Luxury companies are being urged to protect margins as profits slide
Profits at the world’s biggest luxury goods companies have nearly halved in just three years, prompting calls for stricter cost controls that preserve brand equity while restoring profitability.
Research from logistics firm Inverto, part of the Boston Consulting Group, shows that the average performance of the 20 largest groups has dropped from 24 percent in 2022 to 13 percent today.
Half of those companies have seen ratings decline during this period, and five are now operating at a loss.
Analysts say the decline in global demand, particularly in key markets such as China and the US, has combined with rising input and operating costs to reduce profits in a sector that has long been associated with premium pricing power.
Traditionally, luxury houses have adopted cost-effective approaches throughout their business, including areas not directly related to product design or customer experience, such as IT, logistics and office functions.
Daniela Klotz, managing director at Inverto, argues that meaningful savings can be achieved in these “indirect categories” without reducing brand ownership.
“In areas of indirect spending, systematic management can unlock savings of 8 to 10 percent, or more, within six to twelve months,” he said.
One example is software licensing arrangements. Many global brands overpay for unused or overstated licenses. “One client reduced software usage by 15 percent with a licensing strategy,” notes Klotz.
Similarly, merchandising and visual merchandising often involve centralized production and export costs to maintain product uniformity. By enabling authorized regional suppliers to produce centrally specified materials, companies can maintain visual standards while reducing material costs and production costs.
“With the right strategy, spending in this category can be reduced by 30 percent,” said Klotz.
Klotz said luxury brands need a clear, data-driven assessment of which elements of their supply chain are truly important to maintaining brand equity and which can be streamlined.
Once that framework is established, artificial intelligence can help identify inefficiencies. AI tools can optimize transportation routes and shipping schedules, reducing freight costs while maintaining delivery standards.
In fashion, AI predictive models can also help reduce overproduction, a constant challenge when measuring sizes, colors and seasonal demand. Improved forecasting can limit discounting and waste, directly protecting margins.
The luxury sector’s long-standing reliance on high prices and brand prestige is now being tested by softer consumer sentiment and cautious spending.
Klotz says protecting margins in the current environment requires a sharp focus. “With a clear cost management strategy and a clear approach to what is important and what is not, fashion and luxury brands can greatly improve their margins,” she said.
As investor scrutiny grows and becomes increasingly watchful, the sector’s next phase may depend less on headline price increases and more on behind-the-scenes efficiency.
