A new kind of luxury is taking a share of rich consumers’ money

Luxury goods seemed immune to economic crises, but their luster may be fading. During the pandemic, the luxury market flourished as the rich – without being affected by rising prices – enjoyed birkin bag And expensive watches. However, signs are now pointing towards a recession bounce Of the luxury of the “Roaring 20s”.

In ChinaFor example, the surge in sales that occurred in early 2023 did not last long. The country’s slow economic recovery and global uncertainty have contributed to the decline in luxury spending. According to Claudia D’ArpizioOf Bain & CompanyAn expert on the subject, despite initial resistance, luxury markets face challenges due to geopolitical changes and low consumer confidence.

These turmoil have affected big companies like LVMH, the group behind dior And Louis Vuitton. Its revenue growth in the third quarter slowed compared with a year earlier, echoed by rivals Keringowning to gucciAnd Burberry,

Richemont’s half-year sales, although up 6%, fell short of expectations, and Rolex and Patek Philippe prices have suffered on the secondary market.

While some outliers, e.g. hermesThe luxury sector in general is battling uncertainty, defying the recession with strong sales in the third quarter.

However, niche segments, such as luxury cruises, are thriving with 116% year-on-year growth in constant currency.

The complexity of the current luxury market landscape leads us to question the correct trajectory amid conflicting reports on earnings and expense discounts. What’s really happening in the world of luxury?

The pandemic marked the peak of luxury: Stimulus checks and savings accumulated from vacation plans boosted shoppers’ purchasing power, but travel restrictions and lockdowns left them with fewer ways to treat themselves. That’s when many people turned to luxury goods and bought more champagne and designer handbags than before.

“There was a huge excess of savings or purchasing power that was freed up by people staying at home, especially white-collar workers,” he said. javier gonzalez lastraPortfolio manager focused on luxury etf theme,

The magnitude of growth of the luxury category during the pandemic is reflected in the figures DeloitteIt shows that the top 100 luxury companies became bigger and more profitable than ever before in fiscal year 2022.

But then, as interest rates and inflation rose, Lastra says consumers began to tighten their belts and become more cautious about where they spent their money.

monstrous expenditure of the era of pandemic It did wonders for the profit margins of luxury companies, but it was never intended to become the new normal. In any case, it was an anomaly, and the moderation in growth we are seeing today gradually reflects the situation that used to be the norm. COVID-19,

According to, “Fundamentally, this is not sustainable, nor should it be.” Flavio CeredaInvestment manager at asset management firm Gum, based in Zurich, in the context of the high growth rates seen in the luxury segment. “I think what you are seeing this year is a deceleration, a process towards normalization. It sounds worse than it is because it comes from a much higher level.

Luxury company executives have also pointed out that the apparent recession is nothing more than a reflection of the way things were before, rather than a completely disastrous scenario for luxury goods overall. Richemont Chairman Johan Rupert said at last month’s half-year results release that “market growth expectations are broadly normalized across the region.”

The data also confirms this: Across all luxury categories worldwide, it is estimated that luxury industry consumption will amount to approximately 1.5 trillion euros ($1.62 trillion) in 2023, according to the sector report. long live luxury Of Bain & Company Of November.

According to the retail data company, the figure is nearly 70% above 2019 levels in constant currency terms, despite an estimated 29% increase in industry-wide value for that period after taking into account rising production costs. edited,

The performance of different luxury brands may also depend on the type of consumers they target, he said. Natalia LechmanovaChief Economist of master card For Europe,

Entry-level “aspirational” consumers may be more affected by macroeconomic factors and their impact on their portfolios than the wealthy.

“It should be kept in mind that luxury consumers fall on a spectrum ranging from the affluent upper middle class to billionaires. The former have become more price-sensitive: investment bank bonuses have declined, jobs have been lost in the technology sector, the cryptocurrency bubble has burst, and many wealthy professionals have had to increasingly prioritize investments. Paying more interest on your mortgage instead of vacations or expensive bags,” Lechmanova said in an email. Luck,

The decline in spending in some luxury areas reflects fluctuations in shoppers’ preferences and their appetite for discretionary items in the current economic environment.

But, in Lastra’s opinion, etf themeConsumers are spending money on a different type of luxury than in recent years.

“What we’ve seen in terms of a recession is primarily due to the fact that people are now spending on other things,” Lastra said. “So, it is a question of portfolio distribution rather than job losses or interest rate pressures that is having an impact.”

In particular, spending is directed toward luxury experiences Bain & Company, d’arpizioThe co-author of a November report on the luxury market said there has been a surge COVID-19 And the resurgence of travel has inspired more people to devote themselves experiential luxury through 2023, a trend that is expected to continue next year.

“What we see in 2023 is a rebalancing of consumer appetite towards experiences and experience-based goods over products, with an unprecedented sense of travel across social life and geographies,” D’Arpizio said. “With spending on experiences reaching an all-time high, consumers are once again moving beyond products to luxury,” he said.

This could mean that categories like travel, hospitality and cruise will see growth as tourist inflows increase. As a result of increased tourism, the purchase of luxury goods may also benefit, although to a less stratospheric degree, it is predicted. Bain & Company,

Some of these trends are beginning to be reflected in company profits: the largest European hotel group, accorRaised its annual profit target twice this year due to increased demand. British Group Rocco Forte HotelWith establishments across Europe, it has also seen an increase in revenues.

“The value of experiences has more than doubled since 2010,” he says. d’arpizio, “This ‘new normal’ means luxury markets are blurring their boundaries and brands have the opportunity to expand their reach beyond their core.”

With signs pointing in different directions, it’s clear that the next year for luxury will mark a shift that began in 2023.

HSBC A note in late November warned that because luxury is linked to consumer confidence, tourism and equity markets, what happens to it could have a wide-ranging impact.

The bank forecasts a much slower pace of growth, which it says is “nothing to be ashamed of, but a slow pace is rarely favorable for stocks in the region.”

with the economies of key regions such as United States, Europe and China Still finding its feet, 2024 could remain “challenging” for luxury, he wrote Deutsche Bank Last week.

But the good thing is that the luxury industry is more resilient than other consumer sectors of the economy.

“One of the reasons people are wanting to invest in this area is the rise of the upper middle class around the world, and that’s a great tailwind for all these (luxury) companies,” Lastra said.

(c) 2023, Fortune