The only certainty so far this year is persistent uncertainty. This is always true to a degree, but our clients report feeling the weight of the unknown more in their short-term and medium-term planning over the past three months than in the past few years since the pandemic.
Our near-term forecasts for luxury industry sales remain pretty tepid given slowing consumer demand in, well, most of the industry’s key markets. We now expect sales growth to be 3 percent lower this year than last and to decline by around 0.5 percent in 2026. This looks pretty ugly when compared with the 14 percent average annual growth rate in the five years prior to the pandemic, nevermind the 27 percent average growth in the post-pandemic super cycle years of 2021-23, underpinned by decent volume growth and enormous price increases (you can listen to my recent discussion with Sanja Bećirović about recent pricing dynamics: https://lnkd.in/eDqG_wBi).
And the risks to the luxury sales environment appear to be tilted to the downside, as the cool forecasting kids like to say. Last week, the World Bank knocked 0.7 percentage points off its global forecast for 2025-26. China is now expected to see a steady decline in economic growth from 5.0 percent last year to 4.5 percent this year, and 4.0 percent over the next two years. Growth in the U.S. is expected to fall from its recent rate of around 3.0 percent to around 1.5 percent for a while.
But not all is doom and gloom. Historically, the luxury industry has proven fairly resilient during previous economic slumps, with a significant share of sales (maybe as much as 40 percent) anchored by buyers whose luxury purchase decisions may be relatively inelastic. And indeed, even in the current environment not everyone is struggling.
We observed some brands achieve decent sales growth in Q1 and the market’s expectations of future cash flows appear decent for many names, reinforcing the substantial market divergence that we observed last year. Our FSW Markets cap-weighted industry index is up about 8 percent year-to-date (vs. ~2.5 percent for S&P 500 and ~9.5 percent for the Euro Stoxx 50) with half of the index’s constituents up on the year.
What drives the wedge between the winners at the losers in this environment? The story up close is of course, complicated and the model messy, but take a step back and many of those doing well are successfully projecting their brand story across all of the digital and IRL customer touchpoints.
Using recent data, we found a positive correlation between hitting KPIs and exemplifying a strong content strategy. Quality products are essential. A brand story is important. However, implementing a content strategy, underpinned by effective content operations, helps deliver enduring results in both good times and bad. You can read our latest report on the topic.