The luxury market is facing a significant transformation as it loses a crucial demographic: middle-class shoppers with disposable income.
After a period of YOLO spending during the pandemic, households defined by Pew Research Center as earning between $54,572 and $161,220 annually are growing more cautious about their luxury purchases. The global personal luxury goods market saw a 2% shrinkage in 2024, as reported by Bain & Company—the first decline in 15 years, aside from a brief dip during the early COVID-19 disruption.
A Shift in Consumer Sentiment
The luxury market in the Americas faced a staggering 10% contraction in the third quarter of 2023, with stagnation persisting into 2024. Bain’s analysis reveals that approximately 50 million luxury customers vanished from the market last year.
Moreover, second-tier luxury consumers—those spending less than $22,000 annually on a single brand—now represent just 55% of the global market, a significant drop from 65% in 2023. This demographic shift underscores a poignant reality: the aspirational consumer is detaching from luxury brands, deterred by price hikes and a challenging macroeconomic landscape.
“A large majority of the consumers lost were aspirational consumers,” highlights Claudia D’Aprizio, a luxury goods expert from Bain. She elaborates that post-pandemic, the luxury sector had inflated into a “small bubble” which is now bursting.
The New Financial Conservatism
Customers who once gravitated towards high-end brands are now more acutely aware of financial pressures, even if they aren’t necessarily struggling to pay their bills. Jessie S., a middle-income handbag aficionado who used to splurge nearly $20,000 a year on luxury bags, has reduced her expenditure to below $6,000. “Prices for some popular bags have doubled over the last five years,” she observed, attributing her spending cut to the soaring retail prices of top brands.
Olivier Paredes, a seasoned luxury watch collector, disclosed a similar trend, stating that he has spent around $70,000 on Rolexes and Omegas in the last five years. Now, he’s decided to step back from luxury watches altogether, perceiving a need to prioritize more pressing financial areas.
“At some point, you have to be financially responsible,” he stated, reflecting a broader trend of tightening wallets.
Tightening the Belt
The willingness to indulge as they had in previous years is waning among middle- and lower-income Americans, as noted by Ted Rossman, a senior strategist at Bankrate.
With the ever-encroaching weight of inflation becoming a staple in financial conversations, consumer prices have seen a dramatic increase of 24% over the past five years. Meanwhile, average hourly wages have increased by just 20%, resulting in a growing disparity between income and expenses.
In a recent survey by Primerica, a staggering 69% of middle-class consumers felt their income was lagging behind the rising cost of living. Furthermore, 71% rated their ability to save for the future as either “poor” or “not so good.”
“The rich get richer, the poor get poorer,” Rossman noted, alluding to the K-shaped economic recovery characterized by wealthier individuals accruing further riches while lower-income families face greater challenges. He anticipates increased strain on lower-income households in the forthcoming years.
The Outlook for Spending
While consumer spending hasn’t plummeted entirely, much of this resilience can be attributed to wealthier Americans’ continued willingness to spend. However, the future trajectory of spending remains uncertain, hinging on factors such as whether the trade wars persist or if the job market experiences significant challenges, prompting additional cuts in discretionary spending.
