Daily Management Review

Americans Are Reducing Their Spending On Luxury Items Ahead Of The Critical Holiday Season


Americans Are Reducing Their Spending On Luxury Items Ahead Of The Critical Holiday Season
According to data from three credit-card companies, Americans have reduced their purchases of luxury goods such as designer clothing and accessories in the last two months, raising concerns about the sector's resilience.
Data released this month by Citigroup, Mastercard, and Bank of America showing lower U.S. spending just weeks before the holiday shopping season may cause investors to worry that the industry's post-COVID-19 pandemic boom is coming to an end.
American purchases of luxury goods boosted the fortunes of companies such as Chanel and LVMH last year.
Although luxury sales continue to outperform cheaper brands, executives from some of the world's largest luxury firms will be pressed on whether that trend will continue when they report on trading this week.
Last week, LVMH Chief Financial Officer Jean Jacques Guiony stated that the company had seen no signs of shoppers holding back, even on entry-level purchases.
Rivals Hermes and Gucci-owner Kering will report third-quarter sales on Oct. 20, while Cartier-owner Richemont will report first-half results on Nov. 11.
According to the data, US consumers are cutting back on their spending on high-end items. According to separate estimates from the three credit-card companies, Americans reduced their spending on luxury goods by 2 per cent to 4 per cent in August and 5 per cent to 6 per cent in September compared to the previous year.
According to Bank of America research, spending cuts on luxury goods were most severe among middle-income Americans with yearly incomes of $50,000 to $125,000, and those with yearly incomes of less than $50,000.
According to BofA, people earning less than $50,000 per year will account for 39 per cent of U.S. spending on luxury goods in 2021, while those earning $50,000 to $125,000 will account for 34 per cent.
"Aspirational" consumers, who tend to be younger and have less wealth than the luxury goods industry's traditional clientele, are usually the first to "feel the pain" and respond by decreasing spending, said Mario Ortelli of mergers-and-acquisitions advisory firm Ortelli & Co.
In the United States, higher-priced brands like Hermes and Dior, according to Ortelli, would likely be more insulated from a slowdown than more accessible luxury brands like Michael Kors.
Aspirational shoppers can now find Yves Saint Laurent, Dior, and Gucci far beyond Rodeo Drive and Madison Avenue.
According to Citi, both the number of Americans purchasing luxury goods and the amount spent fell in September. Citi tracked spending in 18 million accounts.
Meanwhile, according to Mastercard's "SpendingPulse" report, which measures retail sales across payment types, luxury purchases, excluding jewelry, were down 5.2 per cent year on year in September, while spending on restaurants and air travel was up.
Major brands like Louis Vuitton and Chanel have recently raised their prices. According to Internet reseller Bagaholic, Chanel's quilted classic flap handbag cost $7,800 in July 2021 and is now $8,800.
"They might not be buying the bag again this year or next year," said Gregory Mancini, global co-head of equity research at Nuveen, noting that new luxury consumers who bought their first high end items with savings accumulated during lockdowns would likely return again, if later, for designer goods.
A shift toward higher-end goods is further challenging labels on the lower end of the luxury scale.
"In a market like America, where people buy a lot of stuff, people are becoming more discerning and buying less quantity but better quality," Ortelli says.