Consumer spending has become increasingly polarized. Economies in many developed countries resemble an hourglass shape, with more people at the top and bottom and fewer in the middle. However, this trend only accelerates amid economic instability caused by inflation, high interest rates, artificial intelligence transformation or job insecurity.
Top earners have more disposable income than ever and will continue to spend heavily on luxury items, experiences and premium brands. However, middle-class and lower-income groups feel financial pressure and cut back their spending.
It’s not just about money. It’s about psychology, status and even survival. Halfway through 2025, consumer sentiment exhibits a clear pattern of polarization. Some regions and demographics show optimism while many others remain pessimistic. Consumer sentiment is no longer neatly aligned with consumer spending, and simple methods for predicting consumer behavior are probably insufficient. This polarized consumer spending reflects deeper trends in inequality, shifting values and economic pressure.
In the polarized economy, brands and retailers need to rethink their positioning, product strategy and customer engagement to stay competitive and relevant. In the polarized economy, the worst position would be the blurry middle that doesn’t belong to any side.
Clarity of brand positioning, price architecture and audience targeting is essential. Brands should offer product features or services that justify their price tags and add more value with tech innovations, better materials, ethical sourcing, etc. Brands should use a strong identity and purpose to break through the noise in a very crowded market and be discoverable.
The luxury industry is clearly facing a significant slowdown that has hit even top brands hard. LVMH's fashion and leather goods sales fell 9 percent in the second quarter, just missing analyst estimates. Kering, which owns Gucci, reported a 12 percent year-over-year revenue drop for fiscal year 2024 earlier this year. It could be a warning sign for the entire luxury sector.
There is hope. Gen Z and millennials together accounted for almost all growth in the luxury market in recent years. Gen Z can help save the luxury industry, but not the old models. Consumers, especially younger ones, are shifting toward experiences and services rather than possession and obsession. In a polarized market, growth doesn’t come from being everything to everyone. It comes from knowing your tribe and serving them better than anyone else.
In addition, Gen Z shapes culture on platforms like TikTok and Instagram, where visibility equals value. Moreover, if a brand gains traction with Gen Z online, it often goes viral across generations. Gen Z has helped transform the luxury industry as a whole into something more fluid, ethical, digital and expressive. Brands that evolve will thrive. Those that cling to the old exclusivity model will fade away.
Cultivating true value in the polarized economy means transcending mere price or prestige. It’s about delivering meaning and relevance to consumers across the economic spectrum. True value equals the sum of price, purpose, experience and ultimately trust.
It’s no longer just about being the cheapest — or the most luxurious — if brands want to survive and thrive. It’s about solving real problems. Brands should create lasting emotional connections with consumers. Brands should stand for something more than their name while delivering consistency and excellent quality at all times.
Achieving relevance in the polarized economy — where consumers are split between value-hunting and selective splurging — means being laser-focused on who you serve, how you serve them and why they should care. Relevance lives in context, though. If brands are not present where their audiences are, they simply don’t exist. Brands should also be careful of falling into the irrelevancy trap of “being all things to all people.” That is so wrong. Brands must be undeniably meaningful to the right people, at the right time, in the right way.
Luxury brands must navigate the polarized economy where consumers are either trading up (i.e., premiumizing) or trading down (i.e., seeking value). Brands are being forced to rethink old playbooks to stay relevant. This disruption isn't a threat if brands can learn the valuable lessons on offer. It would be a wonderful wake-up call and transition point for them to find the next growth momentum.
Cultural capital can matter more than a price tag in the polarized economy. The most successful luxury brands today are cultural producers, not just product makers. Younger consumers also want brands that reflect values, creativity and identity — not just exclusivity nor status. That cultural engagement drives growth.
Luxury buyers can also be value-sensitive in the polarized economy. They may still splurge — but more selectively and consciously because they don’t want to look irrelevant. In a world where people trade up and down, rigidity comes at the cost of relevance. Hence, it is always smart for brands to repackage their products as investment-worthy — not wasteful indulgence.
In the polarized economy, the lesson is to not chase either extreme. Brands should stand for something timeless and express their identities in ways that feel alive, inclusive and relevant today. That is the zeitgeist.
Daniel Shin is a venture capitalist and luxury fashion executive who has passion for entrepreneurship and education.