At some point, luxury brands all face the same question: How do you price a product at a level that implies desirability and exclusivity without making it completely exclusionary?

The vast majority of luxury brands rely on avid consumers as well as the super-rich.

McKinsey estimates that nearly half the value of the luxury market comes from people who buy just one or two luxury items a year – and less affluent customers have lower price limits.

This is becoming a problem for the industry, which has raised prices significantly in the last two years.

Consumers are abandoning luxury

New research from Bain & Co has suggested that the luxury consumer base has fallen by 50 million, or around 12.5 per cent, in the past two years. This is the first decline in customers in at least a decade.

“This is a signal for brands that it’s time to recalibrate their value proposition,” said Claudia D’Arpizio, a Bain partner and leader of the firm’s global fashion and luxury practice.

According to HSBC, the average price of personal luxury goods in Europe has increased by an eye-watering 52 percent since 2019.

Shoppers may have been able to absorb the surge in luxury demand fueled by post-Covid savings, but global inflation has since weighed on incomes.

Generation Z customers are taking second hand.

Customers who want luxury products, especially the young Generation Z, have turned to the second-hand market.

According to Bain, the luxury resale market has doubled in four years and now accounts for 12 percent of the value of the new luxury goods market.

Again, the problem isn’t that people don’t want luxury goods (increasing spending on smaller-priced items like beauty), it’s that eye-wateringly expensive price tags just aren’t on the menu.

“To secure future growth, brands will need to rethink their luxury equation, rebuild creativity and blend old and new tactics,” said Federica Levato, partner at Bain & Company.

“This involves reinventing their essence and embracing the industry pillars: craftsmanship, creativity and desirability fueled by distinctive brand value.”

It may also include price reductions or at least discounting; Luxury items in China can currently be found at discounts of 20 to 50 percent, according to luxury intelligence consultancy Re-Hub.

President Trump and international tariffs

The need to increase luxury’s consumer base may be further complicated by Trump’s recent elevation to the position of president-elect of the United States.

At a town hall event in Michigan in September 2024, he called tariffs on imports “the greatest thing ever invented” and He promised to impose tariffs of at least 10 percent on all foreign imports and up to 60 percent on Chinese goods.

Adding a 10 percent tariff on luxury goods could put them beyond the reach of eager consumers.

However, D’Arpizio suggested that imposing tariffs on luxury goods was unlikely.

“I don’t think these are the first products that I would put tariffs on, because that would just depress domestic consumption without giving any real impetus to domestic consumption,” he said.

“For some of these brands, there is no immediate substitution with US brands and US products,” he added.

Stating that Trump could be good even for international luxury brands, Trump said, “Rich people expect a reduction in taxes or at least a known increase in financial pressure,” adding that the removal of uncertainty would encourage consumers to spend their savings.

“People who were distrustful of the future were saving money…this is not typical of American citizens,” D’Arpizio said. “The money was there… they weren’t just spending it”.