By Elisa Anzolin

MILAN (Reuters) –

Sales of personal luxury goods are set to fall 2% this year, making it one of the weakest on record. Price hikes and economic uncertainty are shrinking the industry's customer base, according to consultancy Bain & Company.

In its closely-watched report on the 363-billion-euro ($386 billion) market, Bain estimated a 20-22% sales drop in China, a stark contrast to the years-long boom prior to the pandemic driven by the wealthy and growing middle class.

These forecasts account for the effects of currency moves.

"This is the first time the personal luxury goods industry has declined since the 2008-09 crisis, excluding the pandemic," Bain partner Federica Levato told Reuters.

The study released on Wednesday is likely to heighten concerns among investors that the current downturn affecting major brands like LVMH and Kering might be more prolonged and severe than expected.

Global sales of luxury personal goods—which include clothing, accessories, and beauty products—are predicted to remain flat at constant exchange rates during the holiday season, with China’s performance still negative, Levato stated.

A shift by brands to position their products at higher price points, alongside reduced consumer confidence due to wars, China's economic issues, and global elections, has led many customers, particularly younger ones, to forego purchases.

"The luxury consumer base has declined by 50 million over the last two years, from about 400 million consumers," Levato said.

Growth prospects for the market largely depend on the strategies brands choose to implement, particularly concerning pricing.

In a further sign that higher prices are affecting consumer behavior, Bain noted that the outlet channel is outperforming as shoppers seek better value.

The personal luxury goods sector is expected to grow between 0% and 4% at constant exchange rates by 2025, bolstered by sales in Europe and the Americas, with China projected to recover only in the latter half of the year, according to Bain.

Levato remarked that Donald Trump's victory in the U.S. presidential election has mitigated one uncertainty, and potential interest rate and tax cuts could encourage Americans to spend more.

In contrast to personal luxury goods, spending on experiences such as hospitality and dining is expected to rise this year, Bain added.

($1 = 0.9409 euros)