The Great Shift: How High-Cost Economies Are Reshaping Consumer Spending and Investment Opportunities

The global consumer landscape in 2025 is defined by a stark duality: while luxury brands grapple with a prolonged slowdown, essential goods sectors are adapting to a new era of cost-consciousness. This shift, driven by macroeconomic pressures and evolving consumer priorities, is reshaping investment dynamics in high-cost economies like the U.S., Europe, and China. For investors, understanding this transition is critical to navigating the diverging trajectories of discretionary and staple goods markets.

The Luxury Sector’s Struggle for Relevance

The luxury goods market, once a bastion of resilience, is now under siege. Global personal luxury sales contracted by 2% in 2025, marking the first significant decline in 15 years [1]. This downturn is fueled by a confluence of factors: rising inflation, geopolitical tensions, and a generational shift in consumer values. Younger buyers, particularly in China and the U.S., are questioning the traditional allure of luxury brands, favoring sustainability, personalization, and experiential value over status symbols [2].

Despite these headwinds, luxury brands are not retreating. Instead, they are doubling down on physical retail, with 83 new luxury stores opening in 2024 across prime shopping districts like Paris’s Champs-Élysées and London’s Bond Street [3]. These stores are designed to create immersive experiences, reflecting a strategic pivot toward emotional engagement. However, this approach is costly. Rising rents and material prices have eroded profit margins, particularly in European capitals where vacancy rates for prime retail spaces have plummeted below 5% [3].

The Resilience of Essential Goods

While luxury brands face headwinds, essential goods sectors are demonstrating unexpected agility. Consumers in high-cost economies are prioritizing value, with private-label products capturing 39.1% of European grocery sales in 2024—a figure projected to rise to 42% by 2030 [4]. This shift is not merely a response to inflation; it reflects a deeper recalibration of consumer behavior. Over 90% of Chinese and U.S. shoppers now rely on online-only retailers, while nearly 40% of German, UK, and U.S. consumers use grocery delivery services, blending convenience with cost efficiency [1].

For essential goods companies, the challenge lies in balancing price, volume, and product mix. Three-quarters of 2024’s growth in global consumer products sales came from price increases rather than volume gains, a trend that is becoming increasingly unsustainable [5]. To maintain profitability, companies are adopting strategies like shrinkflation (reducing product sizes while maintaining prices) and leveraging AI-driven efficiency to cut costs [5]. These tactics, however, risk alienating consumers who are already wary of brand loyalty in a high-inflation environment.

Investment Implications: Diverging Paths

The contrasting fortunes of luxury and essential goods sectors present distinct investment opportunities. In the luxury space, undervalued brands like Kering, Swatch, and Burberry are positioning themselves for a cyclical rebound, emphasizing product excellence and client engagement [2]. Meanwhile, the secondhand luxury market is gaining traction, offering affordable entry points for aspirational buyers and extending the lifecycle of high-end goods [6].

For essential goods, the focus is on operational resilience. Companies that excel in cost optimization, digital transformation, and supply chain agility are better positioned to thrive. Deloitte’s 2025 Consumer Products Industry Outlook highlights the importance of “transformative efficiency,” with leading firms investing in automation and data-driven personalization to retain market share [5].

Conclusion

The 2025 consumer spending landscape is a microcosm of broader economic tensions. As consumers navigate the tightrope between indulgence and necessity, investors must weigh the risks and rewards of each sector. Luxury brands, while facing a near-term slump, retain long-term appeal through innovation and exclusivity. Essential goods, meanwhile, offer stability but require agility to adapt to shifting demand. In this high-cost environment, the winners will be those who align with the evolving priorities of a value-conscious, experience-driven generation.

Source:
[1] State of the Consumer trends report 2025 [https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/state-of-consumer]
[2] Is the Luxury Goods Market a Good Investment? Here's ... [https://www.morningstar.com/stocks/is-luxury-goods-market-good-investment-heres-latest-data]
[3] Luxury Retail Report 2025 | SK [https://www.cushmanwakefield.com/en/slovakia/insights/luxury-retail-report-2025]
[4] The State of Grocery Retail Europe 2025 [https://www.mckinsey.com/industries/retail/our-insights/state-of-grocery-europe-report]
[5] 2025 Consumer Products Industry Outlook [https://www.deloitte.com/us/en/insights/industry/consumer-products/consumer-products-industry-outlook.html]
[6] Luxury in Transition: Securing Future Growth [https://www.bain.com/insights/luxury-in-transition-securing-future-growth/]