As was widely anticipated a year ago, the retail luxury industry saw the end of the post-pandemic supercycle in 2024. Despite reasonable global economic growth and positive “wealth effect” contributions from generally good global equity market performance, luxury sales slowed across most product categories. In the first nine months of the year, annual luxury fashion and jewelry revenues were down about 3 percent, fine wine and spirits were down around 10 percent, and collectible automobile sales were flat. Our FSW Markets All Luxury equity index was down 10 percent in a year when the S&P 500 was up 23 percent.
The reasons for this slowdown have been fairly well understood. There has been slower demand by Chinese consumers both onshore and offshore. Middle-class consumers across all geographies have slowed discretionary spending with economy-wide higher prices. Double-digit luxury price increases have put off even some normally price-inelastic consumers. We should also add the importance of good old base effects after three years of strong growth underpinned by post-pandemic revenge consumption.
So, how big is the slowdown so far? Going back to 2004, there have been six years of annual decline in luxury sales: 2004, 2005, 2008, 2009, and 2020. Yet, since the global financial crisis in 2008, there has not been a decline in annual sales until the pandemic year in 2020. But the post-pandemic bounce was historically unique. The average yearly revenue growth from 2010 to 2019 was 11.6 percent. Yet growth in 2021 was almost 50 percent, followed by 24 percent growth in 2022. After such breakneck growth, it is hardly a wonder that growth slowed to around 9 percent in 2023 (just below the recent historical norm) and was down around 5 percent in the first 9 months of 2024.
So what lies ahead for 2025 and 2026? The FSW Markets econometric model, augmented with AI/ML elements to guard against overfitting, predicts that the industry will experience fairly sharp contractions in H2 2024 and into H1 2025 before experiencing a decent bounce back in H2 and fairly moderate growth into 2026.