Why Are Luxury Brands Struggling To Stay Relevant?

By Shaked Yanko

Courtesy of Getty Images

The luxury sector, long seen as resilient to economic downturns, is currently facing a turbulent period. Brands that once thrived on exclusivity and unwavering demand are now struggling to maintain relevance in an increasingly unstable market. Consumers are becoming more conscious of their spending habits, questioning the ever-increasing prices luxury brands demand. The cost-of-living crisis has made even affluent shoppers more selective, and frequent leadership changes at major fashion houses—dubbed "fashion musical chairs"—have left brands with inconsistent creative visions. Additionally, the industry has seen an unprecedented level of mergers and acquisitions (M&A), raising concerns over monopolization and the dilution of brand identity.

One of the most significant challenges for luxury brands today is the economic situation in China. Once the driving force behind luxury growth, the Chinese market has become a liability due to slowing economic growth and shifting consumer preferences. Kering directly blamed the Asia Pacific region for Gucci’s 25% YoY sales decline in the latest quarter. The conglomerate’s overall revenue dropped from $2.39 billion in Q3 2023 to $1.77 billion in Q3 2024, a staggering 38% decrease. Even industry giant LVMH reported a 3% YoY decline, attributing it to weakening demand in China. Trade relations, tariffs, inflation, and an industrial sector slowdown are all contributing to this economic uncertainty, making it harder for luxury brands to project future growth.

At the corporate level, major financial losses have further highlighted the industry’s fragility. Capri Holdings, which owns Michael Kors, Versace, and Jimmy Choo, reported a shocking quarterly loss of $547 million. Meanwhile, Jacquemus, a brand that prided itself on independence since its 2009 founding, recently accepted a minority investment from L’Oréal to break the so-called "glass ceiling." This move signals that even successful brands must now seek external investment to sustain growth and compete in a saturated market.

Courtesy of Capri Holdings Limited

Luxury e-commerce has also seen major shifts, with Mytheresa acquiring YOOX Net-a-Porter in a deal that will consolidate the online luxury retail space. However, not all mergers have been successful. The proposed Capri x Tapestry merger was blocked by regulators, who argued that it would "erode competition" and create a near-monopoly in the accessible luxury segment. The failure of this merger underscores the growing regulatory scrutiny luxury brands face, making large-scale consolidation increasingly difficult.

Beyond financial struggles, ethical concerns are damaging the luxury sector’s reputation. Investigations into Italian fashion houses have raised questions about the legitimacy of "Made in Italy" labels, with reports of luxury handbags being produced for as little as $52 before being sold for thousands. These revelations have led to consumer distrust, as shoppers—regardless of their income—resent feeling exploited. The notion that luxury equates to superior craftsmanship is being challenged, forcing brands to be more transparent about their supply chains.

The luxury market is at a crossroads, with economic instability, changing consumer behavior, and regulatory challenges creating a perfect storm. Brands must adapt by balancing exclusivity with accessibility, maintaining ethical production standards, and finding innovative ways to connect with consumers. If they fail to evolve, the current slowdown may not be a temporary dip but a sign of a more profound transformation within the industry.