LONDON — We’re in the dog days of summer, and the fashion industry is slowing down for its annual August break. But as luxury executives begin to leave for their holidays in Greek Islands, the English countryside, the Hamptons and beyond, there is a lot weighing on their minds.

Several fashion houses remain without creative directors, some are mired in “elevation strategies” that are not working, while others are experiencing a significant deceleration in revenue and profit growth. The latest dominoes to fall are Ferragamo and Hugo Boss. This week, the Italian luxury company and the German fashion juggernaut both reported over 40 percent declines in operating profit in the second quarter. This follows dismal results from Kering, Burberry and flat revenue at sector bellwether LVMH last week.

During quarterly results presentations, CFOs pointed to a significant decline in spend in the Chinese market, but also acknowledged a general softness in key regions around the world.

Of course, there have been some bright spots. Prada Group this week reported an 18 percent increase in revenues, driven by a 93 percent revenue surge at Miu Miu. Last week Hermès also defied the downturn, with a sales up 13 percent, while maintaining strong profit margins.

But these are isolated, exceptional cases. The wider industry mood music is much more downbeat. One thing that a number of executives have asked me in recent weeks is whether I believe the situation facing the industry now reflects a permanent shift, or whether this is a temporary phenomenon.

To answer this question, we need to break down a number of the forces that are coming together in a perfect storm, impacting luxury spending around the world.

Economic Slowdown in China, Europe — and Now the US

Unusually, we are experiencing a synchronised global slowdown and low consumer confidence as a hangover from the pandemic. How long will this last? Signals are not good. Germany reported a surprise GDP decrease in the second quarter, the Bank of Japan shocked markets when it raised interest rates and financial markets tumbled around the world this week as key economic indicators coming out of the US telegraphed signs of distress, including an unexpected jump in the unemployment rate to 4.3 percent on Friday, indicating that an extended period of high interest rates brought on to tame high inflation during the post-Covid recovery period was taking its toll.

Things are so murky at the moment that Jean-Jacques Guiony, the seasoned CFO of LVMH known for his steady hand, said at the conclusion of the group’s second quarter results presentation, that “we have no idea what the outlook will be. We’ll have a slightly more favourable comparison base in the second half of the year. Is it sufficient to be optimistic? I don’t know. In retail, our visibility is as good as yesterday’s sales.”

But the economy won’t be in the doldrums forever. This week, the Bank of England made its first interest rate cut in four years and the US Federal Reserve is expected to cut interest rates soon, which should help to turn things around. Other central banks will follow suit. The recovery will take time, and it seems we are in for a continued period of slow growth in advanced economies, but it will eventually bounce back.

Aspirational Customers: Covid Binging Followed by Post-Covid Pullback

Another factor often mentioned when trying to analyse what is going on in the fashion business is the significant reduction in spend by aspirational customers who binged on luxury products during the pandemic given the boost in disposable income that came from stimulus cheques and built-up savings, when there was nothing else they could spend money on.

This period is well and truly over, and these customers are now back in the world, dining out, traveling and spending on other priorities. When your closet is bursting with clothes and bags you bought during the lockdowns, and your disposable income is smaller because of the higher cost of living, and you also want to do other things that enrich your life, fashion starts to fall down the list of priorities, especially when prices have been dramatically increased, impacting the perceived value of products that are made and sold in the hundreds of thousands.

These shifting priorities seem like a relatively long-term phenomenon that is not going to change just because the economy starts to improve.

HNWI Customers: Higher Expectations Combined With Luxury Fatigue

But aspirational customers are not the only ones re-evaluating their relationship with luxury fashion. Ultra high net worth individuals are responsible for a disproportionate share of revenue for luxury brands, having gone from driving 12 percent of the total revenues in 2013 to 21 percent of total revenues in 2023, according to a new BCG and Altagamma report released in July.

This so-called ‘Beyond Money’ segment, who make up less than 1 percent of luxury customers, spend on average €350,000 ($381,000) per year on luxury, according to BCG, driving 230 times the revenue of a single aspirational customer. With the growing competition for their time, attention and money, their expectations are rising. Brands in the design, hospitality, wellness and arts sectors, which are all professionalising, are competing for these customers too.

They expect high levels of personalisation, bespoke products and a sense of real connection to the brands they spend on. This is why the big luxury companies are bending over backwards to wine and dine them, inviting them to exclusive events and giving them privileged access. I spotted a number of these kinds of VIP customers at last week’s Olympics opening ceremony parties hosted by Louis Vuitton and Dior, and at the Maison LVMH, created especially to offer hospitality to these kinds of VIPs.

But with a luxury fashion sector that has become more logo-driven and formulaic, churning out hundreds of thousands of generic products based on a luxury formula, rather than creating and delivering true luxury experiences, it would not be surprising to learn that they are shifting their attention. It’s not because they can’t cope with the economic headwinds or outrageous price increases – they are impervious to these things – but because a lot of the luxury megabrands don’t feel special anymore.

The ones that do — Miu Miu because of its creativity, Hermès because of its quality and scarcity — will continue to perform well, because beyond great service and attention, they are creating things these discerning customers feel they must have.

We seem to be a long way from getting that excitement back pretty much everywhere else. Last week, when I walked into the historic La Samaritaine department store which was beautifully refurbished and re-opened by LVMH in 2021, the store was virtually empty. There was no energy, no excitement and nothing I really wanted to buy. Other stores on Avenue Montaigne were a bit busier, but it seems the gloom over luxury will continue into 2025.

This Weekend on the BoF Podcast

Opens in new window

Willy Chavarria has become a force in the fashion industry for his Chicano-inspired take on menswear, winning the CFDA award for Menswear Designer of the Year last year. But at the centre of his designs is a focus on community and equality; Chavarria has made headlines with his runway shows, which lean into the political and embrace the influences of marginalised groups.

“Everything that we do is … aimed to raise people up and to make people feel good and to celebrate human dignity,” he said. “That will be the foundation of the brand.”

This week on The BoF Podcast, Chavarria joins me to discuss his journey into fashion, his commitment to social justice, and how the industry is evolving today.

Wishing you all a great weekend!

Imran Amed, Founder, CEO and Editor-in-Chief, The Business of Fashion

Here are my other top picks from our analysis on fashion, luxury and beauty:

1. Fashion’s Sports Obsession Is No Accident. The Olympics are proving a perfect marriage of the sports and fashion industries. It’s the culmination of several factors that have turned sport into fashion’s most exciting new arena over the past two years.

2. Inside New Balance’s Plan to Become a $10 Billion Sportswear Giant. In under a decade, the Boston-based company transformed itself from a brand for dads and runners into one of the hottest players in the sneaker world. Now, it’s using the Olympics and an expanding roster of collaborators, athlete partners and sports categories as catalysts to achieve its lofty ambitions.

3. Why Retailers Should Stop Worrying About the Gen-Z Versus Millennial Divide. As Gen-Zers hit their mid-20s, the style gap between that generation and their slightly older peers is rapidly widening and playing out publicly on TikTok. For brands, it’s not a matter of choosing a side but rather making an assortment accessible even to older, risk-averse customers.

4. How Fashion Can Nail the Tricky Details of Sports Partnerships. As fashion’s interest in sports grows, brands are getting a crash course in the complicated world of sports sponsorships.

5. True Religion’s Hip-Hop Powered Comeback. Even as the premium denim seller lost its hold on many consumers in the 2010s, hip-hop movers and shakers never wavered in their affinity for the horseshoe logo and signature thick stitching. That’s helping the brand mount a rebound today.

To receive this email in your inbox each Saturday, sign up to The Daily Digest newsletter for agenda-setting intelligence, analysis and advice that you won’t find anywhere else.