After a prolonged slowdown, the global luxury sector is gradually returning to growth in 2026, led by the US and China, but overall growth will likely be muted, expanding at an annual rate of 4-6 per cent till 2030, a BoF-McKinsey report noted.
Rekindling growth will not be easy for many brands as growth in experiences like travel is overtaking product buying, while inflation has dampened fashion appetite.
China’s $60 billion high-end market, meanwhile, is expected to recover and outpace other major regions, expanding by as much as 6 per cent a year.
Rekindling growth will not come easily for many brands. Since emerging from the pandemic, and the winding down of the spending frenzy that followed, luxury clients have realigned their priorities. They have become more discerning about the brands and products they are willing to buy.
Growth in experiences like travel is overtaking product purchases, while inflation has dampened appetite for fashion, including handbags.
Price hikes from leading fashion brands during boom times—often without corresponding product innovation—turned off clients across the spectrum, particularly at the aspirational level, the report notes.
As the post-pandemic euphoria began to fade, brands focused on clients most immune from economic headwinds, and many lost track of lower-tier clients and failed to give them a reason to visit stores. These customers, a critical base for the sector, ended up turning away in droves.
For both the US and Chinese markets—where building desirability has become more tricky—emotional connection has emerged as the leading driver of luxury purchases. As clients become more selective, they are most drawn to brands that resonate personally and reflect their tastes and values. Heritage and brand history, meanwhile, are playing a less important role, the report added.
While clients in China look to brands more as a means of external expression, their US counterparts are more interested in self-reward, gravitating most to brands that share their values.
Drilling down to the shopping experience, physical stores play a strong role in motivating all ranges of clients in China—especially at the entry-level, highlighting the central role of retail when it comes to reaching aspirational clients.
For US clients, poor retail experiences are proving to be a major pain point, with pushy sales tactics and long queues turning off clients—highlighting a critical area for improvement.
The rising use of artificial intelligence (AI) and resale channels to shop for luxury products is a trend the survey uncovered in both markets. More customers in the US are looking to AI for inspiration than in China, where entry-level clients are most engaged with AI across the shopping journey, from discovery to deciding on a purchase.
Second-hand channels are also playing an increasingly important role, for higher-spending clients in the United States in particular, motivating shoppers with the ‘thrill of the hunt’ as much as bargains.
Fibre2Fashion News Desk (DS)
