Core Insights - The luxury goods sector is experiencing a significant decline in sales, primarily due to the increasing unaffordability of iconic handbags, which have seen a 10%-33% decrease in affordability over the past decade [1][2] - Middle-income consumers are being priced out of the luxury market, leading to a shift towards more affordable brands like Coach, which reported a 15% same-store sales growth in the first quarter [1][5] - Major luxury brands are facing a growth bottleneck, with simultaneous declines in demand from consumers in China, Europe, and the U.S. for the first time in over 30 years [1][6] Affordability Trends - The price of luxury handbags has risen significantly compared to disposable income growth in the U.S. For instance, the Louis Vuitton Neverfull bag has seen an 8.5% annual compound growth rate in price, while disposable income has only increased by 4.5% [2][4] - Specific examples include: - Louis Vuitton Neverfull: Price increased 1.5 times relative to average disposable income over the past decade [4] - Dior Lady Dior: Price increased 1.1 times [4] - Chanel Classic Flap: Price increased 1.4 times [4] Market Dynamics - The shift in consumer purchasing power is creating opportunities for more price-competitive brands, as evidenced by the strong growth of brands like Coach [5] - The traditional growth model for luxury brands is under pressure, as relying solely on high-net-worth individuals is insufficient to sustain historical growth rates [6] - The luxury sector's strategy of raising prices during economic downturns, which previously worked, is no longer effective in the current market environment [6] Recovery Outlook - The recovery of affordability for luxury handbags is projected to take several years. For example, if prices grow at an average of 2% annually and disposable income continues to grow at 4.5%, it will take approximately 5 years for Dior and Louis Vuitton handbags to return to 2015 affordability levels, and 8 years for Chanel [7]