Is the Glitter Fading? Why Luxury Department Stores Face a Perfect Storm

Tariffs, the rise of the conscious consumer, and the explosive growth of the resale market are demanding a ‘fundamental metamorphosis’ from iconic high-end retailers such as Saks and Neiman Marcus.

The chandeliers still glitter, casting their familiar opulent glow, but for many luxury department stores, that shimmer is increasingly a reflection of past glories rather than future prospects. Once the undisputed temples of high-end retail, these venerable institutions now find themselves navigating a perfect storm of economic headwinds, evolving consumer behavior, and disruptive new business models, as well as the increasing ubiquity of luxury goods, thus taking away from the historic value of scarcity. 

The challenges are formidable, threatening to relegate even the most iconic names to the annals of retail history if they fail to adapt. Here is my perspective as to why.

First, one of the most immediate and impactful threats comes from the global geopolitical landscape: tariffs. The intricate web of international trade, already complex, has been further snarled by duties imposed on luxury goods. For department stores, which typically source a significant portion of their luxury merchandise from abroad, these tariffs translate directly into higher costs. Given that much of the merchandise is sourced in a strong Euro, this has further increased the cost of luxury product in dollar terms

These increased costs then have to be absorbed or passed on to the consumer, an often dangerous proposition in a market where price sensitivity, even among the affluent, is on the rise. Margins shrink, inventory planning becomes a high-stakes gamble, and the allure of international luxury brands can be diminished by an unwelcome premium at the register.

[Go deeper: Check out this primer on the impact of tariffs on luxury goods and fashion apparel from Syracuse University College of Law by clicking here.]

Compounding this external pressure is a fundamental shift in consumer psychology.

The archetypal luxury shopper of yesteryear — one who equated price with intrinsic value and status — is being replaced by a more value-conscious consumer. This isn’t to say they’re forsaking luxury altogether, but their definition of “value” has broadened beyond mere material cost. These savvy shoppers seek experiences, authenticity, sustainability, and a demonstrable return on their significant investment.

The historically conspicuous consumption of luxury items is starting to give way to a more discerning approach, where a brand’s narrative and ethical stance can be as important as its craftsmanship. This shift makes the traditional department store model, often perceived as a vast, somewhat impersonal emporium, simply less compelling.

Striking hard against the sector are luxury brands that continue to open their own stores in the most prestigious real estate locations. In department stores, luxury brands typically offer a more curated assortment, whereas in the brand’s own stores, they present the full assortment, plus knowledgeable brand ambassadors, in a setting where customers can be fully immersed in their favorite brands and in the brand’s particular environment and ambience.

Perhaps the most revolutionary disruption, however, has come from within the luxury ecosystem itself: the meteoric rise of the resale (or vintage) market.

Platforms dedicated to authenticated pre-owned luxury goods have exploded in popularity, offering consumers access to coveted items at a significant discount from their original price. This not only siphons off potential first-hand sales from department stores, but also fundamentally alters the perceived lifespan and depreciation curve of luxury items. Why pay full price for a handbag when a nearly identical, gently used version can be had for 60% less, sometimes even with its original dust bag and authenticity cards?

It’s no surprise then that ThredUp’s annual resale report reveals that the global secondhand apparel market is expected to reach $367 billion by 2029 (growing at a CAGR of 10%). Here are some other notable stats from the report:

• 59% of shoppers polled say if government policies around tariffs make apparel more expensive, they will seek more affordable options such as secondhand.
• 48% of respondents say personalization, improved search, and discovery make shopping secondhand apparel just as easy as shopping new.

[Go deeper: Check out ThredUp’s full report on resale growth, here.]

The resale market has introduced a powerful circular economy into luxury, one that department stores were initially slow to embrace and, in many cases, are still struggling to integrate. It empowers the value-conscious consumer, democratizes access to luxury brands, and challenges the very notion of owning something brand new as the ultimate luxury.

Lastly, there is one other chokehold on the department store sector: strategic misfires. Take Saks Global, for example. The parent company of Saks Fifth Avenue and Neiman Marcus finds itself in a precarious financial state following the acquisition of the Neiman Marcus Group last year. The company is plagued by slumping sales, widening losses, liquidity concerns and severe friction from its vendors. The company is pursuing aggressive restructuring and cost-cutting measures, but analysts and rating agencies remain concerned about the company’s long-term viability.

So, while the challenges are stark, the prognosis for luxury department stores isn’t necessarily terminal. A strategic pivot, one that leverages their inherent strengths while embracing innovation, can carve out a relevant and profitable future. The solutions lie in a radical re-imagining of their value proposition, moving beyond mere product purveyors to become curators of experience, expertise, and community.

One critical investment must be in hyper-personalized service. In an age of endless online choices, the human touch becomes an invaluable differentiator. Department stores must significantly ramp up their investment in highly trained personal shoppers and stylists. These aren’t just sales associates; they are trusted advisors who understand a client’s lifestyle, preferences, and aspirations, often across numerous brands within the department store. They can curate wardrobes, offer expert styling advice, and even manage entire seasonal refreshes, building deep, loyal relationships that transcend transactional purchases.

This level of bespoke service justifies premium pricing and fosters a sense of exclusivity that online retailers struggle to replicate. While the luxury department store chains offer personal shopping and styling services, much more can be done across the sector and this bespoke service needs to be scaled. 

Beyond individualized attention, department stores must also transform themselves into destinations for unique experiences. The modern luxury consumer craves immersion and connection. Imagine department stores offering exclusive access to digital runway shows, live-streamed from Paris or Milan, complete with commentary from in-house stylists, allowing clients to pre-order items fresh off the catwalk. This transforms shopping into an event, making the store a hub for fashion enthusiasts to connect with the pulse of the industry.

Furthermore, these experiences can extend beyond fashion. Think masterclasses with renowned designers, private trunk shows, beauty workshops with celebrity make-up artists, or even pop-up culinary experiences featuring Michelin-starred chefs.

The goal is to offer something that cannot be replicated online: sensory engagement, privileged access, and a sense of belonging to an exclusive community. Stores could host cultural events, art exhibitions, or collaborate with local artisans, positioning themselves as cultural hubs rather than just retail spaces.

Finally, department stores should strategically engage with the resale market rather than resist it. This could involve expanded partnerships with established luxury resale platforms, offering in-store consignment services, or even launching their own curated pre-owned sections. By validating and integrating the resale market, they acknowledge its importance to the modern consumer and open up new revenue streams. Imagine a customer trading in a gently used designer bag for store credit towards a new season’s collection — this creates a powerful circular loyalty loop, capturing value that might otherwise be lost.

The journey ahead for luxury department stores is undoubtedly arduous. It demands not just adaptation but a fundamental metamorphosis. By prioritizing unparalleled personalized service, crafting immersive and exclusive experiences, and intelligently engaging with the evolving luxury landscape, including the resale market, these grand institutions can prove that their chandeliers still have many dazzling years left to shine.

The future of luxury retail isn’t just about selling products; it’s about selling dreams, curated experiences, and a sense of belonging in an increasingly complex world.