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After a period of post-pandemic growth, the luxury sector is facing a new economic reality. A potential recession in the US — one of the industry’s most important markets — could exacerbate the sector’s ongoing slowdown and challenge the pricing power and expansion strategies that have defined luxury’s recent modus operandi. While there’s no guarantee that a full-scale recession will materialise in 2025, a cooling economy is already causing shifts in spending, particularly among affluent consumers.
A recession is typically defined by a sustained decline in economic activity, marked by shrinking GDP, rising unemployment and weakened consumer spending. Leading indicators include a slowdown in retail sales, declining industrial production and tightening credit conditions. Inflationary pressures, interest rate hikes and geopolitical instability can also accelerate downturn risks. While there’s no single trigger, a combination of these factors signals a broader economic contraction.
In the US, macro trends paint a troubling picture. Consumer confidence, a key barometer for the national economic outlook, plunged to a 12-year low this week, according to non-profit The Conference Board’s latest reading, published 25 March. At the same time, inflation remains stubbornly above the 2 per cent target set by the US Federal Reserve in 2012, hindering stable economic growth.
Oliver Chen, managing director at Cowen and Company, which specialises in luxury equity research, is closely monitoring inflation data and consumer sentiment to gauge the health of the luxury sector as well as the high-end consumer. “There are plenty of warning signs,” says Chen, though he stresses that the likelihood of the US economy officially slipping into a textbook recession remains in flux. “People have money to spend,” he notes. “It’s just a matter of whether they feel like it or not. Right now, the headline risk around inflation is shaping consumer sentiment — and that, in turn, is influencing spending.”
Neil Saunders, managing director of retail at data analytics firm Globaldata, has also observed a “modest pullback” in spending.
Retail sales in February inched up just 0.2 per cent from the previous month after January’s revised 1.2 per cent drop, according to the US Department of Commerce. The weaker-than-expected recovery — falling well short of the 0.7 per cent increase economists had projected — is yet another sign that consumer spending is losing momentum, adding to concerns that the economy may be tilting towards a recession.
The odds of a US recession essentially amount to a coin flip, according to a Deutsche Bank survey that underscores the uncertainty surrounding the economy’s trajectory. The survey, conducted in late March, puts the probability of a downturn over the next year at 43 per cent, reflecting mounting concerns over slowing growth.
Add to this a brewing trade war, with President Donald Trump enlisting tariffs as a weapon against both allies and adversaries, and the likelihood of an economic slump becomes even harder to ignore.
On the other side of the globe, China is also navigating a period of slower growth, influenced by a complex mix of economic and political factors. As a result, a swift rebound in luxury goods consumption in 2025 may not materialise as quickly as anticipated, says Joëlle Grunberg, partner and leader in McKinsey’s retail, fashion and luxury practice. While China remains one of the largest markets for luxury, alongside the US, the outlook becomes more uncertain if Stateside growth also hits a snag. This dual slowdown could present significant challenges for premium brands.
Facing strong headwinds, brands will have to adapt to a growing consumer resistance to premium pricing, a surge in demand for experiential spending and an ongoing digital transformation that is reshaping how luxury is sold and perceived.
Spending habits and strategies
Amid economic uncertainty, affluent US consumers are already adjusting their spending habits. Many are opting for more accessible luxury options, a trend referred to as ‘value hacking’. Chen points to partnerships like that of Rebag and Walmart, whereby the former sells coveted pre-owned Birkin bags via the latter’s highly trafficked marketplace, as an example of this shift. Similarly, Costco has become the largest US importer of French wines, reflecting how well-heeled shoppers are embracing the value offered by more mainstream outlets. This shift underscores how even high-income consumers are becoming more strategic with their purchases, prioritising perceived value over traditional luxury retail channels.
The slowdown in economic growth is also influencing luxury brands’ retail strategies. In recent years, top-tier brands aggressively expanded their store networks, with US retail footprints growing an average of 6 per cent annually between 2019 and 2023, according to Grunberg. However, with economic uncertainty on the horizon, many brands are slowing expansion plans as they grapple with operational challenges and take a more cautious approach to their investments, Grunberg says.
As luxury brands navigate the uncertainty ahead, digital innovation will be essential to staying competitive. “Generative artificial intelligence and personalisation are emerging trends, and companies now have live use cases to demonstrate efficiency gains,” says Grunberg. “This is a priority on the CEO agenda, and progress is already underway.”
Despite the challenges posed by a slowing economy, some accessible luxury brands — like Coach and Ralph Lauren — are holding strong. “They benefit from more modest price points and a focus on timeless styles that feel like long-term investments,” Saunders explains. Both brands have maintained price integrity, limiting discounts while expanding their reach to younger consumers.
Multi-brand stores, however, are facing mixed results. While Nordstrom and Bloomingdale’s remain focused on customers and product, other retailers like Saks and Neiman Marcus are struggling with shifting priorities. “They seem more interested in property than proposition, which does not bode well for the future,” Saunders notes.
He expects significant structural shifts to further disrupt the luxury sector, particularly with brands continuing to take back control over their distribution channels. This shift will see increased focus on direct-to-consumer (DTC) sales, through owned stores and e-commerce platforms. As department stores struggle to adapt, they will face increasing pressure to redefine their role in the luxury value chain. The rise of online channels, despite challenges at platforms such as Matches and Farfetch, will continue to influence how younger consumers interact with luxury brands.
For ultra-high-net-worth consumers, luxury is no longer just about material wealth. It’s about access and unique experiences that differentiate them from others. Chen explains, “Luxury is now about experiences that set you apart.” Printemps’s new Manhattan store is a prime example of this shift. Rather than a traditional retail format, the store offers a curated, Parisian apartment-style experience with champagne, croissants and caviar — redefining the concept of shopping to emphasise luxury as an experience, not just a product.
“In recent [McKinsey] surveys, 80 per cent of high-net-worth individuals said they planned to shift part of their spending towards experiential luxury and wellness,” says Grunberg. This trend is evident as luxury brands expand into hospitality, wellness and longevity — from Bvlgari hotels to Ralph Lauren’s cafés and Louis Vuitton’s pastry salons.
Luxury brands will need to balance exclusivity with accessibility. “The challenge is deciding whether to err on the side of scarcity or maximise sales,” Saunders adds. This balance will become even more critical as market conditions evolve.
One potential blind spot for many luxury brands is failing to inspire and create emotional value. Dr Daniel Langer, CEO of Équité and professor of luxury strategy at Pepperdine University, warns: “Many brands confuse brand storytelling with marketing campaigns, delegating it to inexperienced teams who focus more on advertising than on conveying a brand’s core values.” Cutting investment in this area can create a downward spiral from which recovery is difficult.
Pricing power meets consumer resistance
As luxury brands have raised prices in recent years, a recession could test the limits of their pricing power. “Studies show that consumer sentiment towards many luxury brands has significantly worsened due to steep price hikes,” Langer explains. The next generation of consumers already views many luxury items as overpriced, creating vulnerabilities for brands that fail to adapt.
To safeguard long-term desirability, brands must shift their focus from pricing to creating exceptional value. Rather than competing on price, they must emphasise why their products or experiences are worth the cost.
If the US luxury market slows, global high-net-worth consumers may increasingly look to alternative markets for their luxury goods. “We might see luxury spending redistributed geographically, with affluent shoppers from places like India prioritising destinations such as Dubai,” says Ketty Maisonrouge, founder of KM Co and luxury strategy professor at Columbia University.
As economic uncertainty persists, luxury brands will face the challenge of balancing scarcity with scale, exclusivity with accessibility, and tradition with digital innovation.
Langer advises luxury leaders safeguarding against a downturn to conduct a “brutally honest” audit of their brands to identify gaps and sharpen their storytelling. Investing in staff training is equally critical, as is understanding the expectations of luxury clients to deliver exceptional experiences.
Grunberg believes brand chiefs can navigate economic uncertainty by future-proofing their portfolios and elevating their products. “Executives — should they lead with vision, creativity and a renewed commitment to excellence, while also focusing on long-term investments and multi-year initiatives — can ensure the continued success and growth of their brands,” she says. “If they do not make these necessary changes, they risk sacrificing brand relevancy and market share for years to come.”
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