The last two years should have been horrible for the 283 billion euro luxury sector. Many of the usual triggers for high discretionary spending – confidence in the economy, international travel, social occasions – have been in short supply. Stores have closed, reopened and re-closed; fashion shows and other key marketing events have been removed or moved online; supply chains have been tightened; the prices of materials and labor have increased.
And yet global sales of luxury goods have recovered to pre-pandemic levels in 2021, analysts say, as stocks in the sector – up 40% year-on-year – have outperformed the broader stock market. for the sixth consecutive year. (Earnings also made a full rebound thanks to rent renegotiations and other cost savings made at the start of the pandemic.) Fiscal stimulus, a strong stock market and rising household savings have boosted spending in the United States, and with less opportunity to spend on food or travel. , many consumers channeled what they would have spent on luxury services into luxury goods.
But the recovery has not been even. It was the big, conglomerate-backed brands with their vast geographic reach that won while the smaller players struggled, sold out or went bankrupt. And while luxury spending has returned to 2019 levels in the US, China and Korea, sales in Europe and Japan remain depressed (due to a lack of tourists for the former and slow adoption vaccines for the second).
With the spread of the Omicron variant, further lockdowns in Europe and economic headwinds in China, the picture for 2022 is cloudier than a year ago. Here’s what to watch out for.
Spending on luxury goods will reach record highs
Despite the continued challenges posed by Covid-19, analysts are confident that revenues in 2022 will continue to exceed pre-pandemic levels. After increasing by 4% between 2019 and 2021, Bain estimates that sales will increase from 283 billion euros in 2021 to between 300 and 310 billion euros in 2022.
But who’s spending on what — and where — looks quite different from 2019, says Thomas Chauvet, head of luxury goods research at Citi. Chinese tourists who used to open their wallets in Paris and Hong Kong are now buying luxury goods at home; in the United States, there has been an increase in shopping among Americans in Austin, Pittsburgh and other non-coastal cities as many people have migrated from major metropolitan areas during the pandemic.
With travel and social gatherings still restricted in many parts of the world, the shift from spending on experiences to goods is expected to take another year; “It will eventually normalize,” says Federica Levato, Milan-based partner at Bain & Company.
Some analysts, however, have issued a warning. In November, Goldman Sachs cut its 2022 luxury goods growth forecast from 13.5% to 9%, citing concerns about China’s GDP, house prices and “common prosperity” policy. . There was also a national campaign repression on the display of wealth, with regulators censoring this content on social platforms.
Products will become more expensive
After remaining stable for years, luxury brands such as Louis Vuitton, Hermès and Chanel have increased their prices during the pandemic (in the UK, the classic Chanel flap bag is now £6,630, up 40% from the start of 2020). With material and labor costs rising, Citi’s Chauvet said price increases would continue through 2022, with some brands “even talking about double-digit price increases, Moncler in particular “. These increases “should generate double-digit revenue growth for the industry even if volume growth normalizes,” he says.
Brands will take more ownership of supply chains
Brands such as Chanel, Prada and Zegna have begun to acquire more of their suppliers as access to the best materials and manufacturers becomes more difficult and expensive, and customers demand greater transparency about where and how products are made. manufactured. This trend is set to continue in 2022: Zegna chief executive Gildo Zegna told the FT that the brand plans to use funds from its recent public listing to make more acquisitions in its supply chain, and the Chanel chairman Bruno Pavlovsky said the company is planning additional investment in its supply chain after buying out about two dozen of its suppliers last year.
Opportunity will outpace the global luxury goods market
The second-hand market has continued to grow throughout the pandemic, reaching estimated sales of 33 billion euros last year. After ignoring the segment before, brands keen to adopt more circular business models – and serve the niche but growing cohort of customers who no longer want to buy new products – have started to partner with platforms. opportunity such as Vestiaire Collective and The RealReal to offer authentication services and incentivize customers to log past purchases via store credit. Some smaller brands, including Rachel Comey and Marques’ Almeida, use their websites to directly facilitate second-hand sales. Expect big brands to follow suit.
Industry will be less sustainable
The luxury industry has made great strides in sustainability in recent years: environmental profit and loss reporting has become the norm among large groups and brands, and designers have embraced certified sustainable fabrics and materials. upcycling to an unprecedented degree. But with the demand for luxury goods reaching unprecedented heights, product volumes are increasing and the industry’s environmental footprint is correspondingly worsening.
NFTs will reach a tipping point
By 2025, Gen Z will account for more than one in five luxury purchases, according to Bain. To achieve them, brands will invest more in gaming partnerships (fortnite, honor of kings) and NFTs, with the latter emerging as a revenue stream in its own right. Dolce & Gabbana set a record by auctioning off a nine-piece collection of NFTs for $6 million in September; a Morgan Stanley report boldly predicts that metaverse games and NFTs represent a €50 billion annual revenue opportunity for luxury companies and could deliver a 25% increase in industry profits by 2030 .
Brands will invest more in e-commerce
The online share of luxury sales nearly doubled from 12% to 22% during the pandemic, a figure that is expected to reach 30% by 2025, according to Bain. Previously relying on large online stores and other wholesale channels for the majority of their online sales, brands such as Gucci and Alexander McQueen are migrating to consignment models and improving their own websites. which gives them greater control over inventory, pricing and customer relationships.
New chapters at Burberry, Ferragamo and Bottega Veneta
The pandemic has been difficult for independent brands, and 2022 will see former Burberry chief executive Marco Gobbetti move to shoemaker Ferragamo, where the first order of business will be the appointment of a creative director to replace Paul andrew. Former Versace CEO Jonathan Akeroyd will succeed Gobbetti at Burberry in April, where he will be responsible for evolving – or reorienting – Gobbetti’s five-year plan to move upmarket and make it a serious player in leather goods.
Former Raf Simons right-hand man Matthieu Blazy will make his Bottega Veneta debut in February, following Daniel Lee’s departure in November. Don’t expect a major creative overhaul here: The minimalist, industrial aesthetic that Lee brought to Bottega during his three years in office has been a hit, and Blazy should continue to iterate on it.
Elsewhere, London-based Phoebe Philo is set to unveil her debut collection for her eponymous LVMH-backed label; A founder of Bathing Ape, Nigo, will present his first creations for Kenzo, owned by LVMH (the brand also has a new general manager in the person of Sylvain Blanc); and former Louis Vuitton Accessories Artistic Director Camille Miceli will make her Emilio Pucci debut.
Visualization of data by Chris Campbell
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