Transcription
Lucif, I have always said that our strategic plan would take 5 years. It's not about immediate profit. You go down to come back up again. That is how you get out of the stall.
In 2022, 95% of luxury brands on the planet were growing. Every single quarter was a record. Every flagship was packed. The industry was printing money at a rate that would make a central banker jealous. Three years later, 70 million luxury shoppers have vanished. The global active luxury consumer base has collapsed from 400 million to 330 million, falling back to its 2013 level. Industry operating margins have cratered by 500 to 600 basis points. And now, the biggest names in fashion are doing something they haven't done in decades. They're closing hundreds of stores. Kering shut 75 locations in 2025 and just announced 100 more closures for 2026. Michael Kors has eliminated over 110 stores in 2 years. Burberry is cutting a tenth of its entire retail network. Gucci alone closed 32 stores in a single year.
In this video, we'll take a deep dive into why the luxury industry's two-decade physical expansion is violently reversing. Who's actually winning from this contraction? And what the financial data tells us about the future of high-end retail.
The foundation: the 70 million missing shoppers. To understand why these stores are closing, you have to understand who was keeping them open. And the answer is a demographic that the luxury industry doesn't like to talk about. The aspirational shopper. For most of the last decade, the luxury business model was built on volume. Yes, the billionaires bought the haute couture and the crocodile Birkins, but the actual square footage in these stores was subsidized by millions of middle-class and upper-middle-class consumers buying entry-level handbags, logo belts, and canvas sneakers. These were the people walking into the secondary mall locations, the outlet stores, the department store concessions.
And then, the industry did something incredibly aggressive. Between 2019 and 2023, luxury brands raised prices by 40 to 60% across virtually every core category. A Chanel classic flap that cost around $5,800 in 2019 now retails for over 10,000. And here's the key number. According to McKinsey, more than 80% of the industry's growth during that period came from price increases, not from actually selling more product. That works great when the economy is booming and consumers are flush with stimulus cash. But, when inflation hits, interest rates rise, and the post-pandemic sugar rush wears off, those aspirational shoppers don't just buy less, they leave entirely. Bain & Company tracks this in granular detail. In 2022, roughly 60% of the total addressable luxury market was actively purchasing product. By 2025, that number had fallen to 40 to 45%. 70 million people stopped buying luxury goods in 3 years, and the conversion collapse was even more severe in China, where an estimated 60 to 70 million active luxury buyers abandoned established brands between 2022 and 2025. Now, when you lose 70 million customers, you don't need thousands of stores anymore. The math simply doesn't work, and that's exactly what the corporate filings are showing.
The rise, the margin collapse. Let me show you just how bad the financial damage has been because the margin compression here is genuinely staggering. The luxury industry's average operating margin has fallen from 21% in 2022 to between 15 and 16% in 2025. That's a 500 to 600 basis point drop, which represents a loss of roughly 20% of the industry's total profit compared to 2023 levels. And at the brand level, the numbers are even worse. Gucci's operating margin has collapsed from 35.6% in 2022 to 16.1% in 2025. That's a nearly 2,000 basis point drop. Revenue fell 22% to 5.99 billion euros. Wholesale revenue alone plummeted 34% as Kering desperately tries to terminate third-party distribution. Burberry is in even more dire straits. Revenue fell 17% to 2.46 billion pounds and adjusted operating profit fell 94%. Their operating margin is sitting at 1%. 1%. That's not a luxury brand. That's a company fighting for survival. They've cut 1,700 jobs. That's nearly a fifth of their entire workforce. Michael Kors's parent company, Capri Holdings, reported a net loss of $547 million in a single quarter after the FTC blocked their $8.5 billion merger with Tapestry. They're closing 100 stores in one fiscal year and 75 more in the next.
And all of this is happening while the fixed costs of operating physical retail keep going up. Not down, up. According to Cushman and Wakefield, global luxury rents grew 4.2% over the past year with nearly 60% of tracked markets experiencing rental increases. London's New Bond Street is now the most expensive retail street on Earth at over $2,200 per square foot per year. Milan's Via Montenapoleone is at 2047. Upper Fifth Avenue in New York is at 2000. So, you have collapsing revenue, evaporating margins, disappearing customers, and rents that are still going up. That is the financial equation that is forcing these closures. As Kering's new CEO, Luca de Meo, put it on an earnings call, "It's a simple financial calculation. You look at the accumulated losses of keeping a store open versus the cost to close it, and you execute."
The turn, the China implosion. Now, if there's one market that explains this closure wave more than any other, it's China. For the last decade, China was the engine that powered every luxury expansion plan on the planet. Brands were opening stores in every tier one and tier two city. Shopping malls in Shanghai, Beijing, Shenzhen, and Guangzhou were essentially luxury theme parks. That engine has ceased. China's luxury market declined 18 to 20% in 2024, reverting to 2020 levels. In 2025, it contracted another 3 to 5%. The property crisis has gutted household wealth. New home transactions are running far below pre-pandemic levels. Youth unemployment for 16-to-24-year-olds hit a record 21.3% in mid-2023. And even after the government recalibrated the data, it was still sitting at 16.5% by the end of 2025.
But here's the cultural shift that's arguably more dangerous than the economic data. There are two sociological trends in China right now that luxury executives are terrified of. The first is called Neijuan, which translates roughly to involution, the feeling of endless economic competition with diminishing returns. The second is Tang Ping, or lying flat, a deliberate rejection of the relentless career and consumption treadmill. The data reflects this perfectly. 37% of Chinese Gen Z consumers plan to reduce or stop luxury purchases entirely. That's nearly triple the rate of millennials saying the same thing. These are not people who are temporarily priced out. These are people who have ideologically rejected conspicuous consumption.
And then there's the Japan factor. In 2024, the Japanese yen hit a 38-year low against the dollar, making luxury goods in Japan up to 30% cheaper than in mainland China. Chinese shoppers who were still buying luxury simply flew to Tokyo instead of walking into a boutique in Shanghai. Hainan's duty-free sales collapsed 29%. Kering's Asia-Pacific store closures tell the story. They shut 42 stores in the region in 2025 alone. The math is brutally clear. You cannot operate a sprawling Chinese retail network when the consumer base is shrinking, the cultural attitude toward luxury is shifting, and a cheaper shopping destination is a 2-hour flight away.
The evidence cascade, the e-commerce myth, and the flagship pivot. Now, you might be thinking, "Okay, the physical stores are closing, but isn't everyone just buying online?" And the answer is, "No, not even close." The e-commerce story in luxury is one of the most widely misunderstood narratives in business. In 2025, 81% of all personal luxury goods revenue was still generated inside physical stores. E-commerce's share of the luxury market has plateaued at about 21%, and it's actually showing flat to slightly negative growth. The original projections that online would claim 30% of luxury sales by 2025 never materialized.
And the unit economics explain why. Customer acquisition costs in e-commerce have surged 40 to 60% since 2023, driven by rising ad costs and the destruction of targeted advertising from privacy changes. Conversion rates for luxury goods online are abysmal. Luxury handbags convert at 0.3% to 0.4% online versus 20 to 40% in a physical store. That's not a small difference. That's a 50 to 100 times difference in purchase intent. And returns run at nearly 19% online compared to essentially zero in store. This is exactly why Farfetch, the luxury e-commerce platform, spectacularly collapsed. The economics simply don't work when your acquisition costs are exploding and your conversion rates are measured in fractions of a percent.
So, if luxury brands aren't migrating online and they're closing hundreds of mid-tier stores, where is the money going? The answer is what the industry calls retail elevation. Close 50 small boutiques, open one massive flagship temple, and build it so extravagantly that it becomes a destination in itself. The poster child for this strategy is LVMH's renovation of the Tiffany landmark on Fifth Avenue. It's a 10-story, 110,000 square-foot experiential destination. They literally had to lift a 205,000-lb crane on top of the building to construct a three-story glass addition. Estimated cost, $350 to $500 million. And here's the telling detail. The number of full-time sales people dropped 40% in the first year. They don't want volume. They want whales.
LVMH is replicating this everywhere. They're redeveloping the 20-story Louis Vuitton flagship at 737 Fifth Avenue. In Paris, they're converting a former bank headquarters on the Champs-Élysées into Louis Vuitton's first luxury hotel and retail complex. Dior spent 2 and 1/2 years turning its 30 Avenue Montaigne headquarters into a sprawling museum, garden, and hotel suite. The financial logic is ruthless, but clear. The top tier of luxury customers, the ultra-high-net-worth individuals, expanded their share of total luxury spending from 30% in 2019 to over 46% in 2025. Their spending has remained stable, so you don't need a thousand stores to reach them. You need 10 perfect ones with VIP salons, private dining, and appointment-only experiences. The return on investment of one $500 million temple far exceeds 50 mid-tier boutiques paying $2,000 per square foot in rent while waiting for aspirational walk-ins who no longer exist.
The bigger picture, winners, losers, and what comes next. So, who's actually winning from all of this? The answer reveals a brutal Darwinian split in the luxury sector. On one side, you have the brands that protected their exclusivity. Prada Group has delivered 20 consecutive quarters of growth. Revenue hit 5.71 billion euros in 2025, up 9%. Their sister brand, Miu Miu, posted 35% growth by capturing the exact Gen Z audience that Gucci lost. Prada is expanding, adding a net 14 stores while everyone else contracts. Hermès continues to operate at a 41% margin. Chanel spent a record 1.75 billion dollars in capital expenditure in 2024 alone, expanding into India, Mexico, and Canada.
On the other side, you have the brands that chased volume, massified their product, and are now paying the price. Kering stock has fallen 70% from its peak. Their market cap sits at 32.7 billion euros. LVMH's is 362 billion. Bernstein is recommending investors short Kering and go long Prada. That is an extraordinary analyst call for two companies supposedly in the same industry.
And here's the real estate paradox at the center of all this. While secondary malls and regional high streets are bleeding from the withdrawal of Michael Kors, Burberry, and department store wholesale, the absolute prime corridors have never been tighter. Cushman and Wakefield reports that 16 of the 20 key European luxury streets have vacancy rates below 5%. Six of them are at 0% vacancy. Brands are paying key money again, non-refundable upfront premiums just to secure a lease, something the industry hasn't seen in nearly a decade. LVMH, Chanel, and Kering are bypassing landlords entirely by buying prime real estate outright on 5th Avenue, Avenue Montaigne, and Bond Street.
Looking ahead, the analysts are clear about what's coming. Bain projects global luxury growth of just 4 to 6% annually through 2030, driven entirely by extracting more value from existing ultra-wealthy clients, not by expanding the customer base. Morgan Stanley is forecasting below-average expansion through 2026. The era of the accessible luxury boutique in every mid-tier mall is permanently over. What's replacing it is something far more exclusive, far more capital-intensive, and far less demographic. A network of hyper-elevated flagship temples, accessible only to the wealthiest consumers on the planet, staffed by private client advisors using AI-driven personalization to maximize the average order value of every single interaction. Fewer stores, fewer customers, more money per transaction. That is the new math of luxury retail. And if you're one of the 70 million shoppers who just got priced out, the industry has a very clear message for you. They don't need you anymore.