Luxury Brands Are Counting on Americans to Keep Spending

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With parts of China in lockdown, brands need demand in the US to stay high

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Sales of personal luxury goods—top-end handbags, watches and the like—have been booming in the US Before the pandemic, the Chinese were the industry’s most important consumers globally, accounting for one-third of all spending on such items in 2019, according to Bain & Company. Americans were next with a little more than one-fifth of the market. To most people’s surprise, this flipped in 2021 when Americans bought 32% of luxury goods by value and the Chinese just 23%. Luxury brands are therefore counting on US shoppers to offset some of the pain caused by the latest shutdowns in Beijing and Shanghai.

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Data from the early weeks of the second quarter in the US are mixed. Spending on luxury in April did increase by 8% compared with the same month of 2021, based on credit and debit card transactions tracked by Bank of America,

But this is a slowdown from the 16% increase recorded in the first quarter of 2022.

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Some of the shoppers that drove last year’s boom are paring back. Purchases by consumers that earn less than $50,000 a year fell 9% in April compared with the same month of 2021. These shoppers gave luxury brands a boost in 2021, doubling their spending on designer goods compared with 2019. Spending by wealthy consumers was up a more modest 30% from prepandemic levels. Government stimulus checks, individual investors’ stock-market gains and excess savings are drying up. Higher food and gasoline prices are forcing less affluent consumers to make cutbacks.

Wealthier shoppers still look flush. Card transactions for luxury goods among consumers earning more than $125,000 a year increased 21% in April compared with a year earlier, only a slight slowdown on the 28% rate recorded in the first quarter. The overall trend suggests that although appetite for luxury goods remains enormous in the US, only brands’ core customers can still afford to splurge.

Back in China, major luxury labels are confident that sales will bounce back as restrictions lift. But a weak second quarter could continue to weigh on share prices in the near term. Europe’s largest luxury stocks are already down 32% on average since the beginning of the year, compared with an 18% decline for the MSCI Europe index. Herms International and Kering have been hit particularly hard.

Wealthy Americans still offer some hope to luxury brands, but most US consumers now have more important things to spend their money on than a $1,000 bag.

Write to Carol Ryan at [email protected]

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Credit: www.Businesshala.com /

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