The luxury goods industry, which historically has grown at an average annual rate around 7%, is facing a more adverse outlook this year amid macroeconomic challenges and price increase limitations.
The luxury goods sector experienced a post-pandemic boom, fueled by savings during the Covid lockdowns, fiscal stimulus in the U.S., and a wave of new recruits to luxury brands. Sales of the top names jumped more than 80% between 2019 and 2024.
Now the current backdrop is clouded by uncertainties such as adverse demand from leading consumer nationalities—Chinese, American and European—all of which account for 75% of the industry spend; the normalization of growth within the luxury industry, which may be facing a post-pandemic boom fatigue; the impact from U.S. tariffs; high interest rates in Western countries; and overall expectations of slower global growth.
“We are in a very different environment today. Luxury pricing power has eroded after significant post-pandemic price increases, and Chinese demand will remain flat at best this year,” says Edouard Aubin, Morgan Stanley’s Head of European Luxury Brands Research. “The consensus view is that the industry is in no position to pass on meaningful price increases.”
Lower Confidence in China
China has been behind the resilience of the luxury industry since the early 2000’s. During the 2008-2009 Global Financial Crisis, for example, demand from Chinese nationals remained very strong and thus offset the western luxury spending slump. However, their spending slowed more than expected in 2024 and remains weak in 2025 due to current macro uncertainty.
Chinese consumers have become the biggest spenders worldwide on personal luxury goods, accounting for around 30% of the total, compared to around 22% for U.S. consumers. But according to a recent Morgan Stanley AlphaWise survey, the outlook for spending in China is at its lowest level since the Covid-19 pandemic.
The survey, conducted in early April among 2,034 Chinese consumers, indicated that the announcement of U.S. tariffs on China increased household concerns over jobs, salaries and investment losses, with 60% of respondents saying they plan to reduce spending over the next six months.
“The pickup in U.S. consumers’ spending expected for 2025 is not likely to be as significant as initially anticipated,” Aubin says.
Many investors were initially expecting spending to recover strongly in 2025 after having been weak for the most part of 2024. Data from April showed a temporary improvement, credited to seasonality, pent-up demand with likely some pull-forward spending due to tariff concerns, and companies putting through price increases.
Recession Fears Worse Than Tariffs
The impact from U.S. tariffs should be less material for luxury goods companies, especially those able to apply small pricing increases in the U.S. to mitigate the impact.
In addition, many luxury companies shipped Spring/Summer collections ahead of the implementation of the new U.S. trade policy, thus dodging a portion of the tariff hit this year.
“Overall, for luxury, we don’t think the tariff impact will be that meaningful,” Aubin says. “The bigger threats to luxury companies are the risk of a recession, and the negative impact of market moves on consumer sentiment and the country’s net wealth.”
What Could Go Right
For now, Aubin sees demand as subdued in the next 6-12 months.
“Should the S&P 500 continue on its upward trajectory and translate to further household wealth creation or should the Chinese real estate market stabilize or return to growth, the industry could start to recover,” he says.
