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Luxury Brands Struggle as U.S. and China Falter, Emerging Markets Fail to Fill the Gap

by Team Lumida
May 16, 2025
in Markets
Reading Time: 4 mins read
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Luxury Brands Struggle as U.S. and China Falter, Emerging Markets Fail to Fill the Gap
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Key Takeaways:

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  • China and the U.S., which account for nearly half of global luxury sales, are experiencing declining demand due to economic challenges, including China’s property bubble and U.S. tariff impacts.
  • Emerging markets like India and Saudi Arabia have yet to develop the conditions necessary to replace the spending power of Chinese and American consumers.
  • Global luxury sales are expected to dip 2% in 2025, marking a challenging year for an industry accustomed to steady 6% annual growth.
  • Reviving middle-class spending in the U.S. and China is critical for the luxury sector’s long-term growth, as emerging markets lack the infrastructure and consumer base to drive significant demand.

What Happened?

Luxury brands are facing a tough year as their two largest markets, China and the U.S., experience declining demand. China’s deflating property bubble has reduced household wealth by 30%, while U.S. luxury sales have been hit by tariffs and economic uncertainty. LVMH, the world’s largest luxury goods company, reported a 3% drop in U.S. sales and a double-digit decline in Asia for Q1 2025.

Emerging markets like India and Saudi Arabia, often seen as potential growth drivers, have underperformed. India’s luxury market is constrained by high import taxes, limited retail infrastructure, and strong local competition, while Saudi Arabia’s luxury retail expansion is still in its early stages.

The global luxury industry has also lost 50 million middle-class customers since 2022, partly due to price increases that have made designer goods less accessible. For example, the lowest-priced Gucci sneakers in the U.S. now cost $790, up from $550 in 2020.


Why It Matters?

The luxury industry’s reliance on China and the U.S. highlights its vulnerability to economic downturns in these markets. While emerging markets like India and Saudi Arabia offer long-term potential, they lack the immediate scale, infrastructure, and consumer behavior needed to offset declines in established markets.

Middle-class consumers, who account for over 50% of global luxury sales, are critical to the industry’s growth. However, rising prices and economic pressures have pushed many aspirational shoppers out of the market, further straining sales.

The challenges faced by luxury brands also reflect broader economic trends, including wealth inequality, urbanization, and the impact of tariffs and trade policies on consumer spending.


What’s Next?

Luxury brands will need to focus on reviving middle-class spending in the U.S. and China to regain momentum. Strategies could include moderating price increases, offering more accessible product lines, and investing in marketing to re-engage aspirational consumers.

In emerging markets, brands must address structural challenges like high import taxes and limited retail infrastructure to unlock growth potential. For example, India’s luxury market could benefit from the development of high-end shopping districts and reduced tariffs.

Meanwhile, Saudi Arabia’s ambitious luxury retail expansion will be closely watched as a test case for whether emerging markets can meaningfully contribute to the industry’s growth.

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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

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‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
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