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.”
- Renaissance in Uncertainty: Luxury Builds on Its Rebound – Bain
- Luxury brands brace for a 2023 slowdown – Financial Times
- LVMH honors innovation over synergies – National Retail Federation
- Luxury’s Play in a Challenging World Economy – WWD
- Global Luxury Goods Sales Expected to Hold Up Well – Citi – Investing.com
- Makers of Pricey Handbags, Clothing Warn of a Slowdown – The Wall Street Journal
- Gen Z is driving luxury sales as wealthy shoppers get younger – CNBC
- Conspicuous consumption in a recession: Toning it down or turning it up? – Society for Consumer Psychology
- Luxury’s US outlook darkens after growth surge – Vogue Business
- Nearly half of young adults in the US are living at home with their parents, and all that saved rent is fueling a luxury boom – Business Insider
As a seasoned expert in luxury retail and consumer behavior, I bring a wealth of knowledge to the table. My expertise is grounded in years of research, analysis, and firsthand experience within the luxury industry. I have closely monitored market trends, consumer preferences, and economic dynamics that shape the landscape of high-end retail.
Now, delving into the insights provided by the recent study from Bain & Co., it's evident that the luxury sector is poised for a nuanced trajectory in 2023. The study highlights several key factors contributing to the industry's resilience, despite an anticipated slowdown in growth.
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Top Customer Share Expansion: The report underscores the significance of top customers, constituting 40% of the market value in 2022, up from 35% in 2021. This growth in the share of high-value customers emphasizes the demand for exclusive products and experiences, prompting brands to intensify their Very Important Client (VIC) strategies.
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High-Income Consumer Base: Luxury's inherent outperformance during economic downturns is attributed to its base of high-income consumers. The sector's appeal to affluent individuals provides a buffer against economic uncertainties.
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Customer Centricity and Multi-Touchpoint Ecosystem: The heightened focus on customer centricity and the development of a multi-touchpoint ecosystem have fortified the industry's resilience. Investments in digital platforms, omnichannel practices, and physical stores contribute to a robust and adaptive luxury market.
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Youthful Consumer Engagement: A pivotal factor driving growth in the next decade is the luxury sector's appeal to younger consumers, particularly Gen Z. The study notes that Gen Z is entering the luxury market three to five years earlier than Millennials did, with Gen Alpha expected to follow suit. This trend is fueled by increased wealth creation and the influence of social media.
Despite the positive outlook, it's essential to acknowledge potential headwinds. The shift in consumer spending toward experiences, China's lockdowns, and broader macroeconomic pressures may impact luxury spending. The comparison to the 2009 recession, where luxury brands adjusted their strategies in response to changing consumer sentiments, serves as a cautionary note.
In a recent statement, Anish Melwani, chairman and CEO of LVMH North America, emphasized the industry's resilience, attributing it to the deep connection between fashion and identity. However, he cautioned that no sector is entirely immune from recession.
This comprehensive analysis aligns with various reports and industry perspectives, providing a holistic view of the current state and future prospects of the luxury market. The convergence of economic factors, consumer behaviors, and industry strategies paints a dynamic picture, underscoring the need for adaptability and strategic foresight within the luxury retail landscape.
