Luxury Sector Poised for Gradual Recovery Through 2026, According to Latest Industry Report

The global luxury market is expected to begin a slow recovery from its current downturn this year, according to the latest “The State of Fashion” report from The Business of Fashion (BoF) and McKinsey & Company. Total market growth is projected to remain moderate, with an estimated annual increase of 4-6% through 2030, a significant deceleration compared to the rapid growth seen in previous decades.

The United States and China will serve as the primary engines of sector growth. The U.S. market, valued at approximately $130 billion, is expected to expand by up to 5% annually until 2030. Meanwhile, China’s $60-billion high-end market is anticipated to outpace other major regions with an annual growth rate of up to 6%.

Regaining momentum will present challenges for many brands. As the post-pandemic spending surge subsides, luxury consumers have become increasingly discerning. There is a noticeable shift toward experiential luxury, such as travel, which is currently outpacing physical product sales. Furthermore, aggressive price increases by major fashion houses—often lacking significant product innovation—have alienated many customers, particularly among aspirational shoppers.

In an attempt to mitigate economic volatility, many brands pivoted their focus toward ultra-high-net-worth individuals. However, this strategy caused many brands to neglect the aspirational customer segment, leading to a significant loss of market share among these vital consumers.

Data indicates that emotional connection has surpassed craftsmanship, heritage, and logos as the primary driver of brand desirability in both the U.S. and China. While Chinese consumers often view luxury as a form of external expression, U.S. consumers tend to view it as a form of self-reward, gravitating toward brands that align with their personal values.

Interestingly, consumer preferences regarding exclusivity are shifting away from artificial scarcity. In China, bespoke services are now the leading indicator of exclusivity, whereas U.S. consumers prioritize early access and loyalty rewards over traditional waitlists.

In terms of retail experience, physical stores remain essential in China, particularly for reaching entry-level luxury consumers. Conversely, American consumers identified poor retail experiences—such as aggressive sales tactics and long wait times—as a major deterrent.

The report also highlights the growing influence of artificial intelligence and the resale market. American consumers are increasingly using AI for product inspiration, while Chinese consumers utilize AI across the entire shopping journey, from initial discovery to the final purchase decision. Additionally, the secondary market is gaining importance, particularly in the U.S., where high-spending clients are motivated by the “thrill of the hunt” alongside the appeal of value.

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