The Luxury Scale Question: When Bigger Stops Being Better

How the industry's biggest players are discovering the limits of consolidation

The luxury industry is experiencing something it hasn't seen in decades: a genuine debate about whether bigger is actually better. After forty years of seemingly endless acquisitions that transformed family businesses into global empires, the world's largest luxury groups are facing some uncomfortable questions about their growth strategies.

The personal luxury goods market dipped to €363 billion in 2024, a 2% decline compared to 2023 at current exchange rates, marking its first contraction in 15 years (excluding the Covid period). More telling, consumer interest in top luxury names like Louis Vuitton, Gucci, and Dior has dropped noticeably this year, with the mean Consideration score for a group of eight major luxury brands falling from 10.1% to 7.6% between January 1 and April 16—a drop of nearly 25%.

This isn't just about economic headwinds. It's about whether the consolidation model that built today's luxury giants is still fit for purpose.

The Acquisition Era

The luxury consolidation story began in earnest in the 1980s. LVMH was originally established through a high-profile merger between Louis Vuitton and Moët Hennessy in 1987, and Bernard Arnault has continuously diversified the group into a wider set of business segments while staying true to his vision of craftsmanship, creativity, and exclusivity. The company now controls 75 prestigious brands, with 84.7 billion euros revenue in 2024.

The logic was straightforward: combine prestigious brands under one roof, share costs, leverage distribution networks, and use financial muscle to outspend smaller competitors. Amongst the most valuable acquisitions were Kering's acquisition of a 42% stake in Gucci Group for c. EUR 2.7bn in 1999, the Arnault family's acquisition of Christian Dior for c. EUR 12bn in 2017, and Michael Kors' acquisition of Versace for c. EUR 1.8bn in 2018. 284 luxury M&A deals were documented in 2021, with 156 personal luxury goods deals – 22 deals more than in 2020.

The strategy worked brilliantly for decades. Cash rich conglomerates like LVMH Moët Hennessy Louis Vuitton and Kering are drowning out competitors with [their over-sized] spending on social media marketing and their hiring of star designers. Independent brands simply couldn't match the reach and resources.

When Success Creates Problems

But 2024 revealed some cracks in the foundation. The performance gap between the major players tells an interesting story:

LVMH maintained its position relatively well. LVMH Moët Hennessy Louis Vuitton, the world's leading high-quality products group, recorded revenue of €20.3 billion in the first quarter of 2025. LVMH showed good resilience and maintained its powerful innovative momentum despite a disrupted geopolitical and economic environment. However, even LVMH wasn't immune to challenges, with LVMH seeing a decline of 14% in net income.

Kering struggled significantly. In 2024, Kering Group experienced a significant revenue contraction, with operating and net income declining by nearly half. More specifically, revenues declining by 12% to €17,2 billion and recurring operating income dropping 46% to €2,6 billion. There was a marked drop of 51% in the Net Income of Kering.

Richemont showed what focused execution can achieve. The company reported its "highest ever" quarterly sales in the three months to December, indicating a rebound in consumer demand over the festive period, which caused The Swiss luxury stock to gain 16% on the day.

The differences aren't just about market conditions—they point to varying abilities to adapt and execute within large organizational structures.

The Creative Challenge

One of the more interesting developments has been the frequency of creative director changes. A dozen creative director changes occurred in the first quarter of 2025, highlighting the ongoing challenge of maintaining creative excellence within corporate structures.

Gucci's situation illustrates the complexity. This decline was primarily attributed to underperformance at Gucci, which saw a 23% revenue decrease. The brand's challenges stemmed from product misalignment and increased competition. In response, Kering Group implemented leadership changes, including appointing Demna Gvasalia as Gucci's new creative director in March 2025.

The challenge isn't finding talented designers—it's creating organizational structures that allow creativity to flourish while meeting corporate expectations. The sector's rapid expansion over the past five years has led to overexposure and has weakened the industry's promise of exclusivity, creativity, and craftsmanship.

Geographic Dependencies

The geographic concentration strategy that served conglomerates well is now creating vulnerabilities. Asia-Pacific remained the leading contributor to sales for all three groups, yet the pace of growth varied: while Compagnie Financière Richemont S.A. reported +10% growth in FY2024, Kering Group's exposure in China turned into a weakness amid soft demand recovery.

The numbers are stark. LVMH's revenue in this region dropped from €14.360,92 million in H1 2023 to €12.671,4 million in H1 2024, reflecting a decline of approximately 11,8%, while Kering also faced challenges in Asia-Pacific, with revenue decreasing from €3.710 million in H1 2023 to €2.897 million in H1 2024, marking a sharper decline.

The response has been to pivot to other markets. Analysts say the North American market is now likely to be a key target for brands in 2025, with BofA forecasting U.S. shoppers to account for more than 50% of sector-wide revenue growth this year. But this reactive approach raises questions about strategic flexibility.

A Different Model

While conglomerates navigate these challenges, some companies are demonstrating alternative approaches. Hermès offers perhaps the clearest contrast. The main difference between Hermès and LVMH is that Hermès operates under one single brand, while LVMH, as aforementioned, owns and operates 75 different houses. Hermès' commitment to craftsmanship is evident in its meticulous production processes, use of high-quality materials, and maintenance of all production aspects in-house.

Recent M&A activity also suggests evolving thinking. In the first 10 days of 2025 alone, private equity firm Acon Investments bought denim brand True Religion; French couture house Christian Lacroix was acquired by Spanish manufacturer Sociedad Textil Lonia; brand management firm Marquee Brands bought lifestyle company Laura Ashley. These deals are smaller and more focused than the mega-acquisitions of previous decades.

The Versace-Prada deal is particularly interesting. Prada Group will acquire 100 percent of Versace from Capri Holdings in a deal valued at €1.25 billion. This acquisition marks the return of Versace to Italian ownership, positioning the brand to compete more effectively with larger luxury conglomerates such as LVMH and Kering SA.

Consumer Preferences

Perhaps most significantly, consumer behavior is shifting. This trend—particularly acute among Generation Z, whose advocacy for luxury brands continued to decline—has caused the luxury customer base to shrink by about 50 million people over the last two years.

Today's buyers care most about quality, emotional satisfaction, and long-term value. Brands that speak to those needs—rather than just prestige—may be better positioned to hold on to their audience in 2025.

There's also a demographic shift worth noting. As brands focus on diversifying their consumer base, 2025 marks a shift toward recognizing the potential of older consumers. This demographic, which has long been overlooked in favor of younger, trend-driven shoppers, now controls most global wealth.

What Comes Next

The industry outlook suggests more measured growth ahead. Growth in the years ahead is expected to be slower, reaching between 1 and 3 percent annual growth globally between 2024 and 2027.

In this environment, the strategic approach may need adjustment. Now is the time to take bold risks, rebuild connections with clients, and invest in the critical areas of the business—even if the returns may not be immediate.

The McKinsey analysis suggests specific areas of focus: Clarify core values and align on priority clients to sharpen the brand's long-term strategy and differentiated value proposition, including assortment, communication, price architecture, and experience.

Rethinking Scale

The current situation doesn't necessarily mean the conglomerate model is broken, but it does suggest that scale alone isn't enough. Success increasingly depends on how well companies can balance the benefits of size with the agility and focus that luxury consumers expect.

As a result, the conglomerates are becoming even bigger, and smaller, independent or second-tier businesses have been struggling. But this dynamic may be shifting as consumer preferences evolve and operational challenges mount.

The question for luxury executives isn't whether to pursue scale, but how to pursue it thoughtfully. The most successful companies in the coming years will likely be those that can combine financial resources with operational focus, global reach with local relevance, and portfolio breadth with brand depth.

The luxury industry has always been about balance—between tradition and innovation, exclusivity and accessibility, art and commerce. Now it needs to find the right balance between scale and focus. The companies that get this balance right will shape the next chapter of luxury retail.