Luxury is looking to the USA for oxygen. With the false rebound in Chinese consumption, the American market is increasingly being asked to set the direction for the sector. In other words, brands are counting on US customers to keep making money on Wall Street and offset weaknesses elsewhere. If the much-feared artificial intelligence bubble were to burst, however, luxury would likely be hit as well. There aren’t any parachutes: fashion houses are exposed to the US market and, even more, to stock market performance, which in the USA fuels consumption and spending.
Luxury looks to the USA for oxygen
The latest news on luxury sales in China isn’t encouraging. According to Bloomberg, sales by the 25 largest luxury labels in China fell by more than 10% in July. That decline followed a drop in June, according to three companies that track industry data. Bernstein has also reported lower revenues from the Chinese market, and when wealthy consumers do spend, they tend to keep purchases limited and direct them toward skincare. That’s why cosmetics groups such as L’Oréal and Estée Lauder are regaining momentum in the same market where many fashion brands are struggling.
China is still slowing
With China’s recovery still delayed, major luxury brands are increasingly dependent on America. Americans now account for the largest share of global luxury spending and, according to estimates by Jelena Sokolova, analyst at Morningstar Equity Research, will continue to do so until 2035. Since US consumer spending is driven in part by stock market gains, luxury is becoming increasingly tied to Wall Street’s performance and more exposed to any downturn in US equities. The risk is significant, given the pressure in bond markets, the possibility of a stock market correction and the much-discussed risk of an artificial intelligence bubble bursting. Investors already seem nervous, as reflected in the decline in LVMH.
The shift in approach
There’s another factor to consider. Wealthy Americans, now the engine of luxury growth, seem more willing to spend on watches and jewelry than on designer bags and clothing. That leaves the outlook for soft luxury looking relatively weak.
Photo from the Prada website
Read also:
- Consumption slows to restart in China and stagnates in Germany and USA
- Arnault: enough with the word luxury, the super-rich are looking for quality
