Beyond economic pressures, are changing tastes cracking the luxury market oligopoly?

By Sophia Samilski

Economic pressures, inflation and changing tastes are challenging the dominance of traditional luxury giants as consumers trade classic logos for something original, personal and fresh. These global conglomerates, once synonymous with prestige and market control, are feeling the strain of slowing sales, currency fluctuations and evolving consumer preferences.

Classical economic theory defines an oligopoly as a market dominated by a few large firms, where high barriers to entry like brand reputation, significant capital investment, and economies of scale limit competition. This mirrors the luxury market, where fashion houses reap the benefits of loyal consumers and market power.

According to a report from Bain & Company, the personal luxury goods market has lost over 50 million consumers in 2024. Kering, home to high profile brands such as Gucci and Yves Saint Laurent reported weak third-quarter earnings. Gucci's revenue was down 26 percent as reported, and Yves Saint Laurent’s third-quarter revenue was down 13 percent.

Louis Vuitton Moët Hennessy (LVMH) reported negative three percent organic growth in the last quarter including currency effects in their fashion and leather goods sector, home to high-profile brands like Louis Vuitton, Christian Dior and Fendi. The conglomerate reported a 12 percent decline in the last nine months organic revenue in the Asia region, excluding Japan.

This region is primarily driven by Chinese consumers with a strong appetite for luxury goods. However, China’s weakened economy, strained by property crises, geopolitical tensions, and high youth unemployment rates have led to poor consumer confidence, despite government stimulus efforts.

“Most of our markets currently face economic challenges including mainland China,” LVMH Chief Financial Officer Jean-Jacques Guiony said during their quarterly sales presentation.

While it's unclear when Chinese consumers will regain confidence to start spending domestically, a 36% surge in organic revenue for LVMH in Japan over the last nine months underscores a key trend: Chinese shoppers are heading to Japan to spend on luxury.

Though Japan represents a unique case in the region, largely driven by the weak yen, the broader macroeconomic environment remains challenging beyond Asia. Rising living costs have forced consumers to cut back on discretionary spending, including in LVMH’s second largest market, the U.S., where revenue flatlined in the third-quarter.

The Business of Fashion reported that lack of consumer confidence and appetite to spend was cited by 70 percent of fashion executives as the biggest concern for the year ahead. Price hikes following the pandemic have also alienated many luxury consumers. For example, a mini Lady Dior bag that cost $3,500 in 2019 is now $5,500 today, a 57 percent increase, and outrage over price increases have spread on social media, pushing many to rethink their purchases from high-end brands. Hermés has also seen price surges, but we must note that the Birkin maker, much like Chanel, holds significant pricing power and boasts years-long waiting lists for its most coveted handbags, despite broader economic conditions. Hermés saw continued double digit sales growth in the third-quarter.

In contrast to struggling flagship brands, the smaller, more dynamic labels within their portfolios are leading the way. Prada Group’s Miu Miu saw an impressive 97 percent increase in sales over the past nine months, while Kering’s Bottega Veneta posted a 4 percent increase in the third-quarter. Similarly, Richemont’s Alaïa experienced a 51 percent surge in demand.

While Miu Miu generated €854 million in revenue in the last three quarters, an impressive figure, it remains significantly smaller than Gucci’s €5.7 billion* over the same period. This underscores its strong strategy and cultural relevance, even though it has yet to rival the dominant players in the luxury market and notes we are still in the early stages of the broader shift reshaping the luxury landscape.

With second-hand apparel projected to grow three times faster than the global apparel market by 2028, this shift reflects a broader trend where consumers no longer feel beholden to traditional, overpriced luxury labels. Instead, they are seeking out brands that offer authenticity, creativity, and relevance to their lifestyles, whether through established smaller brands or through second-hand channels that allow access to luxury at a lower price point.

According to The Lyst Index, a quarterly ranking of fashion’s hottest brands and products, premium contemporary brands have seen a 109 percent increase in sales, reflecting the market’s preference for innovation over tradition.

Ultimately, the winners in the luxury market are brands that are able to adapt quickly and meet the evolving desires of the modern consumer. As Federica Levato, partner at Bain & Company explains, desirability is driven by craftsmanship, creativity, and unique brand values, along with personalized, and culturally relevant connections and experiences for customers.

“To secure future growth, brands will need to rethink their luxury equations, re-establishing creativity and blending old and new playbooks.”

*This figure was derived from Gucci's revenue from the first half of 2024, combined with its third-quarter revenue.

Sophia SamilskiComment