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It’s been a rough year for luxury retailers, as economic headwinds have reduced consumer demand, but there are still a few places where people are willing to spend money.
Luxury brands could be facing their biggest setback in 15 years, according to a report published by Bain & Company and Italian luxury goods industry association Altagamma on Thursday. In addition to a global trade war, the industry is struggling to adapt to social and cultural changes. Demand in the US and China, the two biggest markets for luxury products, has been slowing. Some legacy companies are facing financial difficulties with debt and restructuring.
Another challenge for the luxury market is Gen Z, a demographic with growing skepticism toward luxury goods, according to Bain. This younger generation of consumers prioritizes self-expression and creativity, and the luxury industry will need to successfully adapt its messaging if it wants to woo more Gen Z customers.
Bain estimates that spending on personal luxury goods could be on track for a “continued slip.” In a worst-case scenario, Bain estimates the market for personal luxury goods could shrink by 5% to 9%.
Consumers are still splurging selectively
However, that doesn’t mean consumers are pulling back everywhere. Luxury experiences outperformed personal goods in the first quarter of 2025, and companies are leaning hard into “beyond product” experiences such as vacations and gourmet restaurants.
Luxury hospitality — think White Lotus-esque resorts — is taking off, with this year seeing rising hotel occupancy rates and longer stays. While traditional luxury markets in the US, China, and Europe are stagnating, the Middle East, Latin America, and other parts of Asia are seeing increased demand from consumers seeking high-end tourism experiences. The UAE, Qatar, and Saudi Arabia are leading the charge in this new trend, according to Bain.
Consumers are also eager for luxury cruises. Following the trend of increased personalization, they prefer slower, more immersive trips on smaller ships. Yachts and private jets are experiencing a backlog of demand. Fine dining and gourmet food rank high on consumers’ radars, and they chase highly curated experiences.
Some areas of personal luxury goods are also thriving. Demand for jewelry, apparel, and eyewear has been robust this year for both uber-luxury and aspirational offerings. Fragrances are a top-performing category due to their popularity with Gen Z and “premiumization.” Luxury brands are elevating their perfume offerings by making them more exclusive, expensive, and experiential.
Bain also identified some categories that haven’t been doing so well: watches, leather goods, and footwear. Unless there’s more innovation in these products, it’s likely they’ll continue to see declining demand.
As luxury brands adapt to changing consumer preferences, Bain predicts the gap between the industry leaders and laggards will only become more pronounced. Luxury’s winners will be the brands that offer the kind of personalization and novelty that convinces even cautious consumers to spend.
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