(June 25): The luxury sector is set to grow more slowly than previously predicted because of the Iran war, but wealth creation from the SpaceX listing and future US share sales by OpenAI and Anthropic could cushion the blow for struggling brands selling pricey handbags and watches, according to Bain & Co.
The consulting firm flagged the potential drivers of growth in its latest report on the industry even as it cut its forecast for gains in the personal luxury goods market this year to between 2% and 4% at constant currency rates, down from a 3% to 5% increase it had predicted in November. That’s still up from the 1% growth last year.
The less bullish forecast comes after the war in the Middle East, which kicked off late February, hurt the crucial shopping hub of Dubai as well as tourism flows to Europe. But the US has been a bright spot for luxury brands and that’s set to continue, Bain said, noting that it’s the industry’s largest market followed by China and Japan.
“There’s a lot of upside potential for luxury brands in the US” from the wealth-creation effect, Bain partner Claudia D’Arpizio said. “It’s been the case in the past with booms in cryptocurrencies and soaring stock markets particularly related to tech.” In spite of some recent volatility and selloff, the tech and artificial intelligence boom has minted paper millionaires in the US.
Still, D’Arpizio warned that the luxury industry needs to lure back the less wealthy, aspirational shoppers who left the industry in droves — one estimate puts the exodus at about 70 million customers globally between 2022 and 2025 following steep price increases on products that hadn’t really improved on the creative front.
“This wealth effect may exacerbate a feeling of inequality and brands should be mindful in their communication and ad campaigns to not only focus on the ultra wealthy but also on the middle-class customers,” she added.
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The US isn’t the only market enjoying an AI-related wealth effect. It’s also happening in South Korea, where chip workers at Samsung Electronics Co are set to receive average bonuses of about US$340,000.
Although South Korea is only the sixth largest market for luxury goods, the country has an outsize influence on fashion and beauty trends and has become a major tourist destination for Chinese consumers, D’Arpizio said.
Watches and jewellery, rather than bags and ready-to-wear, have benefited the most from the recent strong demand for luxury goods in South Korea, according to a May 27 note by UBS Group AG analyst Zuzanna Pusz. Sales in the country represented 10% of Moncler SpA’s revenue last year, 8% for Hermes International SCA and 6% for Cartier owner Richemont, the note added.
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D’Arpizio said Europe is currently “the real sick patient” of luxury, with depressed local demand and lower sales to US tourists who either cancelled trips to Paris and Milan following the war in the Middle East or have spent less on expensive goods due to the weak dollar.
Uploaded by Evelyn Chan
