The Great Luxury Reset: An expanded view on the State of Luxury in 2026

The global luxury landscape in 2026 stands at a definitive crossroads, characterized by a fundamental shift from the exuberant, price-driven expansion of the post-pandemic era toward a more disciplined, quality-centric, and experiential paradigm. As the industry navigates what is increasingly termed the "Great Luxury Reset," the primary strategic challenge involves reconciling a shrinking global customer base with the heightened expectations of a resilient elite. While the 2025 baseline indicated a period of stabilization, the reality of 2026 is defined by a "K-shaped" divergence, where the top-tier of ultra-high-net-worth individuals continues to drive value, even as aspirational consumers retract under the weight of sustained inflation and a perceived deterioration in the luxury value proposition. The industry has largely abandoned the usage of the word "uncertainty," replacing it with "challenging" as executives accept that constant volatility is the new operational norm. This transition is underpinned by five strategic imperatives—strategic reset, product excellence, customer engagement, talent capability, and portfolio futureproofing—that now serve as the essential blueprint for survival in a low-growth, high-scrutiny environment.

The Macroeconomic Context: Decoding a Stabilized Contraction

The transition into 2026 follows a significant period of recalibration throughout 2024 and 2025. Between 2019 and 2023, the personal luxury goods industry grew at a compound annual rate of 5 percent, but this growth was largely hollow, as price increases accounted for approximately 80 percent of the value creation while volumes remained relatively stagnant. By late 2025, the global luxury customer base had contracted from its peak of 400 million in 2022 to approximately 330 to 340 million, a loss driven primarily by the alienation of the aspirational segment in core markets like Europe, the United States, and China. As the industry enters 2026, the market for personal luxury goods is projected to return to moderate growth, with expectations ranging between 3 percent and 5 percent at constant exchange rates.

This recovery, however, is not a return to the double-digit expansion seen in previous decades but a "quality-driven" phase fueled by discipline and innovation. The economic profit of the industry nearly tripled between 2019 and 2024, yet the concentration of wealth remains heavily skewed toward the "Super Winners"—LVMH, Hermès, Richemont, and Kering—who collectively represent the majority of the sector's economic profit. For the rest of the industry, 2026 is a year of managing "tariff turbulence" and reconfiguring supply chains that have become overly dependent on singular geographies.

Source: BOF / McKinsey

The global economy in 2026 is defined by a shift from stabilization to expansion, particularly in emerging markets. While the United States and China are projected to see industry growth in the range of 1 percent to 3 percent, pockets of significant dynamism remain in India and the Middle East. The industry is grappling with a "K-shaped" economy, where households in the top 10 percent of incomes drive the majority of demand, while lower-income aspirational groups remain "squeezed" by the lingering effects of inflation and high borrowing costs.

The Tectonic Shift: From Tangible Goods to Experiential Indulgence

The most profound structural shift identified in 2026 is the movement toward "experiential luxury." High-net-worth individuals are increasingly trading material possessions for "soul-searching experiences," such as wellness retreats, bespoke travel, and fine dining. This is what analyst reports describe as a "tectonic shift" away from "conspicuous consumption" toward "experiential indulgence". While the personal luxury goods market wabbled in 2025, experiential luxury, including tourism, wellness, and gastronomy, is expected to grow at a faster rate, potentially capturing more than 35 percent of the total global luxury market by 2030.

This trend is reflected in the divergent performance of product categories. Leather goods and shoes, long the engines of luxury profitability, have softened under the weight of price fatigue. Conversely, jewelry has emerged as the most resilient category, with unit sales expected to grow at 4.1 percent annually through 2028—four times the rate of clothing. Jewelry is increasingly viewed as both an emotional purchase and a durable investment, a "self-gifting" marker of personal status that retains its value better than seasonal fashion.

Source: BOF / McKinsey

Wellness, in particular, has become the ultimate status symbol. Analysis shows that 84 percent of US consumers and 94 percent of Chinese consumers consider self-care and health as their most important daily priorities. Brands like Equinox have capitalized on this by evolving from a "gym with rooms" into a holistic lifestyle brand where "health is the ultimate status symbol". Membership programs costing upwards of $40,000 annually, such as "Optimize by Equinox," demonstrate the high willingness of the elite to spend on longevity and "high-performance living".

Regional Dynamics: The Redrawing of the Luxury Map

The geography of luxury in 2026 is defined by a rebalancing of influence, with traditional centers facing challenges from emerging micro-markets. The "declining dominance of the West" is a recurring theme as regions like India, Southeast Asia, and sub-Saharan Africa gain economic prominence and aesthetic influence.

The United States: Resiliency Amidst Tariff Turbulence

The United States remains a critical growth engine, currently accounting for approximately one-third of overall global luxury spending. However, the market is navigating significant "tariff turbulence." Trade disruptions and new duties, which rose sharply through 2025, have forced brands to reassess their pricing architectures. Nearly 76 percent of industry executives view tariffs as the biggest hurdle for 2026, leading to planned price increases in North America of more than 5 percent for some brands. Despite these headwinds, the UHNWI population in the US grew by 5.4 percent in the first half of 2025, ensuring that the top of the market remains insulated from broader economic volatility.

China: Strategic Reset and the Tier-2 Evolution

China’s luxury market has transitioned from a post-pandemic boom to a period of cautious stabilization. The contraction in 2025 was less pronounced than in 2024, but the market remains difficult due to high youth unemployment and a cooling property market. A notable trend is "luxury shame," where wealthy consumers increasingly favor "quiet luxury" and authenticity over overt monograms and logo-centric branding.

Strategically, luxury brands in China are shifting their focus from saturated Tier-1 cities like Beijing and Shanghai to rising Tier-2 hubs like Chengdu, Wuhan, Xi’an, and Hangzhou. In 2024, cities such as Nanjing and Wuhan led the country in luxury brand store openings. Furthermore, there is a rebalance between domestic and overseas spending; while international travel has returned, the expansion of duty-free infrastructure in locations like Hainan and downtown duty-free stores is reshaping the travel retail map.

India: The World’s Fastest Growing Luxury Frontier

India has emerged as the second most promising market for growth globally after the US, with a projected CAGR of 15 percent to 20 percent. This growth is fueled by massive wealth creation—India’s UHNWI population is expected to grow by 50 percent from 2023 to 2028—and significant improvements in retail infrastructure. The entry of the iconic French department store Galeries Lafayette into Mumbai in late 2025, housing over 250 global brands, serves as a "gravity well" for luxury consumption, competing directly with Reliance Industries’ Jio World Plaza. The Indian consumer is increasingly prioritizing "memories over materialism," leading to a surge in demand for private villas, destination weddings, and luxury automobiles, which are seeing 20 percent to 25 percent annual growth.

The Middle East: A Beacon of Regional Strength

The Middle East, specifically the UAE and Saudi Arabia, remains the strongest global performer in terms of percentage growth, with spending up by 5 percent in 2025 while other markets flatlined. This market is at the forefront of the shift toward experiential indulgence, with gourmet food and fine dining rising by 8 percent and luxury hospitality up by 4 percent. The HNWI population is expected to grow by 15 percent per year in KSA and UAE through 2035, supported by landmark projects like the Mall of Saudi in Riyadh and luxury hotel complexes in Amaala.

The Five Strategic Imperatives: A Blueprint for the Reset

In response to the "Great Luxury Reset," executives have aligned around five critical imperatives to navigate the low-growth environment and restore the industry's cultural cachet.

1. Conduct a Strategic Reset

The industry has recognized that the old playbook of aggressive price hikes is no longer viable. Brands are now in a "reset phase," clarifying their core values and aligning their long-term strategies with their most loyal clients. This reset involves a "strategic recalibration" focusing on craftsmanship and client trust amid affordability challenges. It also requires a "pricing reset," narrowing the gap between domestic and overseas costs to re-engage consumers who feel "betrayed" by excessive price elevation.

2. Restore Product Excellence

There is an urgent need to realign business scale with craftsmanship heritage. Luxury's recent overexposure and reports of quality deterioration have weakened the industry's value proposition.¹ Brands are doubling down on "authentic foundations," investing in vertical integration to control their supply chains and ensure product quality. The focus is on creating iconic products that resonate with target clients, moving away from "useless" price increases toward items that genuinely justify their premium status through artisanal mastery.

3. Rethink Customer Engagement

The focus of 2026 is on the "human side" of sales. Brands are developing unique "money-can't-buy" experiences to engage their most loyal clients. This includes invitation-only events, private salons, and "VIP worlds" within boutiques, such as Cartier's "La Résidence" or Chanel's appointment-only ultra-exclusive boutiques in Asia. Hyper-personalization, powered by AI and enriched customer data, allows sales associates to deliver a "know-me" experience, turning transactional interactions into long-term emotional bonds.

4. Bridge the Talent Capability Gap

The rapid onset of AI and the complexity of global operations have created a significant capability gap. Luxury companies are "rewiring" their organizations, seeking hybrid profiles that blend creative intuition with technical and analytical competencies. Up to 40 percent of retailers require retraining as AI and automation change job roles. Leaders are looking outside the fashion ecosystem to find AI talent, aiming to harness technology's productivity gains without losing the "creative essence" that defines luxury.

5. Futureproof the Portfolio

Luxury leaders are diversifying their portfolios to mitigate risks in the personal goods market. This involves expansion into lifestyle categories like travel, hospitality, and wellness. The convergence of fashion and hospitality—exemplified by luxury brands opening beach clubs, restaurants, and hotels—allows for seamless integration into the customer's lifestyle. Additionally, brands are seeking complementary acquisitions to secure a competitive edge in an increasingly consolidated market.

The AI Revolution: From Pilot Projects to Agentic Commerce

Artificial Intelligence has moved from the periphery to the core of luxury operations in 2026. Executives cite AI as the biggest opportunity for the industry, surpassing product differentiation and sustainability. While 90 percent of AI initiatives initially failed to scale beyond the pilot phase due to poor data quality, 2026 marks the era of "Agentic Commerce"—where AI agents not only search for products but also make purchasing decisions for consumers.

Source: BOF, Shopify,Internet Search,  Zalmira Analysis

By 2026, AI agents are serving as "shopping guides". Consumers are increasingly trusting generative AI search results over traditional advertising, with 41 percent of shoppers in the US utilizing these tools to discover new products. For luxury brands, this necessitates a fundamental shift in how products are described; product metadata must be semantically rich and "agent-fluent" so that LLMs can accurately interpret and recommend high-end goods based on clarity and confidence rather than paid placement.

The Regulatory Horizon: Sustainability and the Circular Economy

Sustainability in 2026 is no longer a marketing choice but a regulatory mandate. European institutions have introduced a suite of directives that are transforming luxury supply chains. The Corporate Sustainability Reporting Directive (CSRD) requires large luxury firms to publish regular reports on social and environmental risks, including their upstream and downstream operations.

Moreover, the EU Ecodesign for Sustainable Products Regulation (ESPR) has introduced a ban on the destruction of unsold apparel, clothing accessories, and footwear. This has forced luxury brands to adopt circular business models, including integrated resale platforms. The resale market is projected to grow two to three times faster than the primary market through 2027, as consumers increasingly seek unique, pre-owned items that hold their value.

Compliance and Reporting Timelines

The regulatory burden is significant, with major pieces of legislation entering critical phases in 2026:

●      CSRD (2026 Reports): Large companies meeting 250+ employees or €50M turnover must submit reports covering the 2025 financial year.

●      ESPR Destruction Ban (2025-2026): Large enterprises must disclose the weight and reasons for discarding unsold products; destruction bans for textiles are currently being implemented.

●      CSDDD (2027 Implementation): While full implementation is scheduled for 2027, firms are currently conducting the "double materiality" assessments required to map their environmental and human rights impacts.

Segment Resilience: The Domination of the UHNWI

The "K-shaped" recovery of the luxury market is underscored by the resilience of the top 2 percent to 4 percent of the client base. High-spenders and ultra-high-spenders currently account for 30 percent to 40 percent of market spend but are projected to drive 65 percent to 80 percent of global market growth through 2027. These individuals, often termed "VICs" (Very Important Clients), are less impacted by macroeconomic headwinds and are the primary targets for brands' new engagement strategies.¹

Source: BOF / Mckinsey

For UHNWIs, the currency of luxury is time. They are investing in "narrative-driven design," privacy as a status symbol, and experiences that feel "emotionally restorative". Brands are responding by creating "unified phygital ecosystems"—hospitality-grade physical lounges integrated with secure branded portals that deliver gated research and personalized insights.

Category Outlook: The "Hard Luxury" Advantage

As the market recalibrates, the performance of specific categories reveals a preference for items that retain value over time.

Jewelry and Watches: The Investment Class

Jewelry continues to lead the personal luxury goods sector in 2026, powered by emotional appeal and a surge in customizable designs. High-end watches also remain thriving, particularly at the absolute top end of the market (the "Big Three"), though the broader watch market faces increased polarization and competition from the resale market. The resilience of jewelry is linked to its perception as a "safe haven" asset during times of currency volatility and economic uncertainty.

Leather Goods: Wobbling Toward Recovery

Leather goods, while still a major category, have "wobbled" as brands struggled to find new "hero bags" to replace aging icons. However, a return to growth is expected in late 2026 as the creative resets at major fashion houses begin to impact the market. Brands are also seeing success with "statement shoes" and playful accessories that attract aspirational consumers looking for smaller indulgences.

Beauty: The Resilient Gateway

Luxury beauty and fragrances remain the most dynamic sub-categories within the broader beauty market. Fragrance, in particular, has become a "gateway" category for first-time luxury buyers, especially in India, where the luxury beauty market is expected to double in size from $800 million in 2023 to $1.6 billion by 2028.

Future Outlook: The Era of Connection and Authenticity

Looking beyond 2026, the luxury industry is entering a phase of "quality-driven growth". The defining theme of the next decade is "connection"—between people, systems, and senses. Brands that succeed will be those that "rewire their organizations for agility," embed AI at their core, and reconnect with customers who are redefining what "value" really means.

Total global luxury spending, including goods and experiences, is expected to grow at 5 percent to 9 percent annually at current exchange rates, reaching between €2 trillion and €2.5 trillion by 2030. However, this growth will favor "fewer, higher-impact locations" and a "more discerning, experience-led model". The "Push to Restart" initiated in 2025 has culminated in a 2026 reality where authenticity, craftsmanship, and emotional resonance are once again the central pillars of the luxury proposition.

As friction (tariffs, supply chain shocks) increases and price reaches its ceiling, brands must exponentially increase craftsmanship, experience, and trust to maintain their market position. In 2026, luxury is no longer defined by how much a product costs, but by how it makes the consumer feel, how it honors its artisanal heritage, and how seamlessly it integrates into a high-performance, well-being-focused lifestyle.