2025: A year of challenges for the luxury sector

Business

Pop-up Galeries Lafayette Champs-Élysées Credits: Michael Kors

Paris - A slow-to-recover Chinese market, the risk of new American taxes, and "weary" consumers: the luxury industry faces significant challenges in 2025, following a 2024 already disrupted by slowing consumption.

The heady post-Covid years, when luxury groups recorded insolent double-digit growth, seem a distant memory.

Major groups like Hermès, Kering, Moncler, and Burberry are due to announce their 2024 results in the coming weeks, starting with global leader LVMH on Tuesday.

According to analysts, the sector's sales in the fourth quarter of 2024 may have improved compared to the previous quarter, similar to Richemont, owner of Cartier, which announced 6.15 billion euro in turnover from October to December, a 10% year-on-year increase and better than expected.

And "in 2025, we can expect a slight upturn, but with significant geographical differences," estimates David Dubois, associate professor at INSEAD business school.

Because "the engine that was China is not going to restart completely," he explains to AFP, and "the US market, the economic powerhouse," is pending decisions on tariffs.

The American Risk

In a study titled "State of luxury," McKinsey estimates that tariffs on imports could reduce US spending by 46 to 78 billion dollars annually.

LVMH CEO Bernard Arnault, seen with two of his children, Delphine, CEO of Dior, and Alexandre, deputy CEO of Moët-Hennessy, among the dozens of closest guests to Donald Trump at the US president's inauguration ceremony, may be able to plead the sector's case.

Chanel, which eliminated 70 positions in the United States "following various prior measures," stated in a declaration sent to AFP on Thursday that these adjustments are "a crucial step towards strengthening its ability to thrive in a competitive and evolving market."

"The United States remains a key market and an important part of the company's long-term strategy," adds Chanel, which expects "demand fluctuations in any market."

According to McKinsey, luxury growth will be slower in the coming years, between 1% and 3% annually until 2027.

UBS bank also highlights consumer "fatigue," with consumers increasingly "questioning the value for money offered by certain brands."

The sector has lost 50 million customers in two years, according to a Bain and Company study.

"In some cases, there has been hyperinflation [of handbag prices] that was not linked to the value of the dream offered to consumers," says Prada CEO Andrea Guerra in the McKinsey study. And "the consumer may have said: 'I have too many bags in my closet,' and rather than buying another one, 'maybe I'll go on a cruise or spend a holiday in a luxury hotel.'"

"But I still think it's cyclical and that the sector, by definition, will continue to grow," he adds.

"Existential Crisis"

For McKinsey, luxury leaders must "take advantage of this slowdown to reflect and readjust," in order to "adopt a long-term strategy, rather than simply resorting to quick fixes for their most pressing problems."

"This crisis is a wake-up call for luxury brands," comments Laurence Lim, head of the Cherry Blossoms Intercultural Branding agency, to AFP. "Luxury is experiencing its existential crisis and must transform."

"Young people will be the main customers, and their values have completely changed; they are much less materialistic" than their elders.

In China, for example, according to the expert, customers are rediscovering their heritage, seeking a breath of fresh air.

European luxury brands will have to "hybridize their cultural codes and create bridges between Chinese and European culture," while in the United States they will have to highlight "values" in a context "where values are polarized."

This article was translated to English using an AI tool.

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Kering

Luxury

LVMH

Richemont