Written By: BOSS Editorial
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After a stretch of unprecedented successes, the luxury goods market is running out of gas — but technology can speed the refueling
By Anne-Frances Hutchinson
Luxury is heritage. It is artistry, excellence, and unbridled expression threaded with shimmering legacies that echo through time, seasons, and the invincibility of change. Legendary maisons such as Dior, Hermés, Chanel, Givenchy, and Gucci display their provenance in every stitch, line, and curve of the goods they craft, and their high net-worth clientele take great pride in their fealty to beloved brands.
These days, despite their strong and celebrated roots and passionate devotees, luxury fashion houses are facing new pressures in a rapidly evolving world.
From 2019-24, the personal luxury goods market experienced a speedrun of voracious demand supported by an abundance of supply. Industry analysts foresaw a continued glide into a future of unencumbered value creation supported by a carefully metered embrace of digital technology.
The pandemic was an accelerant; while other industries were in survival mode, the sales of luxury clothing, leather goods, watches, and other accessories seemed unstoppable. Record-setting profits, largely fueled by price increases, drove the sector’s 5% annual growth rate. As they often do, times changed in an eyeblink.
According to the McKinsey and Business of Fashion report on the current state of the industry heading into 2026, for the first time since 2016 (excluding 2020), luxury value creation is expected to create less value than the previous year. Growth is stalling and is expected to languish between 1 and 3% through 2027.
A collision of factors, including a more diverse client base, a growing demand for luxury experiences in travel and wellness, and prices hitting the ceiling have put pressure on companies to meet their clients’ stratospheric expectations of quality, innovation, and cachet.
“But luxury’s woes are also partly self-inflicted,” the study noted. “The sector’s rapid expansion over the past five years has led to overexposure and has weakened the industry’s promise of exclusivity, creativity, and craftsmanship.”
In the rush to adapt and meet challenging scale requirements, some companies have strained their central value proposition and risked brand integrity. The time is right to put on the brakes and reassess, while keeping what KPMG calls the original promise of luxury: to meet the highest levels of quality, creativity, and customer service.
Digital transformation for a new era
“AI and generative AI are transforming the entire value chain of the luxury industry — from R&D operations to marketing, including product development, merchandising, and supply chain,” explains Axel de Goursac, Partner and AI Lead at KPMG in France.
In their analysis, KPMG surveyed major players in the luxury goods space. Over 70% of respondents expressed a positive outlook on how AI will affect sales and customer engagement, although the effect on sales has yet to be shown. Twenty-two percent see AI’s value in personalization and recommendations when it comes to strengthening sales and client engagement. They expect personalized experiences both online and in-store to improve loyalty and engagement.
When asked what tools respondents use to manage costs while preserving their brand’s heritage and image of luxury, 75% said they are optimizing their supply chains, often through vertical integration. Adopting advanced technology, including but not limited to AI will enable houses to improve inventory sizing and assortment management.
When it comes to marketing, advanced automation and AI-based tools have transformed luxury campaigns with laser precision; the ability to segment and target outreach and make decisions platformed on data collection and analysis in real time produce significantly improved results than the more traditional wide scope campaigns. To roll out a new perfume, Chanel personalized and tailored its messaging based on individual digital profiles, through custom storytelling, immersive videos, and product recommendations.
Cross-platform data syncing and cutting-edge behavioral models sweeten targeting by diving deeper into the data they collect from their customers to create highly personalized messaging, which opens up more opportunities to buy while improving CX. Algorithms allow incredible flexibility in adjusting campaigns in real time to make them as successful as possible, right down to budgeting.
One of the most impressive aspects of GenAI and other digital tools is the speed at which brands can now create content in multiple languages and do it for less cost.
Now you see me
Gucci and other luxury brands are using augmented reality (AR) to get more mileage out of the shopping experience with virtual try-ons. Gucci now has a shoe-try-on app, much to the delight of their fans. Ditto for try-before-buy clothing, jewelry, and handbags. Analysts see tremendous potential for the use of AR to become a standard for a number of compelling reasons.
In addition to enhancing the shopping experience, using AR has been shown to improve sales and reduce returns. Virtual runway shows and interactive storefronts are transforming luxury retail and have boosted the retail purchase rate by 35%.
“Technology is crucial to where physical experience is going, but technology is creating tools to enhance physical experience — it’s not replacing traditional methods of delivering physical experience,” said Scott Malkin, founder and chairman of Value Retail, in a recent podcast. “Every time we think we can delegate execution to technology, we fail.”
The challenge, then, is to preserve the exclusivity, craftsmanship, and sustainability of luxury brands while maintaining a commitment to product and CX innovation at scale. Adopting fit-for-purpose technology can alter the experience of luxury, reaching both high net-worth clients as well as new clients who aspire to that status.
The McKinsey/BoF study pointed to several steps luxury execs should take to make the most of the market slowdown.
- Realign business scale with craftsmanship heritage by investing in long-term supply chain stability and by implementing best-in-class sourcing and manufacturing practices.
- Don’t chase trends; invest in the development of both in-person and virtual one-of-a- kind experiences for your most loyal and high-potential clients.
- Invest in advanced technology and data capabilities to personalize client journeys and drive decision making across the organization.
- Attract, develop, and retain the best talent for the infrastructure of the entire business, not just in creative roles. “Executives should focus on building great brands not only for their clients but also their employees. This means having a best-in-class talent management system and evolving operating models and corporate culture to cultivate a high-performance environment where exceptional people thrive,” they suggest.
- Emulate best practices from other industries, including digital, data, technology, supply chain, and procurement, and look beyond the luxury sector for highly skilled talent.
Being in the pantheon of artistry, imagination, and daring calls for bold steps and out-of-the-box strategies that resonate, and a commitment to serving an increasingly diverse client base. Embracing the right technology to support the skills of the craftspeople behind each exquisite creation will preserve the heritage and brand identity – and reinforce the true meaning and experience of luxury.
