Luxury experts hope for downturn not recession

An “economic slowdown”, driven by volatile factors like the war in Ukraine, is forecast by 59% of luxury experts in a recent survey to lead to a downturn in the industry, compared with 41% who think a full-blown luxury recession is coming.

Why it matters

Periods of financial stress cause many people to choose not to make bigger-ticket purchases. And even affluent shoppers often decide against conspicuous consumption when the economy is facing tough times. Luxury brands must find the right equation to serve their target audience while providing a level of indulgence for active category buyers.

Takeaways

• Though spending on necessities such as food, housing, and technology is projected to remain steady through economic crises, the luxury industry could see significant effects. This was according to a survey conducted by the research firm the Luxury Institute of its Global Luxury Expert Network (GLEN) members, a group of industry leaders around the globe, including chief executives, senior executives, consultants and industry  experts.
• A luxury downturn or recession will have differing effects on separate luxury sectors. For example, watches and jewelry are expected to take a medium hit in the event of either scenario, and luxury real estate is in a precarious spot as well, for most demographics excepting the highly affluent.
• In contrast, wines and spirits, beauty and health and wellness are all categories that experts predict will face minor hits during a downturn or recession, given their increasing value as necessities for millennial and Gen Z consumers.
• Experts view department stores as the most vulnerable institutions operating in the luxury category, due to their “historically high overheads, high inventories, and low margins”.
• A potential recession could have particularly outsized effects in Europe, given the pressure placed on commerce by the war in Ukraine. In North America, the effects will presumably be less, but still felt.

The big idea

“Downturns and recessions spawn major opportunities. This may be the worst of times; if you act with courage, skill, and conviction, you can make it the best of times” – Milton Pedraza, CEO of the Luxury Institute.

Sourced from Luxury Institute