Luxury Brands Face Margin Squeeze, Urged to Cut Indirect Costs: Inverto Report
Luxury goods companies are facing mounting pressure on profitability, with a new study by Inverto, part of Boston Consulting Group, revealing a sharp decline in margins. Across 20 leading global luxury groups, average profit margins have dropped from 24% in 2022 to 13% currently. The steepest fall occurred between 2022 and 2023, when margins slid to 16%, and the downward trend has persisted. Ten companies have reported margin declines in recent years, while five are now operating at a loss.
The findings come amid debate over whether repeated price hikes — introduced to offset rising costs — have alienated aspirational customers. At the same time, rents on major luxury shopping streets such as Bond Street, Via Montenapoleone, Rodeo Drive, and Fifth Avenue are climbing again after a pandemic-era dip, adding further cost pressures. Despite these challenges, Inverto suggests brands can protect margins without compromising exclusivity by targeting inefficiencies in indirect spending areas such as IT, logistics, and marketing.
According to Inverto managing director Daniela Klotz, systematic management of indirect categories can unlock savings of 8–10% or more within six to 12 months. Companies have already achieved reductions of up to 15% in software costs by eliminating unused licences, while marketing and visual merchandising expenses could be cut by as much as 30% by localising production under central quality guidelines. The report also highlights the role of AI in streamlining supply chains, improving demand forecasting, and reducing overproduction — enabling brands to curb waste while safeguarding their premium positioning.
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