As luxury brands struggle with declining sales and bad PR around how their goods are made, they need to rethink their pricing strategy to bring back lapsed luxury consumers and jaded Gen-Z shoppers in 2025, says Federica Levato, Partner, Bain & Company and Co-author, Bain-Altagamma Luxury Goods Worldwide Study report, 2024 was a flat year, with a good holiday that saved it from being negative. But this year, with what visibility we have, it has been bad in the first quarter, especially after Liberation Day, notes Levato.

In a first slowdown in the last 15 years, global luxury revenues declined from around $423 billion to $418 billion in 2025. The market is likely to contract by 2-5 per cent this year, predicts the report. Tariffs are likely to eat into luxury brands’ profitability with the trend of constantly reshuffling creative directors chipping away at the credibility and identity of many brands with frequent aesthetic shifts, Levato states.

The luxury industry is facing both weakening consumer sentiment and an identity crisis as Gen-Z consumers grow disillusioned with the traditional luxury value proposition, conclude Levato and d’Arpizio.

Part of the luxury industry’s failure to capture Gen Z comes down to its increasing reliance on its wealthiest customers and continued price raising that has cut out an aspirational customer, opines Levato Luxury prices in Europe have increased by almost in the last five years. At the same time, high-profile incidents like an Italian probe that revealed the true cost and labor conditions in some of Dior’s workshops are undermining the premise that the high costs are justified, adds Levato.

Brands are e-injecting some entry price products, doing a sub-$1,000 bag they didn’t have last year to regain some relevance with that customer. While some luxury brands like Ralph Lauren have announced that they will continue to increase their prices in order to offset tariffs, Burberry added some more accessibly-priced products to its holiday lineup last year. This helped the brand increase store by 4 per cent, registering its first quarter of customer growth in two years. Even the wealthiest of customers can be wooed by softer prices and get a bag for $8,000 instead of $10,000, says Charles Gorra, Founder and CEO, Rebag, a luxury handbag reseller.