Current and potential consumers of luxury goods across the world are under pressure causing a shift in the forecasted market size in the year 2024. Latest information from the financial institutions and industry analysts explain that the sector is experiencing challenges in the core markets of operation including China and the United States.

HSBC Global Research has downgraded estimates for the luxury segment’s organic growth in the next year to 2024 from 5. 5% to 2. 8%. This downward revision has been made in light of the poor performance indicators that have for many major luxury brands in the second quarter of 2024.

Burberry and Hugo Boss have been among the companies that have been affected badly; they have recorded low sales especially in the Asia region. There has been a decline in sales in the Asia Pacific region with 23% decline for Burberry and 3% for Hugo Boss in both Asia and Americas. Such numbers have caused great concern in the industry with Burberry’s shares falling below 16% and Hugo Boss recorded a 7%. 5% decline.

The future of luxury brands is, therefore, rather bleak, especially when it comes to China, which has been one of the fastest-growing markets in the past couple of years. Cartier’s parent company, Richemont, revealed that the sales in China fell by 27%. Switzerland based watch maker which owns Omega, Longines and others reported an overall loss of 11% of its sales with particularly huge losses in China.

These challenges in China are due to general economic slowdown as growth rate in GDP fails to meet target and stands at 4. 7% year-over-year. Some of the reasons that have led to this slowing down include; low sales of land, increasing age of population, and shrinking exports. Certain economists are trying to use the ‘Middle Income Trap’ theory to analyze challenges that China is experiencing when it comes to becoming a high-income country.

It is also necessary to note that the problems of the luxury market are not limited to Asia only. In the United States, there is an increase in inflation levels and high interest rates which have a direct effect on the consumer buying behaviour, especially the status luxury consumers. This has led to a more careful attitude of the American consumers and their tendency to be rational even when choosing luxury automobiles.

Europe has a mixed outlook, where tourist expenditure help in the growth of the market to some extent. However, local consumers are still waiting and observing the market, which is partly due to what some analysts call ‘greedflation’, when the prices of premium brands are raised beyond inflation rates.

The effect of such challenges can be observed by the S&P Global Luxury Goods Index which plunged to almost thirty percent since the beginning of the year. Such a slump has eroded market value of luxury companies by more than $270 billion in the last few months.
However, the general mood in luxury is not so positive and there are some rays of sunshine at least.

Prada Group and thanks to the spectacular Miu Miu is an exception with a 17% increase in sales. Last year, it has grown to 58% and first quarter of 2024 has shown an astounding growth of 90% yoy.