High-level luxury spending forecasts still look rosy

"It's probably not worth it to be the richest person in the graveyard."< /p>

This revelation is why high profile consumers are fueling luxury sales in the industry, according to Luca Solca, who summarized the global luxury market on Thursday night at a Franco-American Chamber of Commerce event in New York. How long this mindset lasts remains a matter of debate, Bernstein's senior analyst said. High-end demand in Europe and the United States is still very strong after two good years of sales. Inevitably though, this post-pandemic euphoria will normalize, Solca added.

Coast spending is primarily driven by "how people feel, what they want do and what they want to spend the money," Solca said. Even though some consumers are seeing their stock market portfolios dwindle, they "don't care and want to have a good time" after going through two terrible years because of pandemic, Solca said As many are eager to get out and about again, demand for new dresses, shoes and handbags is outpacing jewelry purchases, which have increased due to gifts during the pandemic and continue to show solid results, he added.

Before the pandemic, Chinese shoppers made up 30-33% of luxury goods consumers; American consumers represented 22% and Europeans 18%. More recently, the rise of US and European buyers over the past two years has taken some of the overall market share from Chinese consumers, however, with the lifting of lockdowns in China over the past few months, expectations for 2023 “is a very strong rebound in Chinese luxury spending,” Solca said, adding that estimates that this market could grow by 7% appear “very low,” based on feedback from companies in China that indicated potential. to double or triple sales in their own stores there. . The rebound triggered by Chinese consumers is expected to extend into next year, which would be conducive to continued "above-average demand for the industry" as double-digit percentage gains average this year and the next, he said.

To emphasize "how thin Chinese demand penetration is, Solca noted how Louis Vuitton reported in 2018 that it had 5 million Chinese consumers globally, or 0.03% of the Chinese population.

Noting how good this may bode for the stock market, Solca said he had never been so busy talking with investors in the past 20 years.

Referring to data from Global Blue, Solca said that between 2019 and 2022, the globally increased between 2.6 and 2.7 times and top spenders increased by around 30%. With the return of Chinese shoppers, who can now travel more freely, luxury stores, including some that already have waiting lists and require appointments, could potentially be very crowded, he said. “This could lead to a deterioration in service levels for our industry. They are already poor, frankly with the queuing [which is sometimes] necessary in front of stores, and waiting forever to get what you want. »

"The industry relies on a paradox, selling the perception and illusion of exclusivity while growing exponentially," Solca said. Modern luxury brands have reconciled this by never discounting "to maintain that perception of exclusivity while selling as much as they can." he said.

Not expecting a slowdown in U.S. or European luxury spending anytime soon, Solca noted how the Europe's luxury industry is seen there as as strong as the tech sector. "LVMH has the largest market capitalization in Europe today," he said.

The biggest risks to the luxury market are geopolitical developments - whether the relationship between United States and China continues to deteriorate, and international trade suffers...