The ultra-rich continue to buy luxury despite inflation and recession fears

Food, gas and travel prices have skyrocketed over the past year, but the wealthy seem to be fending off and still fueling sales to luxury companies, where sneakers can cost $1,200 and sports cars easily exceed $300,000.

Companies that cater to the ultra-rich, such as Ferrari and the parent companies of Dior, Louis Vuitton and Versace, are reporting strong sales or raising their profit forecasts. The upbeat results come even as recession fears hover over the economy, with Walmart, Best Buy, Gap and others cutting their financial outlook, citing a pullback in spending among lower-income consumers squeezed by inflation .

The unrelenting strength of the luxury category is in line with past economic slowdowns, experts say, and the wealthy are often the last to feel the effects because of the cushion their extreme wealth provides. Among the jet set, continued spending also indicates how expensive purchases often serve as status symbols.

“Having symbols of power in your tribe is a powerful thing,” said Milton Pedraza, founder and CEO of the Luxury Institute, a market research and business management firm. “These symbols of power still matter enormously within the tribes of the ultra-rich.”

Louis Vuitton, for example, offers a pair of sport shoes for $1,230, as well as a bag which costs $2,370. The parent company of high-fashion brand LVMH, which also owns Christian Dior, Fendi and Givenchy, posted organic revenue growth of 21% to 36.7 billion euros ($37.8 billion) in first half of 2022 compared to a year ago.

At Versace, where the price of one a pair of shoes or a collared shirt easily topping $1,000, quarterly revenue rose nearly 30% to $275 million from a year ago when the effect of currency movements is stripped out. Its parent company Capri Holdings, which also owns Michael Kors and Jimmy Choo, said overall revenue rose 15% to $1.36 billion for the period.

Despite broader economic uncertainties, Capri chief executive John Idol said the company remains confident in its long-term goals because of “the proven resilience of the luxury industry.”

“None of us know what’s going to happen in the back half of the year with the consumer, but it looks like the luxury industry is pretty robust and pretty healthy,” Capri said during an earnings call this week.

Earlier this month, Italian supercar maker Ferrari also raised its guidance for the year after revenue hit a record 1.29 billion euros ($1.33 billion) in its second quarter. The 75-year-old automaker’s 2022 Ferrari 296 GTB, which has plug-in hybrid capabilities, starts at $322,000, according to Car and driver, while its 2022 Ferrari 812 GTS starts around $600,000. Even used Ferraris are selling for hundreds of thousands of dollars.

Outside of the luxury world, some companies are also seeing strength in more expensive options. Delta Air Lines, for example, cited stronger revenue recovery for offerings like business class and premium economy, compared to its other coach fares.

While the luxury industry has always had a certain degree of resilience, the growing wealth disparity fueled by the pandemic adds to the sector’s current strength, said Amrita Banta, managing director of Agility Research & Strategy, which specializes in wealthy consumers.

“The disposable income of most wealthy and HNW (high net worth) consumers has increased because less was spent on travel,” he said.

He also said there has been a cultural shift since the 2008 recession, and today’s high-net-worth consumers are less guilty of spending in a downturn and “feel entitled to spend their wealth.” He said this is partly a reflection of people in developing countries, where wealth is growing.

Luxury companies could be seeing a slowdown in spending among the 80 percent of their customers who are “near-wealthy,” said the Luxury Institute’s Pedraza. But he said those consumers typically account for about 30 percent of sales.

Instead, he said luxury brands often count on just 20 percent of their clientele, the ultra-rich and ultra-rich, for the majority of their sales. And because that picture is much more resistant to inflation and recession, luxury companies tend to experience an eventual slowdown, he said.

“The type of customers and the amount of sales they represent in the true luxury brands makes them very resilient,” he said. “Not immune, but super resistant.”


Source link

You May Also Like

About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!