The Broken Business Model of Luxury: 40% Sold at Discount as Margins Hit 15-Year Lows

Up to 40% of luxury goods were sold at a discount in 2025—up at least five percentage points from a decade ago. Industry margins have fallen to 15-year lows (excluding Covid), dropping from 23% peak in 2012 to roughly 15-16% now. The luxury business model is breaking in real-time.

The Price-Value Equation Broke

Years of aggressive price increases have destroyed the value equation. Products cost 1.5 to 1.7 times their 2019 prices, but the pipeline of hit products has dwindled. Consumers are rejecting full price—more shoppers are turning to outlets rather than boutiques.

“When consumers step back from paying full price, it is less a sign of frugality and more a clear message that the price-to-value equation has drifted out of balance,” says Bain’s luxury head.

The Shift to Emerging Designers

Department store buyers report moving budget toward contemporary brands and emerging designers where “fashion content is high but the price point is lower than big luxury names.” The majors’ pricing power is eroding to upstarts with genuine creative energy.

The Majors Are Cutting

The response reveals the severity:

• LVMH: Reduced marketing spend, travel budgets, and closed underperforming stores in China
• Chanel: Slowed hiring and marketing in China
• Kering: Undertaking portfolio review and scaling back retail

Cost-cutting in luxury is a dangerous signal—it typically accelerates the brand equity erosion that discounting already triggers.

Experiences Over Products

“After the shopping spree era, experiences and emotions have become the true engine of luxury growth.” Jewelry and travel have stayed relatively strong while handbags and shoes struggle. The second-order effect of post-Covid excess is consumers reconsidering what luxury means.

No Easy Fix

Luxury’s post-Covid pricing strategy—raising prices 50-70% while innovation stagnated—has backfired. Discounting erodes brand equity and margins simultaneously, creating a doom loop.

The sector needs either genuine product innovation to justify prices or a reset of the value equation. Neither is quick or easy. New creative directors at Gucci, Chanel, and Dior offer hope, but rebuilding hero product pipelines takes years while margin pressure compounds quarterly.

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