Following a year of mixed results, the luxury sector braces for further headwinds in 2024.

In 2023, the global luxury goods sector displayed contrasting trends: robust growth in the first half of the year, followed by softer demand as the year progressed. Despite uneven performances among key players, the sector achieved 8-10% growth, yet personal luxury goods making a modest 4% rise.1 However, as 2024 unfolds, the outlook appears cautious for many due to fragile consumer confidence and persisting macroeconomic challenges. 

Beyond these demand headwinds, luxury brands must also focus on navigating disruptions from digitization, supply chain volatility, and geopolitical tensions. This concern is mirrored in the AlixPartners Disruption Index, where 50% of retail executives anticipate significant business model shifts in 2024, a higher proportion than in any other industry.

M&A activity in the luxury sector was relatively subdued in 2023 compared to previous years, with luxury groups focusing on integrating past acquisitions while cautiously eyeing new opportunities amid restrictive capital costs. This pause in deal activity implies a move from the traditional thesis of portfolio expansion and customer base diversification to one of extracting maximum value from existing brands.

More than ever, luxury groups must identify and execute operational synergies to fund customer-centric capabilities that elevate the brand experience.

Such groups should no longer rely on the sum of their individual parts to create enterprise value and drive growth. An internal reorientation towards group synergies and collaboration is key to garnering efficiencies across brands, particularly from undifferentiated back-of-house operations.

Identifying potential areas of shared efficiencies is crucial, particularly as rising sales, general and administrative (SG&A) expenses typically correlate to reduced operating margins. In 2023, most large luxury brands deleveraged their SG&A costs with the average cost to sales ratio increasing by 170 bps2, pressuring the cost structure and underscoring the urgency for efficient operating cost management.

The most attractive path for luxury groups to improve SG&A leverage—enabling value redirection at customer-oriented front-of-house operations—focuses on generating synergies from the less visible back-of-house functions, analogous to how a prism focuses and disperses light:

Integration of back-of-house operations presents the greatest synergy opportunities for luxury groups, including:

  1. Optimize SG&A
    For some brands, these costs are rising faster than revenues. Streamlining back-office operations—particularly in finance, HR, and technology—presents a clear path to efficiency, while taking care to preserve brand essence and experience with appropriate reinvestments in sales and marketing.
  2. Consolidate supply chain operations
    Centralizing logistics and warehouse operations—with an emphasis on footprint optimization and demand intelligence—will significantly boost luxury brands’ supply chain efficiency and inventory management effectiveness. Furthermore, in the face of increasing global trade restrictions, luxury brands must focus on optimizing custom duty management, leveraging duty drawbacks, and tailoring clearance processes to best manage import duties and tariffs.
  3. Integrate procurement
    Securing access to high-quality and sustainable raw materials remains a pressing priority for luxury brands. Luxury groups can attain significant efficiencies through integrated procurement—enhancing volume advantage, agility, and transparency. Group-level strategies like supplier partnership, vertical integration, nearshoring, and multi-shoring further streamline the supply chain, boosting responsiveness to market changes.
  4. Unify data and technology strategies
    While luxury brands have increased IT infrastructure investments—to improve e-commerce, AI, and data capabilities—the lack of an integrated IT strategy often results in duplicated efforts, unfinished projects, and excessive handoffs. Implementing a unified technology strategy can streamline operations, increase returns, and cross-pollinate customer insights.

Luxury groups must embrace a tailored and agile operating model to navigate the delicate balance between individual brand autonomy (i.e., decentralization) and group-level integration (i.e., centralization).

Achieving operational efficiency in a luxury group hinges on an adaptable operating model which balances a structured operations base with the nimbleness and agility to respond to market shifts. This requires an organizational and governance structure tailored to each brand's unique identity and maturity while rooted in the group-wide back-of-house core operational capabilities. Other key considerations include the placement of functions and capabilities at the corporate- vs. brand-level and their strategic positioning for regional market requirements.

It’s a delicate balance between individual brand autonomy and group-level integration to create enterprise value and maximize performance—while, potentially, boosting the customer experience via reinvestment. Given today’s environment, the sooner luxury groups address their hidden back-of house opportunities, the better able they will be to unlock resources to make their brands even more desirable and valuable. 

There’s a foundation of magic and logic; shared services need to be done logically – in a way that’s seamless – to enable the magic of the brands – the heritage, creativity, and entrepreneurship. The c-suite needs to ensure that accountability and speed are not lost and, in doing so, shared services can provide tremendous leverage and agility. 

Oliver Chen, Managing Director and Senior Equity Research Analyst, TD Cowen


  1. Source: Statistica market insights
  2. Analysis includes a selected group of luxury companies/groups with revenues exceeding $5 billion.