The slowing global economy and sharp changes in consumer habits are hurting the bottom lines of luxury giants like Kering and LVMH, leading many to wonder; is luxury fashion doomed, or is this just a blip?

It could be a bit of both, a new report by Business of Fashion and McKinsey released on Monday shows. 

Its researchers forecast a slowdown that could drag on for another three years, according to the new State of Fashion report.

It expects the global growth rate of the luxury industry to be just 1-3% between 2024 and 2027, with China and Europe, once the centers of luxury spending, contributing less to that expansion.

Meanwhile, regions like the Middle East and India will boom.  

“During the growth phase, the industry structurally transformed and customer exposure to luxury grew substantially. Now is the time for brands to strategically reset to restore desirability, creativity and exclusivity — the cornerstones of luxury,” Rahul Malik, chief growth officer and head of insights at The Business of Fashion, told Fortune.

The report, which examines social media data, client surveys, and interviews with luxury shoppers, expects the appetite for luxury to shift from watches and apparel to wellness and travel experiences instead.   

The changing affinity for luxury has already prompted people to shop less, resulting in only a third of the luxury sector clocking positive growth, a Bain & Company report found in November.

Luxury industry might have itself to blame

Some of the luxury industry’s current problems are its own making. When demand soared a few years ago, companies ramped up production and increased prices, souring the taste for what was once seen as bespoke. 

Plus, the industry’s growth was driven mainly by price rather than volume increases. Innovation didn’t keep up to warrant those prices, diminishing the overall appeal of luxury goods over time. 

Now, even the industry’s highest spenders, who are expected to contribute up to 80% of luxury spending, are turned off by the price hikes, the State of Fashion report found.  

A fresh crop of boutique brands or breakout brands within luxury giants began to grow rapidly as shoppers looked for other options. 

Consider Prada, for instance. The Italian company has seen unprecedented sales thanks to a smaller label it owns—Miu Miu. During the third quarter of 2024, Prada’s revenues rose 18%, while Miu Miu’s soared 105%. 

That’s a far cry from what other luxury players have faced, such as industry bellwether LVMH, which saw sales decline during the same quarter. To be sure, it had a few bright spots in its beauty and selective retailing segments—areas that are expected to gain more traction within luxury. 

Overall, the industry has a lot to rethink. Luxury executives have a bearish outlook on the year due to possible tariffs from the U.S., China’s slow pace to revival, and cost pressures on the companies.   

“Executives are rightly pessimistic about 2025, which is set to be a challenging year for luxury leaders in comparison to years past,” Malik said, adding that customers will need to be “reconvinced of luxury’s value proposition.”

The quest for wallet-share

There’s no doubt: it will take more to win shoppers’ hearts (and wallet-shares) now as they shift their gaze to high-end travel and wellness experiences instead. 

Meanwhile, aspirational buyers are reconsidering how they think about luxury in the current macroeconomic environment. 

“Quiet luxury is a significant part of this trend, emphasizing understated elegance, high-quality craftsmanship, and timeless design over overt branding or flashy logos. Boutique luxury houses are particularly well-positioned to embody quiet luxury,” Ida Palombella, global fashion & luxury co-lead at Deloitte, told Fortune.

“Post-pandemic, luxury consumers have shown a renewed focus on accessorizing as a quick and effective way to refresh their wardrobes, with accessories gaining additional popularity,” she said, pointing to belts, jewelry, and sunglasses. Pre-owned items that sell at a lower price on secondhand marketplaces could also be another way into the luxury market.