The global luxury market has lost around 60 million consumers since 2020, with the middle class increasingly pulling back from so-called “aspirational” purchases, according to Bain estimates.
The downturn has also taken a heavy toll on some of the industry’s biggest names. French luxury giant LVMH, owner of brands including Louis Vuitton, Dior and Veuve Clicquot, has seen its market value fall to less than half of its 2023 peak.
The group, which became the first European company to reach a market capitalization of $500 billion during the post-Covid luxury boom, is now valued at around €213 billion on the Paris stock exchange. The decline has come despite LVMH reporting €17.8 billion in profit last year, more than 50% above its 2019 level.
The figures illustrate the depth of the current downturn, although some analysts argue that the sector is going through another cyclical phase rather than facing a permanent structural decline.
Geopolitics weighs on luxury spending
Luxury companies and investors are increasingly focused on the wider economic and geopolitical environment.
Prolonged wars, trade tensions, the growing divide between Western and Eastern economies, inflation and weaker purchasing power have all undermined the sense of optimism that traditionally encourages consumers to spend on high-end products.
For many middle-class consumers, buying an expensive handbag is no longer enough to provide the emotional boost that once accompanied luxury purchases.
The loss of these “aspirational” consumers is particularly significant. Bain estimates that approximately 60 million people have stopped buying luxury goods since 2020, representing around 15% of the global luxury customer base.
Why LVMH is particularly exposed
Analysts say LVMH’s size and broad exposure to luxury spending have made it an important vehicle for investors seeking to bet on the sector’s overall performance.
Flavio Cereda of Swiss asset manager GAM said the group’s vulnerability stems partly from its exposure to aspirational consumers. While LVMH has many wealthy customers who continue to spend strongly, that segment does not account for the majority of its business.
LVMH shares have also become a popular way for hedge funds to take positions on the wider luxury industry, potentially magnifying movements in the stock in both positive and negative directions.
Another issue closely watched by investors is succession. However, the transition at the top of LVMH appears to have been pushed further into the future. Chairman and controlling shareholder Bernard Arnault, who is 77, recently told shareholders that the issue could be revisited in seven or eight years.
For now, Arnault remains firmly in charge as the group attempts to navigate one of the most difficult periods in the luxury industry’s recent history.
The brands weathering the downturn
Not every luxury company has been hit equally.
Hermès and Brunello Cucinelli have performed significantly better than the broader market, while companies such as Kering, owner of Gucci, and Burberry have struggled amid the need to streamline their brand portfolios and revive demand.
Hermès, now valued at around €152 billion, overtook LVMH in market capitalization last year and remains one of the highest-valued companies in France’s CAC 40.
Jewellery has also emerged as a relative bright spot. Swiss luxury group Richemont, whose portfolio includes Cartier and Van Cleef & Arpels, has seen its shares rise by around 28% over the past six months, pushing its market capitalization above €100 billion.
Jewellery gains as consumers become more cautious
The shift towards jewellery reflects a broader preference for luxury products perceived as stores of value during uncertain times.
Federico Marchetti, founder of Yoox, the Italian luxury e-commerce platform later sold to Net-a-Porter, told the Financial Times that consumers facing today’s prices may prefer a €10,000 piece of jewellery over a €7,000 handbag.
Luxury brands have also faced criticism for raising prices sharply in recent years. Supply-chain disruptions, higher energy costs and difficulties securing raw materials have all contributed to increased expenses.
According to the Financial Times, some brands have raised prices by between 50% and 70% compared with 2019 levels, potentially making luxury goods even less accessible to aspirational customers.
Is a recovery on the horizon?
The timing of a sustained recovery remains uncertain.
Cereda and other analysts argue that previous signs of improvement have largely proved to be false starts. The financial position of the Western middle class remains under pressure, limiting the appetite for discretionary luxury spending.
There are, however, some tentative signs of improvement in China, which has reduced its purchases of European luxury goods amid economic difficulties and geopolitical tensions.
The United States remains a key market for luxury brands, while South Korea is benefiting from strong economic momentum driven largely by technology and semiconductor exports.
These developments have strengthened the view among some analysts that the current downturn is cyclical rather than permanent.
If economic and geopolitical conditions eventually stabilize, the argument goes, the aspirational consumer could return to the luxury market. Once the middle class feels more financially secure and sees greater stability ahead, luxury spending may begin to recover as well.
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