ed, home-bound, experience-starved consumers flocked to luxury shopping to lift their spirits and spend some of their discretionary funds accruing thanks to Covid-19 government assistance, stimulus checks, tax relief, suspended student debt payments and the pandemic-induced restrictions. Shopping can provide an endorphin lift, and luxury brands, with their elaborate storytelling wrapped up in superior quality products and aspirational positioning, arguably provide the highest experiential quotient. American management consulting firm Bain & Company reported that global luxury sales were down by 22 per cent with the onslaught of the pandemic in 2020. By 2021, luxury sales had fully recovered, rising 32 per cent to surpass 2019 numbers. The year 2022 was the second consecutive one of double-digit sales growth after the pandemic, with sales up 20 per cent, supporting 24 per cent growth in the 2019-22 period. What a difference a year makes. In January of last year, two-thirds of economists and business pundits were calling for a mild US recession. Product and service inflationary pricing and high-interest rates worked to subdue luxury spending along with the uptick in travel and entertainment following Covid constrained behaviour. The most anticipated recession was averted as consumers continued to spend at an attenuated pace, diverting domestic spending on luxury goods to more experiential occasions, including dining out, concerts and travel. Spending on personal luxury goods declined by about 8 per cent in the US, Bain & Company stated Long Live Luxury: Converge to Expand through Turbulence, while increasing by 8 per cent globally, benefitting from the resurgence of international travelers, including many from the US. By the final quarter of last year, the consensus economic outlook had been upgraded to predict a soft landing this year, accompanied by the expectation that the Federal Reserve would lower the funds rate during the year. Early macroeconomic data supports continued economic growth, with strong employment trends and moderating inflation. Even so, recent luxury financial reports have been mixed, reflecting brand strength, business models and different luxury categories, while regional performance has varied as well. Luxury behemoth LVMH, with 75 maisons, reported a very solid December quarter, as did Richemont and Zegna. Canada Goose reported a mid-single sales gain while Burberry reported a sales decline. Multibrand luxury retailers are under pressure as the Farfetch-Coupang deal and the KaDeWe insolvency filing show, as this business model deals with the growing luxury direct-to-consumer business model. Luxury is resilient – the last category to feel economic pressure and the first to recover. Not only are high earners insulated from economic vicissitudes, but also luxury has a lifestyle component, creating pleasure and stickiness based on product quality and brand storytelling, and luxury products endure as sources of value. The weakening of luxury sales last year reflected, in part, newer emerging luxury shoppers reducing their overall luxury spending and exercising greater consideration in their purchases, while the top 20 per cent of luxury shoppers was largely undeterred. Iconic luxury brands have taken double-digit price increases in the past few years, supporting industry growth. China then and now For the first 20 years of this century, the luxury industry benefited from the burgeoning growth of the Chinese economy and its growing middle class. This cohort spent globally, on travel to international flagship cities, including London, New York, Paris and Rome. In 2000, only 3 per cent of the Chinese population was middle class and by 2018, this number had climbed to over half of the population – more than 700 million people. Not surprisingly, this supported the democratisation of luxury and the success of aspirational luxury brands such as Coach, Kate Spade and Michael Kors that are affordable, approachable yet still luxurious. At the high end, the number of millionaires in China grew from about 40,000 in 2000 to 6.23 million in 2022 the UBS Global Wealth Report 2023 shows, second only to the US (at 22.71 million millionaires). Now, the Chinese economy isn’t the powerhouse of the past 20 years. The re-opening of China after the pandemic lockdowns that extended into early last year, didn’t bring about the hoped-for resurgence in Chinese luxury demand. Record high youth unemployment, a weak real estate/housing market and weak consumer sentiment have dampened China’s traditional love affair with all things luxury. And its luxury spending has largely remained on the mainland, Hainan and Asia. Digital Luxury Group, and a survey conducted by Tencent Marketing Insight and Boston Consulting Group found that the middle class accounts for 90 per cent of China’s luxury shoppers, but only 60 per cent of China’s luxury spending last year. Chinese shoppers will likely continue to be an important driver of the global luxury industry’s growth over the coming decade, but it won’t be as simple as the last 20 years. Chinese luxury shoppers have heightened experiential and artisanal expectations today. Luxury brands should also look to other regions and demographics for growth, including Saudi Arabia and India. Luxury outlook A more considerate consumer will likely subdue luxury sales growth again this year, with beauty, fine fragrances and high jewelry setting the pace, while fashion and leather goods continue to digest the rapid growth achieved in 2021-22. Another year of sub-optimal global luxury sales growth is likely this year, up an estimated 4 per cent with regional variations. This is a year for luxury brands to invest in brand building, product and consumer relationships, investments that enhance brand equity, long-term growth opportunities and customer lifetime value. For example, the LVMH sponsorship of the Paris 2024 Summer Olympics will reverberate around the world in brand awareness for many of its maisons for multiple years. In 2025 and beyond, luxury will benefit from the solid fundamentals of a growing global middle class who aspire to the lifestyle that luxury products confer and the self-expression that luxury brands provide. New luxury shoppers – young Millennials, Gen Z and Gen Alpha, who will represent more than three quarters of luxury sales by the end of the decade – engage in conscious consumerism. They expect the brands they engage with to express their values of environmental sustainability and social responsibility. Authenticity across corporate culture, product, and consumer communications and touchpoints is paramount for this consumer base. Luxury brands can keep shoppers engaged through challenging times by addressing social and environmental values authentically, along with offering fabulous products while providing high-touch in-store immersive experiences augmented by technology to support omnichannel customer relationship management. Pockets of growth Following many years of double-digit growth, luxury handbags and sneakers, outerwear and fashion, luxury demand has shifted. Some areas of growth this year include: Beauty – Considered by many to be the ultimate luxury, the beauty category offers a relatively low- priced, feel-good purchase, and is recession-resistant. It’s an easy trade down from a handbag or wallet to a fragrance or lipstick. During the pandemic, beauty became entwined with self-care an wellness, anchoring it as a requisite ritual. Fragrance has enjoyed strong growth running up to, during and post-pandemic, reflecting products becoming premium and line extensions. On the LVMH January 25 investor call, the company discussed the 11 per cent growth for its perfumes and cosmetics sector, with its Christian Dior J’Adore and Sauvage leading global growth, while Dior and Louis Vuitton are executing premiumisation strategies. Men – January’s men’s fashion shows were replete with man bags: satchels, totes, belt bags, cross-body bags, shoulder bags, and duffels. Men are in the early stages of wardrobing and provide ample growth opportunities for leather goods companies to meet this need. Moreover, a return to work post-pandemic (hybrid or full-time) necessitates new clothes. High jewelry – Sales of jewelry and watches have remained robust post-pandemic, reflecting creative products and the high-net-worth customer. In addition to traditional jewelry houses, such as Bulgari, Cartier and Tiffany, luxury brands sell high (fine) jewelry too, including Chanel, Hermès and Louis Vuitton. High jewelry is a store of value and thus is often considered an investment asset by purchasers, capable of providing liquidity if needed in the future. Similar to handbags and outerwear, jewelry provides multiple wearing opportunities, resulting in an attractive cost-per-use calculation that designer apparel does not. Resale – Pre-owned, pre-worn, and secondhand products have lost their stigma and are frequently perceived as the desirable channel by young luxury shoppers. Thredup, in its 2023 Resale Report, estimates the global secondhand market will reach US$350 billion by 2027. Resale’s allure is a combination of iconic brands at value prices, a treasure hunt shopping experience with a fear-of-missing-out element, given the limited availability of individual items, an enhanced ability to be self-expressive with fashion, and the circularity/sustainability component. The list of contemporary brands adding resale to their website grows daily and luxury houses are exploring/investing in the concept as well. Printemps, the famous French department store, has dedicated its top floor (with René Binet domed stained glass ceiling, Parisian views and balcony) to vintage resale, dubbed 7th Heaven. For luxury brands, resale is often a shopper’s first brand purchase, the introduction to luxury. Given the positive consumer engagement, luxury brands are likely to bring iconic resale items in-house for a more comprehensive view of their shoppers. This story first appeared in the March 2024 issue of Inside Retail US magazine.