What Happens When Luxury Loses Its Feel-Good Factor?

The luxury rally that followed the pandemic continues to unwind. LVMH, which became Europe’s most valuable company at the height of the boom, has lost much of the market value it gained, the Financial Times reports, as investors question the pace and shape of any recovery. The slowdown reaches well beyond one group. Economic uncertainty, geopolitical tension, weaker Chinese demand and the retreat of aspirational shoppers are reshaping an industry that benefited from exceptional spending conditions earlier in the decade. Performance is also increasingly uneven: brands and categories serving the wealthiest clients are proving more resilient than those reliant on aspirational demand.

Our View: The challenge may run deeper than the cycle

The post-pandemic boom was an unusual moment. Consumers came out of lockdowns with accumulated savings, few ways to spend them on travel or experiences, and a renewed appetite for things that signalled pleasure, identity and status. Luxury benefited more than almost any other sector, and brands responded with expansion, steep price increases and a sharper focus on their most profitable lines.

Those conditions have changed. The more useful question now is not when growth returns, but what kind of growth can return.

The most consequential shift has been among aspirational consumers: people who buy luxury occasionally, but whose participation drove much of the last cycle’s expansion. As prices climbed, the distance between them and the major houses widened. Higher prices made products more exclusive. Exclusivity, however, is not the same as desirability.

While momentum was strong, many houses could raise prices without customers questioning what they were getting in return. In a weaker market, that relationship is more exposed, and customers start asking harder questions. Is the product distinctive? Is the craftsmanship visible? Does the experience justify the price? Does the brand still feel culturally relevant? Beneath all of them sits a simpler one: does owning it still feel good?

This is why the fading “feel-good factor” matters beyond share prices. Luxury has always been an emotional purchase. Scarcity, craftsmanship and heritage support the price, but people ultimately buy into aspiration, pleasure, belonging and meaning. When confidence weakens as prices rise, those emotional and cultural dimensions have to work much harder.

The unevenness of the slowdown is telling. Brands serving the very wealthy have held up better, and jewellery has proved comparatively resilient. That is not what a wholesale rejection of luxury looks like. It suggests customers are becoming more selective about where luxury still feels worth paying for.

The next phase may therefore be less about recovering last-cycle volumes and more about rebuilding the relationship between price, product, and perceived value.

Strategic Implication:

Brands should be wary of treating the slowdown purely as a demand problem that will resolve itself when economic conditions improve. The more strategic question is whether the proposition built during the boom still holds in a more selective market.

For brands that relied heavily on price increases, the test is whether perceived value has risen as fast as price. In luxury, that value rarely comes from more product or more functionality. It comes from stronger design, visible craftsmanship, material quality, cultural relevance, service and a more meaningful client relationship.

The aspirational customer also deserves a fresh look. Moving upmarket can protect margins and exclusivity but continually raising the entry price risks thinning the wider circle of desire that sustains a brand. Beauty, accessories, entry pieces, experiences and communication can all keep people close without making the core proposition mass-market.

The resilience of certain brands and categories suggests that clarity of value may now matter more than breadth of growth. The strongest response to a slower market is not to wait for customers to start spending again. It is to make sure that when they do, the brand gives them a compelling reason to choose it.

Strategic Question: If price can no longer carry growth as easily as it did during the boom, what will make the next generation of luxury feel worth paying for?

Source: Financial Times