Dive Brief:
- The global luxury market is expected to grow between 1% to 3% annually from 2024 to 2027, according to a new report called ‘State of Luxury: Fashion’ from McKinsey.
- Geographically, the U.S. is expected to outpace the rest of the world between 2025 and 2027, with its luxury market predicted to grow between 4% and 6%, compared to a 3% to 5% growth in China, and a 2% to 4% growth in both Europe and in the rest of the world.
- The combined luxury jewelry and leather goods category will grow most, at 4% to 6% between 2025 and 2027. Apparel, including ready-to-wear and footwear, is expected to grow between 2% and 4% for the period.
Dive Insight:
The personal luxury goods industry, encompassing fashion, leather goods and the combined category of watches and jewelry, grew by 5% each year between 2019 and 2023, and grew 9% each year between 2021 and 2023, according to the report.
Much of that growth was propelled by an uptick in prices, which rose an average of 4% each year across the industry. Between 2019 to 2023, price increases accounted for 80% of luxury’s growth, with prices for what McKinsey called “leather goods and other iconic products” growing as much as 50% to 100% for the period.
But as the overall luxury sector saw a slowdown in 2024, executives cited in the report said they planned to drive future growth through volume increases rather than price increases in 2025.
Ultra-high net worth clients comprise between 2% and 4% of luxury’s client base but account for 30% to 40% the sector’s spend, per the report. Although that demographic is projected to drive 65% to 80% of luxury’s growth from 2023 to 2027, there are some caveats.
For example, ultra-high net worth clients cited in the report said they looked forward to spending less on personal goods in the future, and spending more on home decor and the combined category of travel and hospitality. McKinsey said that among these customers “there is a shared feeling that they have ‘overconsumed’ since the pandemic.”
In terms of global growth in 2025, the fashion industry should expect to see especially robust expansion in Japan, the Middle East and India, the latter of which will see the biggest boost, of between 15% and 20%, for the coming year.
Overall, luxury customers indicated that they felt their in-store experiences had worsened in recent years and that they wanted to see “greater transparency in luxury brands’ sourcing and production.”
Meanwhile, a movement “away from from brand heritage and towards the individual vision of creative directors… may impact brand identity and performance in the long term,” said McKinsey. The report also noted that in the last three years, 10 new CEOs were appointed at the top 15 global personal luxury brands.
As companies overhauled their creative visions and C-suites, consumers were looking for quicker access to new styles and silhouettes.
“Faster trend cycles and instant access to brand content on social media gave rise to a persistent demand for newness,” McKinsey said in the report. “Luxury brands increasingly turned to collaborations, product ‘drops’ and brand ambassadors to meet the constant demand for novelty. However, these strategies risk blurring the brand’s core identity and potentially distancing it from its historical client base.”
That search for newness, as well as a desire for budget-minded items, drove some luxury customers to resale, said McKinsey.
However, McKinsey reported that concerns still exist “around authenticity and reliability in resale,” with 20% of conversations revolving around “buyers seeking reliable platforms that can guarantee the authenticity of pre-owned luxury goods.”
Another 25% of online customer conversations about luxury resale “are linked to an appreciation for the uniqueness and history of secondhand and vintage luxury,” per the report, with 24% related to “the affordability and accessibility of pre-owned luxury goods.”