Profit margins for the world’s largest luxury goods companies have nearly halved in just three years, prompting calls for more disciplined cost management that preserves brand equity while restoring profitability.
Research from supply chain consulting firm Inverto, part of the Boston Consulting Group, shows that the average operating margin of the top 20 luxury groups has fallen from 24 percent in 2022 to 13 percent today.
Half of these companies experienced a decline in margins during this period, while five companies are now making losses.
Analysts say slowing global demand, particularly in key markets such as China and the US, along with rising input and operating costs, has led to a decline in profitability in a sector long associated with premium pricing power.
Traditionally, luxury houses have adopted high-cost approaches across their entire business, including in areas not directly related to product processing or customer experience, such as IT, logistics and back-office functions.
Daniela Klotz, managing director at Inverto, argues that significant savings can be achieved in these “indirect categories” without diluting the brand identity.
“In indirect spending areas, savings of 8 to 10 percent or more can be achieved within six to 12 months through systematic management,” she said.
One example is the optimization of software licenses. Many global brands are paying too much for unused or overvalued licenses. “One customer reduced software spending by 15 percent through a rightsizing strategy,” noted Klotz.
Likewise, marketing and visual merchandising often incur high centralized production and international shipping costs to maintain brand consistency. By enabling approved regional suppliers to produce materials to centrally defined specifications, companies can maintain visual standards while reducing logistics and production costs.
“With the right strategy, spending in this category can decrease by up to 30 percent,” said Klotz.
Klotz said luxury brands need a clear, data-driven assessment of which elements of their supply chains are truly important to maintaining brand equity and which can be optimized.
Once this framework is in place, artificial intelligence can help identify operational inefficiencies. AI tools can optimize transportation routes and shipping schedules, reducing freight costs while maintaining delivery standards.
In the fashion industry, AI forecasting models can also help reduce overproduction, an ongoing challenge in balancing sizes, colors and seasonal demand. Improved forecasting can limit discounting and waste, directly protecting margins.
The luxury sector’s long-standing reliance on premium pricing and brand prestige is now being tested by weaker consumer sentiment and more cautious spending.
Klotz argues that protecting margins in the current environment requires greater focus. “With a clear cost management strategy and a disciplined approach to what is essential and what is not, fashion and luxury brands can significantly improve their margins,” she said.
As investor attention increases and growth slows, the sector’s next phase may depend less on significant price increases and more on behind-the-scenes operational excellence.
