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“Uncertainty is the new name of the game,” says Federica Levato, partner at management consultancy Bain Co, which publishes its spring luxury update on Thursday.
At the end of 2024, Bain forecasted that the personal luxury goods market would grow between zero and 4 per cent in 2024, and that China would rebound in the second half of the year. (A significant slice of the wider luxury sector, personal luxury goods span accessories, apparel, watches and more.) The holiday season that followed was “super strong”, says Levato, and pointed to the recovery of consumer confidence in the US with some slight signs of improvement in China. However, since President Trump’s inauguration in January, consumer confidence has declined drastically: first in the US; then globally, after Trump’s announcement of new import tariffs caused a domino effect across markets. Now, Bain says the outlook for 2025 is less clear.
“The luxury market can handle small price adjustments to offset the tariffs, but the real impact is on industrial systems and economies. So if tariffs on [the] automotive [industry] impact consumers in Germany, they will have less money to buy luxury goods. This impacts not only consumer confidence, but also real purchasing power,” says Levato.
Bain outlined three possible scenarios in its report for how the luxury market will perform during the rest of this year — which it hasn’t done since Covid. It forecasts a 60 per cent chance that the market will contract by -2 to -5 per cent. There’s a 20 per cent chance that it will dip more dramatically, between 9 and 5 per cent, and a 20 per cent chance that the market will rebound with -2 to 2 per cent growth (in 2024 the market shrunk around by 2 per cent, per Bain). The predictions are based on a combination of macroeconomic data and forecasts, trading performance from relevant luxury players, annual reports, quarterly results and analyst reports, as well as the consensus of over 100 expert interviews.
Bain doesn’t foresee any meaningful recovery in China this year, and, likewise, the US is expected to struggle with ongoing headwinds (though the hope is that clarity around tariffs could improve the situation later this year). Japan, which has shown positive growth over the past year thanks to the weak yen boosting tourism, will also decline in 2025, while South Korea remains stable and Southeast Asia is growing. Bain expects Europe to remain relatively stable thanks to tourism over the summer. Emerging markets like the Middle East and Latin America (especially Mexico and Brazil) are extending, presenting new luxury lifelines.
Some categories are faring better than others. Watches are declining, but Levato stresses that this is more of a normalisation after a big boom between 2020 and 2022. Leather and footwear have been negatively impacted due to price increases, which has caused some brands to lose credibility among their customers. “If it’s the same bag with no creativity injected, why should I buy another one for €5,000 when I paid €3,000 for it just three years ago?” says Levato. In beauty, Bain has seen the pendulum swing towards fragrance, which is having a moment, while skincare is flat and makeup is declining. Like fragrance, eyewear has benefitted from the “small luxury” effect. Jewellery has also maintained momentum, with unbranded items taking the lead. Apparel is also growing. “Apparel brands have done a good job at being more disciplined and intentional about how to segment and understand customers and develop a targeted value proposition.”
Bain highlights that there’s continued polarisation between brand performance, and that 65 to 70 per cent of the winners this year are the same as last. “They are authentic brands, meaning they are true to themselves. They didn’t increase prices too much. They deliver very relevant value propositions to their customers. They know who their customers are and how to engage with them throughout all touchpoints from brand to product to marketing to experience in the point of sale,” she says. “The market is more difficult to win this year, so the polarisation is growing.”
Bain has outlined four strategic guidelines: refocus on the basics with high-quality and creative products; foster meaningful relationships with the customer (beyond transactional activations); favour reaching untapped audiences through desire rather than hype; and deliver the customer experience flawlessly. In some cases, brands will have to make trade-offs: build around today’s customer vs tomorrow’s; double down on loyal audiences vs unlocking new ones; and iterate on creative and fast-paced product vs focus on crafting future brand heroes. Levato says there’s no right or wrong answer here, it’s about understanding what an individual brand needs to prioritise in order to stay true to itself.
The firm also published a series of provocations in the report designed to encourage brands to get back to basics. Who are we? Where are we legitimated to play? Who are our true target personas? What is our DNA? Which are the untapped conversation territories true to our brand? Where do we belong? What is our differentiating value proposition? “The customer base is more informed and knowledgeable, so you cannot forget who your true customers are. You cannot target everybody,” says Levato.
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