Luxury Brands Are Counting on Americans to Keep Spending

Luxury brands face a slump in China as major cities battle to control Covid-19 cases. So far, only America’s big spenders have been able to help.

Shanghai, home to about 15% of mainland China’s luxury stores, is just beginning to emerge from a grueling shutdown. Beijing, home to more than 13% of the country’s designer stores, is in a state of “darkness” lockdown, with schools, restaurants and bars closed. Luxury companies like LVMH Moët Hennessy Louis Vuitton LVMUY -0.62%

and Gucci owner Kering say that footfall is lower even in cities that aren’t experiencing restrictions due to a drop in domestic tourism. According to UBS UBS, most of the listed European brands exited in the first quarter with sales in mainland China falling between 30% and 40%. -1.10%


Sales of personal luxury goods — high-end handbags, watches and the like — boomed in the U.S. Before the pandemic, the Chinese were the industry’s most important consumers globally, accounting for one-third of total spending on such items in 2019, according to Bain & Company. Next is the Americans with more than one-fifth of the market. To the surprise of most, this changed in 2021 when Americans bought 32% of luxury goods by value and the Chinese bought only 23%. As a result, luxury brands are counting on US shoppers to partially offset the pain caused by the most recent closures in Beijing and Shanghai.

Data from the first weeks of the second quarter in the United States are contradictory. Luxury spending in April was up 8% from the same month in 2021, based on credit and debit card transactions tracked by Bank of America..

But this is a slowdown from the 16% increase recorded in the first quarter of 2022.

Some of the shoppers that fueled last year’s boom are returning. Purchases by consumers making less than $50,000 a year fell 9% in April compared with the same month in 2021. These shoppers boosted luxury brands in 2021, doubling spending Their spending on designer goods compared to 2019. Spending by wealthy consumers has grown by a more modest 30% from pre-pandemic levels. Government stimulus checks, individual investors’ stock market returns and excess savings are drying up. Higher food and gasoline prices are forcing less affluent consumers to cut back.

Wealthier shoppers still look flashy. Card transactions on luxury goods among consumers making more than $125,000 a year rose 21% in April from a year earlier, down only slightly from the 28% rate recorded in the quarter. firstly. The overall trend shows that while the appetite for luxury goods is still huge in the US, only core customers of the brands can still afford to spend.

Back in China, major luxury brands are confident that sales will rebound once restrictions are lifted. However, a weak second quarter could continue to weigh on stock prices in the short term. Europe’s biggest luxury stocks have fallen an average of 32% since the start of the year, compared with an 18% drop for the MSCI Europe index. Hermès International RMS 2.68%

and Kering have been particularly hard hit.

Wealthy Americans still pin their hopes on luxury brands, but most American consumers now have more important things to spend money on for a $1,000 bag.

Write letter for Carol Ryan at

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