By Frank Lin, Elaine Li, Stanley Wang | Illustrated by Katherine Zhang | Fall 2025 Issue | Business Strategy
In the heart of shopping districts are world-renowned luxury clothing brands. Big players like Louis Vuitton, Dior, and Burberry contribute to a market projected to be over $471 billion USD worldwide according to Statista, with most of the revenue generated in the US. However, despite these impressive numbers, multiple indicators prove that the luxury industry is expected to face a historic downturn in recent years. Whether it be from a mix of economic instability, shifting generational preferences or unethical practices that redefine the term "luxury," once celebrated for its association with status and rarity, luxury is now encountering pushback from both loyal and younger buyers.
Aside from the overall industry-wide downturn, the recent decline of the luxury industry is caused by two main factors: market saturation and unethical practices by leading brands. Both of these effects are damaging the planet's outlook on luxury goods, especially for upcoming younger generations, threatening the survival of luxury products in the future. While many factors have contributed to the luxury industry's downturn, two stand out as most critical.
Hyper-Inflated Prices & Market Saturation — & How it Destroys Luxury Brand Value
One of the two main reasons for the industry's decline is the increase in market saturation for the overall clothing industry worldwide. For the last two decades, luxury fashion changed from niche, high-quality products to a scaled global business model. Some competitors like Kering expanded aggressively by opening new locations all around the world, with new store openings in North America going up 12% in 2022 according to Savills. Kering alone managed around 1,813 directly operated stores in 2024, up versus the late 2010s, so its store index continues to edge up through 2024 according to Statista. Brands were also shown to launch accessories to reach upper-middle class consumers, and mass marketing through influencers, logos, and social media to reach a massive audience.
According to McKinsey, from 2019 to 2023 this strategy made strong sales growth, but more than 80% of the growth came from rising prices instead of selling more products with improved quality and creativity. Average prices rose by around 4% per year and made double digit price jumps on popular products, like the Kering brand's Gucci bags for example. Revenue, however, fell 12% in 2024 to €17.2 billion after peaking earlier in the decade, so the indexed revenue line turns down while the store line still rises according to Kering.
While this strategy worked for brands in the short-term during the pandemic boom (due to higher consumer savings), it also started the downhill effect for saturation due to steep price hikes in the luxury industry specifically compared to other industries. Three big components contributed to this change. First, the visual saturation of luxury products made these products feel less rare. After brands were plastered on social media and advertised in major cities, luxury products became the "norm" leading to brands charging more for products.
On top of that, brands started moving from just bags and high-quality clothing to everyday goods like sneakers or small leather goods. A prominent example of this is with the world-renowned Burberry brand, which was once known as a high-luxury British heritage brand. It was once famous for high-quality trench coats worn by military officers and elites, giving the brand a status of exclusivity and status for its superior craftsmanship. However, during the late 1990s to the 2000s, Burberry began to overlicense its brand, adding mass-market items like scarves, caps, umbrellas, and other accessories that made Burberry feel more like an everyday fashion brand that cares far less about the quality (stated by Patrick Grant when interviewed on The Guardian). Burberry explicitly states that in "pursuing brand elevation" it "took pricing too high," and links this to "significant financial underperformance," showing that higher prices on its products have started to push customers away rather than reinforce exclusivity.
This caused a reported operating loss at £3 million (a reduction of 101%), revenue at £2,461 million, which is a reduction of 15% at constant exchange rates, and a reported diluted EPS was a loss per share of 20.9, leading to a reduction of 128%. The report highlights that the business became too reliant on accessories and logo-driven goods and now needs to "rebuild desirability" of its core luxury offer, implying that leaning into more everyday, mass-appeal items weakened its high-luxury image according to Burberryplc.com. The vital issue with not only Burberry, but countless other luxury brands, was blurring the line between "luxury" and "everyday" products they were offering. Furthermore, the growing prices started to push consumers away, since the same products that could be bought from non-luxury brands offered the same functionality.
Recent financial results show that these factors are taking an effect on luxury goods. McKinsey states the price increases have started to negatively affect demand, with data showing that price increases have slowed to be about 3% in early 2025; this is the lowest price level ever since 2019 because brands are realizing that they cannot solely rely on price any longer.
Unethical Practices in Marketing and Production
The second factor of decline is the awareness of unethical practices in both supply chains and in marketing. When looking at the supply chains, some investigations in Italy have exposed serious labour abuse in factories making goods for major luxury brands. In 2024, prosecutors in Milan discovered workshops full of underpaid workers, many of which were immigrants who were smuggled into the country illegally.
Based on studies by CNN, these workshops produced leather bags and sold them to Dior for a fraction of their retail price. Furthermore, according to Reuters, it's been revealed that employees of an Italian subsidiary that produces Dior products live in working facilities where "hygiene and health conditions are below the minimum required by an ethical approach."
In terms of marketing, luxury brands are also guilty of unethicality. They carefully limit production and make waitlists, which is a strategy most well known by Hermes' Birkin and Kelly bags. The process to attain a Birkin or Kelly bag is also overly complex: after the waitlist you'd need to build a relationship with a sales associate, then work your way up with smaller purchases at Hermes, and finally wait for an offer in order to buy. The use of scarcity in marketing and this tedious process leads to frustration from customers, and disappointment from buyers if products don't live up to expectations. For example, sometimes the quality of products aren't nearly worth it given the money and effort required to attain it. Even worse, some customers expecting a product hand-made by a lifelong designer in France could instead receive something created in a third world country through labor exploitation.
Finally, the scarcity also pushes customers to create counterfeits to supply the extra demand. In fact, there are even some cases where buyers willingly buy counterfeits, in order to avoid the over-inflated prices of real products. The key factors mentioned all contribute to the decline of the luxury industry as a whole, as it relates to their brand images and overall sales.
A Different Perspective: Is There Still Hope for the Luxury Industry?
Although the outlook for the luxury industry may initially appear bleak, recovery is possible, albeit difficult. The key to the turning point for luxury brands is making major changes in their brand values and production routines, opening the door once again to loyal customers.
First, industries need to stabilize their prices on products, and be more transparent about why the items cost more than their non-luxury counterparts. The honesty portrayed to customers is necessary to regain their trust and enhance buying. Furthermore, they need to focus on the quality of revenue instead of quantity, which means maintaining long-term loyalty, service, and repeat clients instead of one-time, hype-driven purchases by intensive marketing. For luxury, that means shifting away from growth based purely on price hikes and hype. Instead, brands could focus on fewer, better collections, invest in repair and after-care services, and build long-term relationships with customers who value quality over constant novelty.
Some brands have found success by practicing this. In its recent campaign, Bottega Veneta, a Kering owned company based in Milan, Italy, centered on visible, human craftsmanship — such as spotlighting artisans, the hand-made process, and the emotional "soul" behind each project. This strengthened brand authenticity and trust, helping them achieve record sales growth even as other Kering companies struggled.
In terms of ethicality, luxury brands will need to fully integrate ethical production into their business model. Not only should brands fix their unethical practices to restore their brand image, they should also be doing good to demonstrate their capacity for morality, such as building meaningful relationships with consumers, setting fair prices, or providing high quality products that their valued customers desire. An example of a brand that demonstrates ethics based around the services they provide is with Louis Vuitton Moët Hennessy (LVMH). Stated by a past intern who participated in building the program, LVMH's "One-to-tree" program allows customers to skip packaging wrapping on products to plant a tree instead. Any economic gains from planted trees go directly to locals to further support community causes. These effects are stated to be popular in China due to many benefits going back to the Chinese community right away.
Conclusion
The effect of the luxury slowdown is often blamed on weaker economic growth, high interest rates, and falling aggregate demand. But while those factors certainly contribute to the downfall of the luxury industry, a more uncomfortable truth is often ignored, which is that the industry is simply facing the consequences of their own choices. Over the years, greedy price jumps, mass marketing, and inflated market saturation has destroyed the image of luxury goods being treasured, scarce, yet valuable, and worth the high price. Meanwhile, unethical tactics have ruined the moral image of luxury brands, making them appear as just a greedier, pricier version of cheaper fashion alternatives.
However, this doesn't mean all hope is lost for luxury. There are brands in other industries that have risen above standard practices, that have not only strayed away from unethical production, but set their own standards to contribute to society, which gains newfound favoritism from consumers. Overall, the luxury industry is at a critical point in determining its future direction. The actions influential brands plan to take from this point will either lead to their eventual demise or their redemption. While it will prove difficult to offset the many years of price inflation, overinflated marketing, and unethical practices to maximize sales, other brands have also proven that reverting luxury back to the treasured, admirable industry they once were has the potential to save the market as well.
