Abstract

Luxury firms cater to high‐end customers, focusing on minute details in product development. Their global supply chain plays a key role in trade, growth, and innovation. The performance of these firms is sensitive to the adoption of technology and environmental responsibility. This study explored the aggregated performance of luxury firms in the top 10 trading countries from 2009 to 2023. In this way, this study is vital as it provides insights into how global trade dynamics, consumer preferences, and economic factors shape the performance and competitive advantage of high‐value industries in key markets. This study considers the circular economy as a key determinant of luxury firms' performance, aiming to understand how sustainable practices influence profitability, innovation, and consumer loyalty in a high‐value, trend‐setting industry. This study is guided by Stakeholder Theory and Resource‐Based View, where sustainable transformation and digital capabilities co‐evolve to influence performance. Empirical findings, using panel quantile regression with Common Correlated Mean Group specifications, have confirmed the inverted U‐shaped impact of the circular economy on luxury firms' performance is validated. It advocates that the initial sustainable practices adoption boosts performance but, beyond a certain point, the costs of further sustainability efforts may offset the benefits, thereby leading to diminishing returns. Furthermore, the incorporation of information communication technology (ICT) boosts luxury firms' performance and simultaneously moderates circular practices, leading to an improved impact. As control variables, infrastructure and inflation are key factors in understanding the relationship between circular economy practices, ICT integration, and the performance of luxury firms.