Luxury Institute: Experts Predict What's Next for the Global Luxury Industry

NEW YORK , June 14, 2022 /PRNewswire/ -- The Luxury Institute today announced key findings from its recent qualitative survey of its Global Luxury Expert Network (GLEN) members, comprised of prominent luxury goods and services CEOs, C-Levels and Consultants, as well as additional top-tier luxury executives and experts. Responders were asked to predict whether the current economic slowdown in luxury is turning into an economic downturn or a full recession, and how strong. Responders were also asked to predict how strongly major regions of the world may be affected, and the severity of the impact on key luxury categories. Experts shared their comments on their rationale, and trends they see emerging in the second half of 2022 and 2023.

A solid majority, 59% of participants, stated that the slowdown is leading to a luxury downturn vs. 41% who predict it will lead to a full luxury recession. Most participants believe we are living in a modern period of unprecedented volatility and uncertainty. Those who see only a downturn cite the strong cash balances of consumers and enterprises in the more developed markets that can help them withstand negative economic forces and the impact of war. They point to the resilience of affluent consumers, despite stock market losses, as a positive sign. Recession predictors believe that the aggressive interest hikes of central banks, executed to fight runaway inflation, will create white/blue collar unemployment, especially in tech, with strong consumer tightening of spending across all income levels. They state that persistent stock market losses are likely to affect the wallets and psyches of all segments of affluent consumers, except perhaps centimillionaires and billionaires. Many responders on both sides remind us that luxury is historically cyclical and, given all the gathering storm clouds, cannot avoid being affected.

Regionally, for Asia/Pacific, experts predict that if it is a downturn, this powerfully economic region, led by China, is resilient enough, particularly with strong government stimulus, to get past COVID effects and stabilize growth. Those who see a recession looming believe the impact will be strong in Asia/Pacific since China has a myriad of vulnerabilities, including COVID control, an unstable real estate market, a slowing economy, a dependency on expensive commodity imports, and continuing supply chain issues that affect exports.

In Europe, those who predict only a downturn believe the effect will express itself at the medium range, whereas those who see a recession believe the impact will be strong. Besides the compounded effect on Europe of negative global economic factors, experts who predict a recession feel that war in the middle of Europe will dramatically increase local energy prices, drive inflation across consumer staples, and have a distinct negative impact on the economic engines of Europe: Germany, France, and U.K.

For North America, experts who predict a downturn see mostly a medium impact effect, given America's relatively stronger economy, including higher energy self-sufficiency and its distance from the war. However, those who predict a global recession cite that many companies are already warning that American consumers are rapidly losing spending power momentum, and they point to the Federal Reserve's stated commitment to aggressive interest rate increases as shock effects on housing and borrowing, while inflation continues unabated. The confluence of factors, they believe leads to an inevitable recession.

In summary, views are polarized. Those who predict a downturn feel it will be relatively mild across geographies, while those who see a recession feel it will have a relatively strong negative impact across all regions. Only a tiny fraction of responders who predict a recession feel it will be light.

With respect to luxury categories, regardless of the type of downturn, experts agree more on which categories will be hurt most, and which are most resilient. The category most likely to thrive whether in a downturn or recession is Consumer Technology. It's likely that consumers will cut back on many things, but food, housing, energy and now, technology, are pure life necessities. Experts also predict that, irrespective of the outcome, Wines & Spirits, Beauty, and Health and Wellness, which are perceived more as necessities of life now, especially by Millennials and Gen Z, will experience mild to medium effects.

Travel & Leisure has been a strong growth category post pandemic. While no categories are immune, the expectations from both downturn and recession predictors are that Travel & Leisure will experience a mild or medium downward effect. Interestingly, for Fashion & Leather Goods and Automotive, those who predict only a downturn feel it will have a stronger negative impact on the categories while those who predict a recession predict a lighter negative impact. Autos have a supply issue that may keep demand and prices in better shape. Fashion & Leather goods are comprised of more affordable luxury, but the aspirational buyers will likely cut back. Either way, Fashion & Leather and Automotive are seen as more vulnerable than the "necessity" categories. Luxury Watches & Jewelry are seen more likely to experience a medium level impact in either scenario due to supply shortages plus their high investment value. In both a downturn and a recession, luxury Real Estate looks vulnerable to our experts, especially in a recession. This is despite low housing supplies. Experts feel that for affluent cash buyers this may not be as much of a problem, but borrowers at all income levels will think twice as housing carrying costs take up a much larger percentage of their incomes. This is especially true for young affluents. Consequently, Home Appliances and Home Furnishings are predicted to experience a similar impact, except that working at home office projects, and home renovations, are already under way and will dampen some of the downdraft. Finally, Department Stores are seen to be the most vulnerable category, by far. This is likely due to historically high overheads, high inventories, and low margins. Experts also point to the fact that digital multi-brand luxury retailers have proven to be unprofitable even during the best of times.

"We believe in the wisdom of the expert crowd. Our impeccable Global Luxury Expert Network (GLEN) members see an unusually high number of storm clouds gathering on the luxury horizon. In some places, it is already raining," said Milton Pedraza, CEO of the Luxury Institute. "While we cannot control the currents, we can skillfully regulate the sails. We must gauge real consumer sentiment by category, and by brand, and act accordingly to eliminate waste and mobilize to gain share right now. For brands with courage and resources, it is time to take advantage of the confusion and fear by investing for the future. Brands should invest in talent, game-changing innovation, ethically sourced, direct-from-the-customer predictive data and insights, analytics, and very importantly, in recruiting and nurturing emotionally intelligent front-line expertise. 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."

About Luxury Institute
Luxury Institute is the world's most trusted research, training, and elite business solutions partner for luxury and premium goods and services brands. With the largest global network of luxury executives and experts, Luxury Institute has the ability to provide its clients with high-performance, leading-edge solutions developed by the best, most successful minds in the industry. In the last 20 years, Luxury Institute has served over 1,100 luxury and premium goods and services brands. Luxury Institute has conducted more quantitative and qualitative research with affluent, wealthy and uber-wealthy consumers than any other entity. This knowledge has led to the development of its scientifically proven high-performance, emotional intelligence-based education system, Luxcelerate, that dramatically improves brand culture and financial performance. Luxury Institute has also innovated the Advanced Personalization Xchange (APX), powered by DataLucent, to empower affluent consumers to license their digital platform data to premium and luxury brands they trust legally, securely and privately in exchange for fair value rewards and benefits.

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SOURCE Luxury Institute