,” he said, a cost-cutting measure I clocked in its infancy in my first book, Deluxe: How Luxury Lost Its Luster. “And the copies, duplicates, and counterfeits are really good now,” he said. “All that erodes the status of luxury products. Luxury companies are suffering from self-inflicted wounds: over-pricing, lower quality. The wealthy customers are questioning the value of luxury goods. And that’s a problem.”

Most important, however: “Wealthy people don’t care anymore what you think of them,” Pedraza said.

“It’s so true!” I responded. “They really don’t.”

I started thinking about the gigayachts and ginormous houses, which they show off in décor magazines.

“The status thing has eroded,” he said. “They like nice things—beautiful homes, flying private—but they balance it out. They buy good wine from Costco. They give away money to education and charities. They don’t care about watches; they wear an Apple Watch. They don’t dress in luxury 24/7.”

I thought of the character Shiv Roy in Succession, wearing a £169 floral dress by British high street brand Ted Baker for her mother’s multi-million-dollar wedding in Italy. “Mid-market brands make really good fashion, so the wealthy go there,” Pedraza said.

“There are very few, like Hermès and Brunello Cucinelli, that are unique in the way they make the product and their culture. They are true to luxury values. The quality is impeccable, and they deliver an extraordinary experience—not because it’s a palatial store, but because they have a truly beautiful product and excellent, personalized service.”

The rest, according to Pedraza, are “extremely superficial, product-oriented, and transactional. That’s what’s wrong with the luxury business today. Most major brands don’t cultivate for the long term. The product isn’t as good as it used to be, they don’t take care of the customer that well anymore, and that’s the formula for low-growth. Not no growth, but low-growth.”

The one segment that has bucked the luxury downturn trend is jewelry.

“Wonderful designs, precious materials—jewelry is real luxury,” Pedraza said. Because of this, luxury jewelry is experiencing a veritable sales explosion. In 2023, the global luxury jewelry market was $58.5 billion; by 2032, it is expected to reach $97.8 billion, according to Custom Market Insights, a research consultancy. Much of the growth is coming from luxury fashion and leather goods brands entering the market: Christian Dior, Louis Vuitton, Dolce & Gabbana, Chanel, Prada, Balmain, and Bottega Veneta all now have fine or high jewelry divisions.

But consumers also see fine and high jewelry as truly luxurious products.

“Jewelry isn’t trend-led, you keep it forever. It’s a lasting investment—a considered purchase that suits the world we are living in now,” said Carol Woolton, author of the book If Jewels Could Talk, based on her hit podcast of the same name.

“If you are buying pre-loved, vintage pieces—secondhand, as we used to call it—it ticks sustainability boxes. Jewelry holds its value—the gold price is going to go up and up. It’s something you can take with you. Look at the Los Angeles fires: people were running out with their passports, their dog, and some jewelry. Jewelry means something to us.”

“The world we are living in is troubling, the news is depressing every day,” Woolton said. “Looking at beautiful things can lift your mood, lift your spirit.”

And shouldn’t that ultimately be the purpose of luxury?