The biggest chill of luxury goods comes from the fact that they are losing the two major drivers of high-speed growth – the middle class and the Chinese market.
60% of the luxury goods market’s income comes from individuals below the high net worth standard, who spend no more than 2000 euros annually on expensive bags, shoes, clothing, and jewelry.
For this consumer group dominated by the middle class, luxury goods are more like a symbol of their closeness to the quality of life of the upper class, or a reward for themselves for a period of time. It is also they who have driven the high growth of the luxury goods industry in the past decade, with an average annual double-digit growth rate.
But this group has been hit the hardest in the post pandemic economic downturn. Some of them have reduced their overall budget for non essential expenses, some have chosen more experiential consumption such as tourism, entertainment, and offline services, while others value the practicality of their products and have chosen sports products that can bring more health benefits and functionality.
Light luxury, which has the largest proportion of middle-class consumers, has lit up the red light first. In the first quarter of this year, the sales of luxury brands Michael Kors, Kate Spade, and Coach decreased by 9.7%, 4.7%, and 2.3% year-on-year, respectively. In order to clear inventory, they also increased the proportion of Outlet stores.
The decline subsequently spread to second tier luxury goods and some vertical luxury goods. Burberry’s revenue in the second quarter of this year fell by 22% to £ 460 million, a huge difference from the high growth rate of 18% in the same period last year. The company not only replaced the CEO, but also announced that it may experience operating losses in the first half of the fiscal year ending September 30 and suspend dividend payments for the fiscal year 2025.
