What can the luxury retail sector expect in 2025?
According to a recent report by McKinsey and BOF Insights, the luxury sector is projected to experience a slowdown in growth, with annual sales expected to expand by just 2 to 4% between 2025 and 2027
As we step into 2025, the luxury retail sector finds itself at a pivotal crossroads. The industry, which witnessed a golden era of growth between 2019 and 2023, is now facing a multitude of macroeconomic headwinds, evolving consumer preferences, and an urgent need to redefine its value proposition.
According to a recent report by McKinsey and BOF Insights, the luxury sector is projected to experience a slowdown in growth, with annual sales expected to expand by just 2 to 4% between 2025 and 2027. This forecast underscores the pressing challenges luxury brands must address to remain resilient and relevant in an increasingly competitive landscape.
Kirsty Glenne, managing director of global luxury travel brand Antler, highlights the impact of global economic uncertainty on consumer spending. “Across the world, we’re seeing global economic uncertainty and this naturally influences consumer spending. As budgets become more of a concern, people prefer to shop for more practical minimalist or capsule wardrobes which can decrease luxury purchases,” she explains.
The sentiment is echoed by Francesco Pieri, co-founder and managing director at Temera – a company that focuses on IoT technologies like RFID (UHF NFC) and BlockChain, specifically designed for the Fashion and Luxury industry – who attributed the slowdown to deeper economic challenges.
“Economic pressures, such as inflation and geopolitical instability, are forcing consumers to be more cautious with discretionary spending, while market saturation in mature luxury categories is also increasing competition,” says Pieri. This cautious consumer behavior is a contrast to the exuberant spending witnessed in the past few years, fueled by a surge in e-commerce and digital channels.
The role of the pandemic
To understand the surge of demand in the past five years is important to recognise that the pandemic played a pivotal role in reshaping the luxury landscape, with many consumers turning to online platforms for their shopping needs. Glenne notes: “The global pandemic had a significant impact on the luxury sector, with many consumers scaling back their shopping habits as businesses closed, travel halted, and economic uncertainty loomed. However, there was also a notable shift towards e-commerce, with consumers embracing online shopping as a new pastime, and luxury homeware saw an uptick as people spent more time at home.”
This shift to digital was not without its benefits. “Several factors are driving this growth, but one of the most significant is the surge in e-commerce and digital channels. During and after the pandemic, we saw a continued acceleration of digital growth and DTC platforms, which played a crucial role in expanding the customer base for the luxury sector,” Glenne adds.
The changing expectations of younger generations, particularly Gen Z and Millennials, are reshaping the definition of luxury. Pieri emphasises this shift, stating: “These consumers have high expectations – seeking transparency, proof of ethical practices, and strong commitment to sustainability, all while continuing to deliver the highest quality goods and retail experiences. Although this presents a challenging operating environment, it also offers a real chance to evolve and innovate to meet these shifting consumer values.”
The rise of social media platforms like TikTok has also played a role in introducing a younger demographic to luxury brands. “The rise of TikTok, a social media platform popular with Gen Z, further contributed to this shift, introducing a younger demographic to luxury brands. KOLs on the platform sparked greater engagement with luxury, while creators also educated consumers on how luxury goods can be seen as a ‘safe’ investment, even in times of economic uncertainty,” Glenne points out.
The challenges for 2025
One of the most pressing issues facing the luxury sector is consumer dissatisfaction with continued price hikes. Glenne says: “Quality is key and so many luxury brands have been increasing prices which don’t feel equal to the value or quality of the product. At Antler, we have a lifetime guarantee which helps justify a higher price point as our cases are truly designed and made for a lifetime of travel.
“Other brands, however, can hike prices to align with demand which doesn’t feel justified when consumers are prioritising craftsmanship and quality.”
With a noticeable shift in consumer spending towards travel and wellness, luxury brands must also diversify their portfolios to remain competitive. Glenne suggests: “There are many ways to achieve this, but one of the most impactful is through branded travel experiences, hotels or beach clubs. We’ve seen luxury brands establish a presence in exclusive locations across Europe and the USA, this approach proves highly effective in engaging customers while they travel.
“It offers a unique opportunity to showcase the brand in a fresh, immersive way, creating a memorable experience that extends beyond the product itself.”
Counterfeit goods and the proliferation of ‘dupe culture’ is another significant challenge to luxury brands, undermining consumer trust and devaluing brand equity. Pieri emphasises the importance of differentiation and product authentication: “Luxury brands must not only differentiate themselves to combat this market but also ensure that customers can quickly and transparently authenticate and verify their products through modern technologies.”
To build trust, Pieri advocates for the adoption of supply chain traceability technologies. “By adopting supply chain traceability technologies like blockchain and RFID, brands can build trust with new levels of transparency. This offers consumers even more insight into the ethical and environmental impact of their purchases, as well as being an opportunity for product authentication,” he explains.
Pieri suggests that luxury brands should also invest in circular economy models. “Investing in circular economy models, such as upcycling, repair, and recycling programs, can help luxury brands align with consumer values while fostering long-term loyalty,” he says.
Innovation, particularly through AI-driven digital solutions, is also crucial for engaging consumers. “AI-driven digital solutions are revolutionising the retail landscape, offering luxury brands opportunities to engage with consumers in meaningful ways. Beyond immersive virtual experiences, AI is reshaping in-store shopping by personalizing interactions in real-time, providing tailored recommendations, and optimising sales and replenishment strategies,” Pieri adds.
Looking ahead, the luxury industry must prepare for a long-term recovery, with sector rebound not expected until at least late 2026, according to the McKinsey report. Glenne emphasises the importance of strengthening customer relationships and committing to sustainability.
“Strengthening customer relationships is essential for long-term success, encompassing not only new consumers but also fostering loyalty among existing customers and addressing evolving needs. As sustainability becomes increasingly important to today’s consumers, committing to the development of sustainable collections will be vital for maintaining brand relevance and appeal,” she advises.
Pieri concludes by highlighting the resilience and adaptability of the luxury industry. “The luxury industry has always been defined by its ability to evolve to a changing world, while setting new standards for quality and desirability. By integrating innovative technologies and sustainable strategies, brands can remain resilient and lead the way through this ever-changing landscape.”
