Why Luxury Brands Are Thriving While Middle-Class Retail Struggles

On a spring afternoon in Paris, the line outside Hermès snakes past the corner, a quiet ritual of appointment-only shopping and whispered wish lists. Inside, sales associates greet clients by name, update them on a custom order, and—if trust and spend levels align—offer a glimpse of a coveted bag. Across the Atlantic, a suburban mall hosts a different scene: a once-buzzy mid-tier apparel chain liquidating inventory while a packed TJ Maxx next door hums with shoppers hunting deals. These aren’t just contrasting vignettes—they’re a map of the modern consumer economy. The center is thinning. Growth pools at the very top and, to a lesser degree, at the extreme value end. Luxury is (still) winning. Middle-class retail is (still) getting squeezed.

This article unpacks the data and dynamics behind that divergence: the income and wealth shifts powering luxury resilience; how Europe, North America, and Asia (especially China) are shaping demand; the psychology of status spending; the pressures bearing down on department stores and mid-market chains; and the playbooks retailers are adopting in a “barbell” world.

The Spending Gap Widens

If you want to understand why luxury can keep expanding even as many mid-market chains shrink, start with who spends. In the United States, the highest-income quintile (top 20%) now accounts for nearly 39% of all consumer expenditures—not merely income, but actual aggregate spending. That share comes straight from the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey for 2023, which pegs the top quintile’s slice of “all items” expenditures at 38.9%.

The wealth backdrop tilts even more toward the top. According to UBS’s 2025 Global Wealth Report, 379,000 Americans became new millionaires in 2024—more than 1,000 a day—thanks to buoyant asset markets. The U.S. now hosts almost 40% of the world’s millionaires, and global net worth rose 4.6% in 2024. More broadly, UBS sees continued growth in average wealth per adult over the next five years, with the U.S. and Greater China as key engines.

Inequality is hardly an American phenomenon. In its 2025 briefing, Oxfam highlighted the expanding share of wealth at the very top: billionaires’ fortunes up by $6.5 trillion over the past decade, with policy debates now openly entertaining minimum “billionaire taxes.” Whatever your politics, the takeaway for retail is simple: spending power is concentrating, and the cohort with the highest marginal propensity to buy non-essential, high-margin goods is growing in absolute terms.

This concentration matters because luxury is a textbook case of Veblen demand—where higher prices can enhance desirability by signaling exclusivity. In luxury categories, “more expensive” can be part of the utility function. That’s not folklore; it’s an established concept in microeconomics and consumer behavior.

Luxury’s Resilience—Even Through A Slowdown

Let’s be clear: 2024–2025 wasn’t a free ride for every luxury house. After a multi-year boom, sector growth cooled. Bain & Company estimated that personal luxury goods sales declined ~2% in 2024, with a sharp 20–22% drop in China—the first industry contraction since the global financial crisis (excluding the pandemic). Bain’s 2025 outlook called for 0–4% growth and stressed that long-term fundamentals remain intact.

Even inside a cooler market, however, the ultra-affluent kept spending—and best-in-class brands kept beating. Hermès, the emblem of scarcity-driven clienteling, posted robust growth through 2024–2025, including +13% sales in Q2 2024 and resilience into 2025 despite sector headwinds. Reuters’ coverage put it plainly: wealthy shoppers’ appetite remained even as aspirational buyers pulled back.

Contrast that with LVMH and Kering: still formidable, but navigating tougher comps and softer demand among younger and aspirational segments. In July 2025, analysts framed LVMH’s quarter as a “mixed bag,” while noting “glimmers of hope” around potential China stabilization. Meanwhile, Prada defied the slowdown on the back of Miu Miu’s scorching run.

Regionally, luxury in Europe benefitted from tax-free shopping and international tourism. Bain highlighted a double-digit rise in tax-free spending in Europe toward the end of 2024, a tailwind that continued as global travel normalized. North America was underpinned by the very wealth dynamics noted above—and heavy investment from brands (LVMH has even discussed widening U.S. production capacity). Asia remains the strategic prize: despite 2024’s slump in China, the long-term thesis (younger, aspirational, and high-net-worth consumers) is unchanged, with several houses reasserting their China strategy while diversifying into Japan and Southeast Asia.

Meanwhile, The Middle Gets Squeezed

At the same time, the mid-market continues to feel pressure from both ends:

1. Off-price and value retail (TJX, Ross, Walmart) capture bargain-hunting traffic—a pattern that intensified with inflation and renewed price sensitivity. TJX raised its 2025 profit outlook on “resilient demand,” while Walmart saw strong cross-income traffic and continued e-commerce momentum.

2. Best-in-class luxury absorbs the high end, including formerly “aspirational” customers who now save for fewer, “investment-grade” purchases (or trade sideways into entry categories like beauty/jewelry).

Caught in between, department stores and mid-tier apparel face declining traffic, eroding differentiation, and unfavorable math on promotions and returns. Macy’s announced plans (2024) to close ~150 stores while leaning into higher-end banners Bloomingdale’s and Bluemercury—a tacit acknowledgment that the middle no longer pays.

The bankruptcy docket tells the same story. Express filed Chapter 11 in April 2024 (closing ~95 stores), while rue21 moved to liquidate all 540 locations weeks later. In the UK, Ted Baker collapsed into administration, shuttering dozens of stores. Each case mixes brand-specific issues with a common macro: the middle is oversupplied and under-demanded.

McKinsey has been flagging this “barbell” dynamic for years—the polarization between premium/luxury and value, with the mid-market losing share and enterprise value. Their 2024–2025 work shows the mid-market segment posting negative value creation, while luxury and value clusters remain positive. That’s not just a vibe shift; it’s visible in revenue growth and stock returns.

The Psychology Of Status: Why Luxury Keeps Pricing Power

Economically, Veblen goods behave differently: higher prices can increase demand by enhancing perceived exclusivity and social signaling. Psychologically, luxury also works on brand prominence—the choice between loud logos and “quiet luxury.” Seminal research by Han, Nunes, and Drèze (2010) demonstrated how consumers signal status with more or less conspicuous branding depending on the audience they want to impress (or avoid). That framework helps explain simultaneous success for logo-heavy drops and stealth-wealth staples.

The past two years’ “quiet luxury” moment (Loro Piana, Brunello Cucinelli, The Row, Hermès leather) is not just an Instagram aesthetic; it’s margin-accretive product strategy. Scarcity, craftsmanship, and discretion make price increases both palatable and brand-enhancing. Hermès explicitly leaned on mid-single-digit to high-single-digit price hikes in 2024–2025, and still outgrew rivals—proof that when perceived value and scarcity are high, pricing power is a feature, not a bug.

Europe, North America, Asia: Three Engines, Different Temperatures

Europe: Tourism And Tax-Free Tailwinds

As intercontinental travel recovered, Europe re-emerged as luxury’s showcase. Tax-free spending bounced back strongly late in 2024, supporting flagship stores and high-traffic shopping streets. Luxury groups’ disclosures and Bain’s seasonal updates align on Europe’s role as a relative bright spot, even as Chinese domestic luxury slowed.

North America: Wealth Effects And Retail Infrastructure

In the U.S., stock-market gains, home-equity cushions, and the broader wealth surge among high-net-worth individuals bolstered premium spending, even as mid-income shoppers gravitated to value. Notably, UBS’ 2025 report tallied 379,000 new U.S. millionaires in 2024—a concrete data point behind the luxury “floor.” Meanwhile, retailers like Walmart and TJX posted solid results, underscoring the barbell in action.

Asia (Especially China): From Hot To Hiccup—And Back?

China’s 2024 slump was real—Bain estimates a ~20% contraction in personal luxury goods. Early 2025 remained uneven, though several houses reported stabilization or growth in Japan and among top-tier Chinese clients (often shopping abroad). Prada continued to beat the market (helped by Miu Miu), illustrating that brand heat and product cadence can outrun macro softness. Long-term, Bain still expects hundreds of millions of new luxury customers by 2030, with Generation Z and Alpha comprising over half.

Why Department Stores And Mid-Market Apparel Are Struggling

Structural pressures have been building for years:

• Commoditization of basics and mid-price fashion via global fast fashion and endless online choice.

• Rising returns and logistics costs that erode margins when promotions are necessary to drive traffic.

• Deteriorating differentiation: if a shopper can find similar styles cheaper (or a markedly better experience at luxury), the mid-tier brand story breaks.

• Store fleets built for another era: too many large boxes in mediocre locations, and too few reasons to visit.

That’s why rightsizing, re-zoning assortments to fewer, stronger categories, and re-platforming loyalty and CRM have become existential—not incremental—projects. Macy’s decision to tilt capital toward higher-end banners is “barbell logic” codified.

The Barbell Playbook: How Strategies Diverge

What Winning Luxury Houses Are Doing

1) Scarcity + Clienteling: Tight, intentionally constrained supply; elite wait-lists; appointment shopping; private client events; and store associates who operate like wealth advisors. Hermès is the canonical case.

2) Price Architecture: Regular, measured price increases paired with “entry” categories (beauty, small leather goods, jewelry) to onboard future big-ticket buyers. Hermès again proved that price hikes can be absorbed when brand equity is towering.

3) Geographic Hedging: Rebalancing exposure across the U.S., Europe, Japan, and Southeast Asia to offset volatility in China, while keeping the long-term China thesis intact. LVMH’s investments in U.S. production capacity underscore this pivot to regional resiliency.

4) Category Focus And Brand Heat: Prada/Miu Miu show how distinct brand propositions and sharp product pipelines can outrun sector slowdowns. In tougher quarters, the market has been willing to pay for consistent winners.

5) Experience As Product: Flagship renovations, museum-grade displays, integrated cafés and cultural programming—all “raise the price” without necessarily raising sticker prices, because they amplify perceived value.

6) Supply-Chain Sovereignty: More vertical integration (workshops, ateliers, materials) to secure quality and capacity while protecting margins.

7) Digital Clienteling (Quietly): From private WhatsApp appointments to invite-only drops and tailored product previews, the best houses treat CRM as a high-touch craft, not a batch email.

What Value And Off-Price Winners Are Doing

1) Ruthless Value. Walmart and TJX gained share by leaning into price leadership, grocery adjacency, treasure-hunt merchandising, and expanding e-commerce (Walmart’s online growth is meaningful).

2) Private Label & Sourcing Muscle: Owning more of the value chain and using scale to negotiate cost and availability.

3) Omnichannel That Actually Works: Buy-online-pick-up-in-store, easy returns, flexible fulfillment—value retail’s UX is, in many cases, better than the mid-market’s.

4) Location Math: Smaller boxes and neighborhood infill expansion keep these banners close to the weekly essentials mission.

What The Middle Must Decide

The hardest strategy is staying put. “Accessible premium” without a moat or “mall apparel” with me-too basics is a recipe for cash burn. The viable paths:

• Move Up: Better materials, fewer SKUs, slower fashion, real brand IP, prices that match narrative, and an obsession with clienteling—even if average prices aren’t “luxury.”

• Move Down: Simplify categories, sharpen value, scale private label, and engineer the box and digital journey for frequency, not just fashion moments.

Hesitation is expensive. As Express and rue21 discovered, modest brand tweaks can’t overcome structural drift.

The Science (And Signal) Behind Status Spending

Luxury is often framed as indulgence, but it’s also identity technology. The brand prominence research shows that consumers use logo loudness strategically: “patricians” (wealthy, low need for status) may prefer discreet cues; “parvenus” (wealthy, high need for status) often favor conspicuous marks; “poseurs” and “proletarians” behave differently still. Translate that into merchandising, and you get a portfolio that spans quiet luxury to monogram mania—and a pricing ladder that maximizes contribution margin per segment.

Pair that with Veblen dynamics—price as signal, scarcity as content—and the logic behind Hermès, Rolex, and Chanel becomes mathematically coherent. Many mid-market brands misunderstand this: you can’t premiumize with price alone. Without scarcity, narrative, and perceived craftsmanship, you’re just raising prices into elasticity.

How The Gap Rewrites Retail Strategy

Assortment & Price Architecture: Retailers are redesigning their pyramids: hero products at the top; protected core in the middle; sharp entry items at the bottom. In luxury, that pyramid is tall and narrow; in value, it’s wide and flat; in the middle… it’s often mush.

Footprint: Large, undifferentiated boxes are liabilities. Expect more closures (Macy’s), more format experimentation, and more store-as-media flagships in global capitals.

Geography: A diversified map—U.S., Europe, Japan, Southeast Asia—is now essential. China remains a cornerstone over a 5- to 10-year horizon (Bain still sees 300+ million new luxury consumers entering the category through 2030), but brands are increasingly building hedges.

Digital & Clienteling: CRM is shifting from broad segmentation to 1:1 “client book” rigor. The winners blend data with human nuance: clienteling that remembers preferences, anniversaries, and product histories.

Pricing Governance: In luxury, price is a long-term brand signal. Hermès’ measured increases—despite tariffs and FX noise—show how discipline preserves trust and margins. In value, the most credible path is price investment and radical cost control, as Walmart’s playbook illustrates.

Capital Allocation: Macy’s shift to Bloomingdale’s/Bluemercury mirrors what many diversified retailers will do: move capital up or down, not sideways. Expect more portfolio pruning, M&A that adds either high-end or hard-value capability, and fewer “one-size-fits-all” concepts.

What About China?

No conversation is complete without China, which drives roughly a third of global personal luxury goods demand. 2024’s slump (-18–22%) tested even the strongest houses, but the affluent cohort remained comparatively resilient and overseas shopping partially offset domestic softness. Several brands reported green shoots by mid-to-late 2025, while Japan saw outsized gains. The strategic lesson: localization, tight distribution, and product discipline can win even in a choppy macro.

A Note On Winners And Losers Inside Luxury

Even within the top tier, dispersion is widening. Hermès remains the sector’s “quality compounder,” structurally insulated by scarcity. Prada (via Miu Miu) demonstrated how creative direction + product cadence can generate outlier growth. LVMH’s fashion & leather goods juggernaut faced tougher comps but retains enormous optionality, including U.S. reshoring and portfolio optimization. Investors have started rewarding consistent execution over hype cycles—McKinsey’s 2025 luxury brief explicitly calls out value creation deceleration for the sector overall, with leadership concentrating in fewer hands.

The Middle-Class Consumer Isn’t Gone—But Their Basket Changed

It’s tempting to say “the middle class stopped spending.” That’s wrong. They shifted spending: toward value for essentials (grocery, household, kids’ apparel), experiences over goods in many cases, and selective premiumization (one better item instead of three “meh” ones). Department stores and mid-market apparel chains that relied on moderate prices + broad assortments are caught between Walmart’s everyday price credibility and luxury’s cultural cachet.

McKinsey’s consumer work notes persistent “trading down” in certain categories and “trading up” in others—a pattern that leaves the middle without clear oxygen. Value and luxury have a proposition; the middle too often has positions (in malls, in categories) without a compelling reason to exist.

What To Watch (2025–2030)

1. Millionaire Math: If wealth creation continues at pace (see UBS 2025), expect luxury’s floor to hold even through macro wobbles. The composition of that wealth—tech liquidity, family offices, Asia’s entrepreneur class—will shape brand exposure.

2. China’s Calibration: Most houses are planning for flat to modest growth in 2025 as confidence rebuilds; execution in Japan, Korea, and Southeast Asia will matter more in the interim.

3. Gen Z’s Paradox: Bain warns luxury’s NPS is 25–30 points lower with Gen Z than Millennials—yet Gen Z and Millennials will drive the majority of growth by 2030. Closing that satisfaction gap (experience, values, authenticity) is the industry’s central challenge.

4. Department Store Reinvention: The Macy’s blueprint—shrink, premiumize the portfolio—will be studied closely. Whether others can execute with similar discipline is an open question.

5. Off-Price Scale: TJX is proving that treasure-hunt retailing is remarkably recession-resilient; the constraint is supply of attractive branded closeouts and the logistics to move them fast.

6. Creative Director Risk: Reuters recently noted designer turnover as brands chase aesthetic resets (see Gucci/Kering). In a market leaning “quiet,” loud reinventions are riskier.

The Bottom Line

Luxury’s durability isn’t an accident or a bubble. It’s the compound effect of wealth concentration, Veblen dynamics, scarcity-based brand architectures, and clienteling that treats relationships like assets. The same forces that concentrate wealth also concentrate pricing power at the top of the market. Meanwhile, value retailers win by delivering unambiguous utility. What sits in the middle—sprawling stores, broad but undistinguished assortments, price points that are neither cheap nor special—struggles to justify itself to either wallet or heart.

For leaders, the mandate is stark:

• If you’re playing luxury: narrow the aperture, raise the bar, and earn the right to price.

• If you’re playing value: win on price, speed, and ease—every single day.

• If you’re still in the middle: pick a side and re-platform accordingly. The barbell is not a metaphor; it’s how consumers now allocate attention, time, and money.

As the Hermès line inches forward and the off-price checkout dings in the background, the industry’s new equilibrium is already visible: more gravity at the poles, less in the middle. Retail’s next decade will be defined by how decisively brands align to that reality—and how well they execute once they do.