Food, gas and travel prices have skyrocketed over the past year, but they seem to be ignored by the wealthy and are still fueling sales at luxury goods companies.
Companies that cater to the super-rich, including Ferrari and parent companies of Dior, Louis Vuitton and Versace, continue to report strong sales or raise their profit forecasts.
These positive results come despite growing recession fears, with Wallmart, Bestbuy, GAP and others slashing their financial forecasts, citing lower spending among low-income consumers due to inflation.
Experts say the continued growth in the luxury category is in line with the previous economic slowdown, where the wealthy are often the last to feel the effects due to the protection provided by their vast wealth, and continued spending also indicates that expensive purchases are often an expression of their social status .
Louis Vuitton, for example, offers a pair of sneakers for $1,230, plus a bag that costs $2,370.
Parent company LVMH, the parent company of the high fashion brand, which also owns Christian Dior, Fendi and Givenchy, recorded organic revenue growth of 21% to €36.7 billion ($37.8 billion) in the first half of 2022 compared to last year.
And at Versace, where a pair of shoes or T-shirts can easily cost $1,000, quarterly revenue was up nearly 30% from a year ago, to $275 million.
Parent company Capri Holdings, which also owns Michael Kors and Jimmy Choo, said total revenue rose 15% to $1.36 billion over the period.
Despite the broader economic uncertainty, Capri CEO John Idol said the company remained confident in its long-term goals due to the “proven resilience of the luxury industry”.
Earlier this month, Italian supercar maker Ferrari reinforced its guidance for the year following revenue hit a record 1.29 billion euros ($1.33 billion) in the second quarter.
Outside of the luxury realm, some companies also point to strength in more expensive options. For example, Delta Air Lines cited stronger revenue recovery for offerings like Business Class and Premium Economy, compared to other class tickets.
Although the luxury sector has always had a degree of resilience, the growing wealth inequality fueled by the pandemic is adding to the sector’s current strength, said Amrita Banta, managing director of Agility Research & Strategy, which specializes in affluent consumers.
“The disposable income of most affluent consumers and high net worth consumers has increased due to less travel spending,” she said.
Besides, she said, there has been a cultural shift since the 2008 recession and that today’s high net worth consumers are less guilty regarding spending in times of downturn, and “feel entitled to spend their fortune”.
Luxury Institute’s Pedraza said luxury firms may be seeing a spending slowdown among 80% of their “nearly affluent” customers. But he said those consumers usually only account for regarding 30% of sales.
Instead, he said, luxury brands often rely on just 20% of their customers — the ultra-wealthy and the ultra-wealthy — for the majority of their sales. He said that as this cadre is more resistant to inflation and stagnation, luxury firms tend to eventually experience a slowdown.
“The type of customers and the amount of sales that luxury brands have, make them very flexible,” he said. “It’s not immune, but it’s super flexible.”
