Has luxury retailing become more recession-resistant?
Photo: RetailWire

Has luxury retailing become more recession-resistant?

A new study from Bain & Co. concludes that, while luxury spending‘s growth is expected to slow in 2023 following two gangbuster recovery years, the sector has become “more resilient to recession.”

Among the reasons, the share of top customers has been expanding, accounting for 40 percent of market value in 2022 versus 35 percent in 2021. The report states, “These consumers are hungry for unique products and experiences, putting brands’ VIC (very important client) strategies into overdrive.”

Luxury already tends to outperform other retail channels during downturns because of its base of high-income consumers.

A heightened focus on customer centricity in recent years was cited as “another source of resilience for the industry, as is the multi-touchpoint ecosystem that luxury has developed.”

The study pointed to investments being made in digital, omnichannel practices and stores.

Finally, a third factor expected to bolster growth over the next decade is luxury’s appeal to ever-younger consumers, a trend tied to a surge in wealth creation over the past few years, along with social media. Bain said Gen Z consumers are “starting to buy luxury items some three to five years earlier than Millennials did (at 15 vs. at 18–20); Gen Alpha is expected to behave in a similar way.”

A recent Morgan Stanley report stated that the highest level of young adults living with their parents since the Great Depression is helping fuel a luxury boom.

Bain’s bullish study comes among other reports indicating that luxury spending has been slowing due to a shift in spending toward experiences, China’s lockdowns, as well as possibly macroeconomic pressures elsewhere.

The 2009 recession saw luxury brands toning down logos and flashier designs in a backlash against conspicuous consumption. The Financial Times wrote, “The same could happen in the U.S. and Europe in 2023, as the post-Covid euphoria wears off and young consumers push back on celebrities who are flaunting their wealth on social media.”

Speaking at the NRF Big Show, Anish Melwani, chairman and CEO of LVMH North America, said luxury tends to be resilient, or “sticky,” because of fashion’s connection to identity. Nonetheless, he stressed, “There’s no such thing as being immune from recession.”

BrainTrust

"I’d feel much better about the economy as a whole if I read about and witnessed a newly energized middle market."

Jeff Sward

Founding Partner, Merchandising Metrics


Discussion Questions

DISCUSSION QUESTIONS: Do you agree that the luxury goods sector has become less susceptible to the impact of downturns? What do you see working for and against growth in personal luxury goods in 2023?

Poll

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Neil Saunders
Famed Member
1 year ago

Luxury has become more, but not totally, immune. It helps that core customers are more affluent and relatively insulated from the pressures of inflation. However there has also been an expansion of other income groups buying into luxury, with some of their consumption funded by them selling older items they no longer want on resale markets. Add to this that luxury is more global than most retail segments and is benefitting from international factors like the reopening of China. All in all the outlook for luxury is solid, but there will be a moderation in growth this year as some pressures take their toll.

Gene Detroyer
Noble Member
1 year ago

The structure of the U.S. economy is such that the wealthiest are unaffected by economic downturns. Further, during the hard times, incomes at the top continue to grow while others are stagnant and losing buying power. If one doesn’t feel a recession, one doesn’t react to it. The luxury category will be less susceptible if the luxury buyer is less susceptible.

The luxury category will always have a solid base and, as the total economy grows, there will be an incremental addition from the middle and upper-middle class.

David Spear
Active Member
1 year ago

There’s no doubt luxury retail is more insulated from pricing pressures than mainstream retailing, but it’s not completely immune. I think we’ll see very modest growth in luxury retail in 2023 as more wealthy individuals trade for pricey experiences in travel and hospitality.

Lisa Goller
Trusted Member
1 year ago

Demand for quality among high-income consumers has made the luxury market resilient.

Targeting Millennials and Gen Zers in the U.S., China and UAE drives luxury market growth. Resale and metaverse marketing make luxury more accessible to younger adults who seek prestige and elegance.

Sadly, amid economic hardship and rising crime, luxury shoppers could become targets for theft.

John Lietsch
Active Member
1 year ago

I don’t think that some of the factors Bain highlights are fundamental enough to be sustainable over the long term. However what’s exciting to watch is the convergence of digital and physical in the luxury goods space. Luxury goods retailers are leading in the use of livestream shopping and shoppable videoconferencing to offer highly personalized, online experiences that mirror those once limited to physical retail. Customer-centricity and fashion’s connection to identity are sticky and the feeling of being a VIC is a powerful tool in luxury’s battle for the high income wallet; a wallet that has proven to be recession resistant.

Shep Hyken
Active Member
1 year ago

No sector is completely immune to economic downturns, however we are in unique times. I believe we’re still experiencing some positive impact from 2020-2021, where people spent more money on “things” than experiences (travel) because of the COVID-19 lock-down.

Jeff Sward
Noble Member
1 year ago

Sure, luxury retail is recession-resistent, but that’s of small comfort in the grand scheme of things. So the well-to-do can keep shopping. Great. I’d feel much better about the economy as a whole if I read about and witnessed a newly energized middle market. A continuing bifurcation of retail doesn’t feel like a healthy path to to be traveling.

Andrew Blatherwick
Member
1 year ago

Luxury is more resilient because high earners have discretionary spend for experiences and luxury goods, they do not have to trade one off against another. Also younger consumers are buying less “stuff” but when they do spend they look for quality and brand recognition.

Mohamed Amer, PhD
Mohamed Amer, PhD
Active Member
1 year ago

I’ll stick with what LVMH’s Mr. Anish Melwani said, “there’s no such thing as being immune from recession.” The lag is longer for the most affluent in society, with the luxury segment being the last to feel the impact of the negative wealth effect.

Patrick Jacobs
1 year ago

The push for growth in digital experiences and omnichannel practices is a huge takeaway for retailers looking at luxury for guidance. These investments will definitely pay off as demographics evolve. Connecting experiences that sync physical stores with the online journey will aid in increasing market share.

As retailers make these efforts to be more available, I would assume there would also be a strong desire to remain exclusive. Maintaining that balance can be tricky.

Trusted Member
1 year ago

Luxury retailing is always less susceptible to economic downturns for three reasons:

1. Many consumers of luxury items are sold to consumers who are not affected much, if at all, by economic downturns.

2. Despite weaker economies, middle-income consumers will still purchase “affordable luxury” items, such as clothes, shoes, jewelry, and even cars, because they believe they can pay for these items over time in affordable amounts.

3. Retailers of luxury consumer goods are not reliant on nearly as much “traffic” as are merchandisers of mass marketed products. Luxury items tend to be destination items.

Exceptions exist to every theory; however, these factors are trends proven over time.