During  inflation chaos and banking crises, luxury tends to thrive better than other economic sectors. Is it in the anti-recession zone? If yes, what makes this the case?

Key take-aways

• Numbers do not lie; most of them reasonably  prove that the luxury continues to bloom even when concerns about the recession looming over the economy

A 74-year-old man surpassed Elon Musk as the wealthiest  person early this year, after Musk lost $200 billion with a massive drop in Tesla’s shares. That man is Bernard Arnault. He is co-founder and CEO of LVMH, the parent company of many renowned brands, including Tiffany, Louis Vuitton, and Christian Dior. The fact that a business owner of high-end goods took over the billionaires index, somehow, implies luxury can grow significantly.

SHRUG OFF THE RECESSION

In 2021, the luxury industry recovered from the epidemic in a stunning, “V-shaped” way, according to consulting firm Bain & Co. Revenues were expected to rise to $301 billion, up 7% from 2019 pre-crisis levels in constant exchange rates.

Quick forward to the current economic turmoil. With the outbreak of war in Ukraine, the fastest rate hikes in the US, double-digit inflation in several European economies, and clear signs from businesses trying to cut down on costs, the luxury industry is still thriving and rising. 

Some of the most significant players reported their 2023 first-quarter revenue with an impressive upsurge. Hermes, whose shares are listed in Paris, saw revenue rise 23% year-on-year, far above a jump of 13 percent predicted by experts. Additionally, LVMH Moet Hennessy Louis Vuitton, run by billionaire Bernard Arrnaud, revealed  17% growth in revenue compared to the same Q1 of 2021.

Before those figures were made public, luxury stocks in Europe were soaring. Since the beginning of this year, their increase has exceeded nearly 61% of the gain of the MSCI Europe index – a common indicator for regional stock markets.

Most investors infuse their money to buy luxury equities. They see this investment as a way to benefit from the lavish shopping habits of China’s wealthy class – who are more eager to shop after three years of lockdown. LVMH revealed earnings in China broke a record of over 18% in the first quarter of this year on an organic basis.

At Rolex, where the average price tag for a watch can easily top $20,000, timepieces exports totaled 1.5 million just in March, up roughly 24% from the previous year. The Swiss watch brand said value exports rose during the first quarter of this year, with increased sales orders from all across Singapore, Germany and China.

Ferrari disclosed its consolidated preliminary results for the first quarter, ended on March 31, 2023. Shipments grew by 9.7% from the previous year. The 75-year-old luxury sports car plans to boost sales substantially, with four new models being launched this year. “Our order book is robust, it covers all this year and a good part of the next one,” said Chief Executive Benedetto Vigna.

After a tour around Europe, editorial director of Bloomberg Pursuits, Chris Rovzar, wrote an article titled “As global economy slips, luxury is doing just fine”, describing how ultra-luxury products in deluxe hotels, shopping centers and parties in Paris have set such a persistent vitality.

An interesting piece in this article raises the question: Will luxury face a downturn as everyone else? Consequently, “I think people ask this because it seems impossible that the party could continue. And if it does, it won’t look very pretty, and it won’t feel particularly fair. But the answer is: no, luxury will not face a downturn. At least not very soon.”

These figures, under an economic point of view, reasonably prove that the luxury continues to bloom even when concerns about the recession looming over the economy. But what explains the profound vitality of luxury brands when it comes to political aspect and the consumption habits of their target audience? Join REIQ for the second part of the blog which will soon be published next week!

Reece Almond