Luxury sector slows after ‘bonkers’ post-pandemic spending spree
29-07-23
Luxury groups are bracing for the end of the post-pandemic recovery boom as Chinese and US consumers become more selective in their purchases.
The sector has had several years of exceptional growth driven by two engines: China and the US, luxury’s biggest market where pandemic-era savings and financial stimulus generated new shoppers in droves.
Now there are signs that the pace of growth may be reaching its peak, particularly in the US. “There is a slowdown in the US, but compared to an absolutely crazy base. People got out of the pandemic and went bonkers,” said Michael Kliger, chief executive of luxury ecommerce platform Mytheresa.
Big luxury groups Hermès and LVMH have posted strong growth so far this year, lagged by Gucci-owner Kering, which has struggled to reboot its flagship brand. However, companies ranging from LVMH, to Italy’s Prada, to Richemont — the Swiss-based owner of Cartier — have reported slower sales growth in the US. The rebound in China from last year’s harsh pandemic lockdowns is also continuing, but has been slower than some had anticipated.
“The global mood is not one of revenge buying like we saw in 2021 and 2022, so we’re talking more about normalisation than anything else,” said Jean-Jacques Guiony, chief financial officer of LVMH, the world’s biggest luxury company and the industry’s bellwether.
Industry growth broke records in 2022 growing by around a fifth to €345bn, according to consultancy Bain and Italian industry group Altagamma, as demand for indulgences ranging from Birkin handbags to luxury travel exploded. Luxury is still expected to more than double its size by 2030, but annual growth for 2023 is expected to be at a far lower 5 to 12 per cent.
Much to the surprise of policymakers and economists, consumer spending in the US has held up surprisingly well despite central banks’ efforts globally to damp demand through sharply higher borrowing costs. But as labour markets have cooled, wage gains have slowed and the spectre of a recession looms large, some buyers have begun to pull back on the margins.