It was a quiet Tuesday at the Madison Avenue store. Carefully, like someone who handles glass, a salesperson fixed the cuff of a suede jacket. A pedestrian outside stopped to take in the spectacle before moving on. Maybe it explains the situation.
Although luxury is losing its middle, it is not losing its luster. The sector is being split in two by a clearly defined shift, according to analysts. On the one hand, the ultra-wealthy are still spending, but they do it with a little more caution. Conversely, the aspirational consumers who used to save for a single pair of Louboutins or a handbag with a monogram are disappearing.
Key Context on Emerging Luxury Divide
| Factor | Detail |
|---|---|
| Industry Forecast | 3–5% projected growth in 2026 after flat 2025 |
| Market Drivers | Demand in U.S., Europe, Japan; slow rebound in China |
| Core Issue | Aggressive price hikes have reduced accessibility |
| Impacted Groups | Young consumers, aspirational buyers, mid-tier clients |
| Key Insight | Shrinking customer base: 400M (2022) to 340M (2025) |
| Major Concern | High-end shoppers feel alienated or “betrayed” |
| Inventory Trend | Stock-to-revenue ratios up 3–4 pts vs. 2019 |
| Industry Challenges | Balancing brand image with off-price product liquidation |
Luxury homes have pushed themselves into a smaller space by increasing their prices year after year. Elevation, exclusivity, and escape are the purported strategies that have increased margins in the near term but at a long-term cost. As millions of former customers discreetly shift their focus elsewhere, that expense now manifests. Once a multi-rung ladder, the luxury market now resembles a tall wall.
According to Bain & Co., the number of consumers who purchase luxury items worldwide has decreased by 60 million in just three years. Economic factors account for a portion of the drop. However, an increasing percentage indicates something more nuanced: a psychological divide between consumers and brands. Customers feel locked out in addition to being priced out.
Even wealthy clients felt “betrayed,” according to Federica Levato, a partner at Bain. For a field that is notorious for its icy detachment, that word struck me as surprisingly emotive. However, luxury encompasses more than just cost. It concerns promises and the consequences of breaking them.
This divergence has shown itself in both expected and unexpected ways in recent quarters. Although they still account for about half of the sector’s income, big spenders have leveled off. They’re not upgrading, but they’re also not leaving. In the meantime, younger consumers, particularly those in Generation Z, have virtually stopped shopping since housing expenses and unstable economic conditions have put a strain on their finances.
But money isn’t the sole factor. It has to do with significance. The emotional return on a luxury purchase has decreased for many people. On the runway, they observe fewer risks being taken. A type of mass-market repetition at a premium price has taken the place of the excitement of discovery—of feeling noticed by a brand.
Certain American brands are leveraging the void by forming strategic alliances. They are providing design and quality at costs that feel respectful even though they are not inexpensive. Levato described it as a “complete void” that is being filled by up-and-coming labels with Gen Z fluency as well as Coach and Michael Kors.
In a memo this week, Kering’s new CEO, Luca de Meo, directly acknowledged the change and called for a review of assortment and pricing. It is telling when someone at the top of one of the industry’s cornerstones makes a comment like that. Luxury businesses may now be considering a more gradual decline after years of climbing the ladder.
The oversupply makes things even more difficult. The amount of inventory is increasing. Since 2019, stock-to-revenue ratios have significantly increased, placing pressure on firms to discreetly sell. However, discounting is still frowned upon, especially in Europe where environmental laws forbid the disposal of unsold merchandise. A backlog of unsold items that straddle the line between want and disposal is the end outcome.
Outlet stores and discount internet platforms have grown in importance. However, they pose a risk to one’s reputation. Knowing that a $1,800 coat might eventually show up on a discount site makes it less appealing to certain buyers.
Some businesses are trying to adjust production and better match demand by utilizing data analytics and digital innovation. However, this calls for a shift in perspective from volume-driven ambition to carefully considered accuracy. In a business that sometimes relies on seasonal hype, this change seems especially advantageous.
An additional element of instability has been introduced by geopolitical worries. Forecasts are still clouded by the Chinese economy’s reluctance and shifting trade signals from U.S. policymakers. Earlier in the year, the Bain research lowered its 2025 forecast, although it was later significantly raised. The message was unambiguous: nothing, not even luxury, is guaranteed.
Luxury stocks have recovered in spite of the volatility. Companies like LVMH and Richemont have released encouraging third-quarter earnings, indicating that core customers haven’t completely closed their wallets. Though not invincibility, the sector’s resiliency is nonetheless regarded with optimism.
I saw a young couple standing outside a store one day in Milan, discussing whether or not to intervene. They didn’t. Perhaps they were aware of the costs. Perhaps they just didn’t see anything that caught their attention. I should have stopped thinking about that hesitation sooner.
If luxury is to grow once more, both financially and emotionally, it might need to reconsider how to evoke feelings other than jealousy. It’s more about recalibrating—creativity that evokes strong emotions, respectful pricing, and authentic storytelling—than it is about drastically cutting back.
There is a real split. The opportunity to bridge it, however, is equally important.
