Heard on the Street: With parts of China in lockdown, luxury brands need demand in the U.S. to stay high
Sales of personal luxury goods—top-end handbags, watches and the like—have been booming in the U.S. Before the pandemic, the Chinese were the industry’s most important consumers globally, accounting for one-third of all spending on such items in 2019, according to Bain & Company. Americans were next with a little more than one-fifth of the market. To most people’s surprise, this flipped in 2021 when Americans bought 32% of luxury goods by value and the Chinese just 23%.
Data from the early weeks of the second quarter in the U.S. are mixed. Spending on luxury in April did increase by 8% compared with the same month of 2021, based on credit and debit card transactions tracked bySome of the shoppers that drove last year’s boom are paring back. Purchases by consumers that earn less than $50,000 a year fell 9% in April compared with the same month of 2021.
Wealthier shoppers still look flush. Card transactions for luxury goods among consumers earning more than $125,000 a year increased 21% in April compared with a year earlier, only a slight slowdown on the 28% rate recorded in the first quarter. The overall trend suggests that although appetite for luxury goods remains enormous in the U.S., only brands’ core customers can still afford to splurge.
Back in China, major luxury labels are confident that sales will bounce back as restrictions lift. But a weak second quarter could continue to weigh on share prices in the near term. Europe’s largest luxury stocks are already down 32% on average since the beginning of the year, compared with an 18% decline for the MSCI Europe index.
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