Business
Luxury brands urged to protect margins as profits slide
Profit margins at the world’s largest luxury goods companies have almost halved in just three years, prompting calls for more disciplined cost management that preserves brand equity while restoring profitability.
Research from supply chain consultancy Inverto, part of Boston Consulting Group, shows that the average operating margin across the 20 biggest luxury groups has fallen from 24 per cent in 2022 to 13 per cent today.
Half of those companies have seen margins decline over the period, while five are now operating at a loss.
Analysts say the slowdown in global demand, particularly in key markets such as China and the US, has combined with rising input and operational costs to squeeze profitability in a sector long associated with premium pricing power.
Traditionally, luxury houses have adopted high-cost approaches across their entire business, including areas not directly tied to product craftsmanship or customer experience, such as IT, logistics and back-office functions.
Daniela Klotz, managing director at Inverto, argues that meaningful savings can be achieved in these “indirect categories” without diluting brand identity.
“In indirect spend areas, systematic management can unlock savings of 8 to 10 per cent, or more, within six to twelve months,” she said.
One example is software licence optimisation. Many global brands overpay for unused or over-specified licences. “One client reduced software spending by 15 per cent through a rightsizing strategy,” Klotz noted.
Similarly, marketing and visual merchandising often incur heavy centralised production and international shipping costs to maintain brand consistency. By enabling approved regional suppliers to produce materials to centrally defined specifications, companies can preserve visual standards while reducing logistics and production costs.
“With the right strategy, spend in this category can fall by up to 30 per cent,” Klotz said.
Klotz said luxury brands need a clear, data-driven assessment of which elements of their supply chains are truly essential to maintaining brand equity and which can be streamlined.
Once that framework is established, artificial intelligence can help identify operational inefficiencies. AI tools can optimise transportation routes and shipping schedules, cutting freight costs while maintaining delivery standards.
In fashion, AI forecasting models can also help reduce overproduction, a persistent challenge when balancing sizes, colours and seasonal demand. Improved forecasting can limit discounting and wastage, directly protecting margins.
The luxury sector’s long-standing reliance on premium pricing and brand prestige is now being tested by softer consumer sentiment and more cautious spending.
Klotz argues that protecting margins in the current environment requires sharper 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 scrutiny intensifies and growth moderates, the sector’s next phase may depend less on headline price increases and more on operational excellence behind the scenes.
Jamie Young
Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.
When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.