Despite inflation and recession fears, the ultra-rich are still buying luxury goods

Prices of groceries, gas and travel have skyrocketed over the past year – but the rich seem to be shrugging their shoulders and are still fueling sales at luxury companies, where sneakers can cost $1,200 and sports cars can easily cost $300,000 .

Companies that target the ultra-rich, including Ferrari and Dior’s parents Louis Vuitton and Versace, are reporting strong sales or raising earnings forecasts. The upbeat results come even as recession fears hang over the economy, with Walmart, Best Buy, Gap and others trimming their fiscal outlook, citing a slowdown in spending among low-income consumers who are being squeezed by inflation.

The relentless strength in the luxury category is consistent with previous economic slowdowns, experts say, with the wealthy often the last to feel the impact due to the cushion that extreme wealth affords them. Among the jet set, continued spending also signals that expensive purchases often serve as status symbols.

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

For example, Louis Vuitton offers a pair of sneakers for $1,230 and a bag for $2,370. The parent company of high fashion brand LVMH, which also owns Christian Dior, Fendi and Givenchy, reported organic sales growth of 21% to 36.7 billion euros ($37.8 billion) in the first half of 2022 compared to the same period Previous year.

At Versace, where the price of a pair of shoes or a collared shirt can easily exceed $1,000, quarterly sales rose nearly 30% year over year to $275 million after adjusting for the impact of currency fluctuations. Parent company Capri Holdings, which also owns Michael Kors and Jimmy Choo, said total sales rose 15% to $1.36 billion during the period.

Despite the general economic uncertainties, Capri CEO John Idol said the company remains confident in its long-term goals due to the “proven resilience of the luxury industry”.

“None of us know what’s going to happen to consumers in the second half of the year, but it seems the luxury industry is pretty resilient and pretty healthy,” Capri said during a conference call this week.

Earlier this month, Italian supercar maker Ferrari also raised its guidance for the year after second-quarter sales hit a record 1.29 billion euros ($1.33 billion). 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 at around $600,000. Even used Ferraris sell for hundreds of thousands of dollars.

Outside of the luxury world, some companies are also seeing strength in pricier options. Delta Air Lines, for example, cited a stronger increase in revenue for offerings like business class and premium economy compared to its other bus tickets.

Although the luxury industry has always had a degree of resilience, growing wealth inequality caused by the pandemic is contributing to the sector’s current strength, said Amrita Banta, managing director of Agility Research & Strategy, which specializes in affluent consumers.

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

Additionally, she said there has been a cultural shift since the 2008 recession and that wealthy consumers now feel less guilty about spending in a slowdown and “feel empowered to spend their wealth.” She said this is partly a reflection of people in developing countries, where wealth is growing.

Luxury companies may notice a drop in spending among the 80% of their customers who are “nearly affluent,” said Pedraza of the Luxury Institute. But he said these consumers typically make up about 30% of sales.

Instead, he said luxury brands often count on just 20% of their clientele — the ultra-rich and very wealthy — for the majority of their sales. And because that cadre is far more inflation- and recession-resistant, luxury companies tend to see slowdowns of late, he said.

“The type of customers and the level of sales that they represent with true luxury brands make them super resilient,” he said. “Not immune, but super resilient.”

https://www.cnbc.com/2022/08/13/ultra-rich-still-shopping-for-luxury-despite-inflation-recession-fears.html Despite inflation and recession fears, the ultra-rich are still buying luxury goods

Joshua Buckhalter

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