These scenes highlight what can be described as a “re-opened appetite” for luxury goods, after the lifting of Corona restrictions in Beijing, and at a time when the “luxury and luxury goods” sector is booming. outstanding despite the critical challenges facing different economies given the high rates of inflation.
Financial crises, the pandemic, geopolitical turbulence, spiraling inflation and pressure on the cost of living have not hindered the rise of the luxury sector (which includes goods as well as travel and hotel). After a sharp contraction with the global lockdown at the start of 2020, the sector quickly rebounded to 1,150 billion euros in 2021. In 2022, the sector grew from 19 to 21% (according to estimates by consultancy Bain) .
But as fears of a global recession persist, the question arises: can the sector’s growth continue unabated?
A report recently published by the British newspaper “Financial Times” considered that “this question (the extent to which the sector continues to grow) depends on the United States and China, as they are the two growth engines of luxury and its largest consumer markets”. .”
Most luxury companies took a hit to their business in China late last year due to Corona restrictions. But first-quarter sales figures for LVMH and Hermès suggest a recovery in China from the lingering effects of strict anti-coronavirus policies is already underway, and should pick up speed in the second half due to increased travel.
After years of extraordinary growth, analysts and investors say some moderation in the sector is to be expected (according to Erwan Rambourg, global head of consumer and retail research at HSBC). But even this moderation is likely to be modest.
The sector has remained strong… for these reasons:
Director of the College of Hospitality and Tourism at Toronto Metropolitan University, Frederic Dimanche, said in exclusive statements to “Economy Sky News Arabia”: Inflation has affected families a lot, and many are struggling to adjust their spending, which affects people’s way of life.
However, he finds that:
People adapt their behavior without necessarily canceling all purchases. In the aftermath of the pandemic, there is a strong desire to travel, for example. Many countries are on the verge of returning to 2019 levels in terms of arrivals.
In contrast, he points out that consumers affected by inflation change their travel behavior slightly, explaining that “they will control their budget by spending fewer days in their destination, or they will shop around for destinations at a price they can afford.”
Sunday notes that air travel has not yet returned to 2019 levels due to the labor crisis (airlines and airports need more staff) and because travelers are choosing cheaper modes of transport and alternatives. When they can, many choose to travel by car or train, and people tend to travel to cheaper and closer destinations.
Thus, the director of the College of Hospitality and Tourism of the Toronto Metropolitan University points out, in his interview with Sky News Arabia Economy, that “it is certain that the luxury sector has remained strong, due to the continued attraction of experiences luxury, and also because people who can afford luxury goods and experiences aren’t affected much by inflation.”
Also, there is a new generation of shoppers ready to indulge in the luxury experience, despite the occasional cost.
Sunday sees the luxury sector doing well, and all sectors look confident for the next few months, from travel to fashion, automotive and jewelry. The changes that will occur could be due not only to inflation, but also to factors such as technological progress. He concludes: Right now, from a leisure and travel perspective, there is an appetite for quality experiences, and the question is: will that continue?
The luxury sector and the middle class
These estimates are in line with what LVMH’s chief financial officer, Jean-Jacques Guyonne, confirmed in his statements reported by the British newspaper, in which he declared: “We don’t sell most Louis Vuitton products to the wealthy, but rather to people who have money and want to be pampered (..) We believe that diapers The upper middle will continue to thrive, and we will design and market products for that.
Although definitions of the middle class vary, its growth has been most evident in China. The middle class is estimated to number around 350 million people, or 25% of the population, more than the entire US population in 2018, up from around 1% of the population at the turn of the millennium.
The wealthy, though few in number, have also grown exponentially and developed a taste for luxury goods, allowing brands like Chanel, Dior and Hermès – whose bags sell for over €20,000 and usually cannot be purchased only after a long time after the waiting list — grow rapidly, higher, according to the same report.
prosperous sector
The luxury sector is “one of the few global sectors to succeed (…) If there is a lack of demand in one place, there will be a demand in another”, according to the head of the bank of Citi’s global luxury, Roberto Costa, in the Financial Times report.
And while luxury brands are generally not valued in the same way as stronger and weaker brands, Enrico Massaro, head of consumer and retail at investment bank Barclays, believes that “this is not It’s not a question of regions, it’s a question of the strength of brands and companies (..)”.
consumption priorities
Against this backdrop, Morgan Stanley’s estimates point to a “single-digit” drop in luxury spending in the US and Europe over the current year.
In this context, the director of the Peterson Institute for International Economics, Adam Posen, speaks in exclusive statements on the site “Sky News Arabia Economy”, on the evolution of consumer priorities of citizens in Europe and the United States of America, in light of the high rates of inflation, and he says:
For low-income citizens, higher inflation meant lower aggregate real consumption. Low-income citizens had to spend more on basic necessities such as rent, food, energy and basic services. For citizens in the upper half of the income distribution, there has been a shift towards relatively higher spending on services rather than goods; Because inflation was lower in services, and because they bought a lot of durable goods during the pandemic.
And on whether the exceptional boom in luxury and luxury goods in some regions due to current economic conditions is likely to come to an end, the director of the Peterson Institute for International Economics says: “The boom in demand for luxury goods may end, with a fall in demand, and therefore a fall in prices (in the event of a recession). )”.
However, he warns at the same time about the issue of “changing people’s attitudes and tastes” as a fundamental factor that governs the process of turning to luxury goods, away from inflation and economic conditions.
Middle East countries
As for a number of countries in the Middle East, they are not far from the relative prosperity of the entertainment sector that some other regions have experienced, confirmed by a previous report published by Barclays Bank, which was based on returns from high oil prices, which would support economic conditions in a number of countries. Bank analysts expect the region’s share of luxury goods sales to reach 8% globally by 2030, up from 5% currently. According to the same report, LVMH and Richemont are the main beneficiaries of the growth of this sector in the Middle East.
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