From Gucci’s 10,000-square-foot store on the site of a former pencil factory in SoHo to Hermès’ two-story flagship in a New Jersey mega-mall, America is at the heart of luxury. And that’s a good thing for the industry, because with Shanghai on lockdown and European demand potentially affected by the war in Ukraine, the US is taking over the bling. In 2021, luxury growth was led by the United States, not China. The surge in stock and crypto markets has boosted wealth, while stimulus checks have caused many more buyers to dip their toes in high-end waters. And the wealthy didn’t just splurge on Dior bags and Cartier jewelry. According to the Art Basel and UBS Global Art Market Report, they lead the way in art purchases. This has helped the overall market rise above its pre-pandemic levels.
Structural factors also contribute. While high-end has long been concentrated in the commercial strongholds of New York, Los Angeles, San Francisco and Chicago, that’s changing. Many Americans moved during the pandemic: New Yorkers moved to Florida and Californians to Arizona and Texas. However, they did not give up their appetites for luxury, but fueled wide demand. This has sparked a race for prime commercial space, driving up rents in the fanciest locations.
These brands once had huge flagship stores only on Fifth Avenue or Rodeo Drive. Now open in suburban malls. Another incentive to move to the suburbs has been the wave of shoplifting in some inner cities, including Los Angeles and Chicago.
Consequently, the French luxury group Kering SA is reassessing the location of its stores. He opened and revamped Gucci outlets across the United States, most recently debuting in Austin. Gucci generates around 27% of its sales in North America. Other new stores will follow, including in Atlanta and Sacramento. The American Dream mall in New Jersey recently announced that Kering would lease a 10,000 square foot site for Gucci. Kering is also extending the reach of Saint Laurent.
LVMH Moet Hennessy Louis Vuitton, which generates about 26% of its sales in the United States, was also active. Among its new locations is a Louis Vuitton boutique at Hudson Yards in Manhattan, replacing its previous outlet in the now closed Nieman Marcus department store. LVMH is also renovating Tiffany stores after acquiring the jeweler last year. But as the world’s leading luxury goods group, it probably has the opportunity to go further.
Kering and LVMH are not alone. Lanvin Group, whose owners include Chinese investor Fosun, plans to list on the New York Stock Exchange through a blank check company. It will use part of the proceeds to open 200 stores over the next three years, both in Asia and the United States.
All luxury companies that develop in the United States face the risk of the bursting of the American bling-bling bubble.
High-end furniture group RH, formerly Restoration Hardware, warned last week that demand had weakened following the Russian invasion of Ukraine in late February. That hasn’t shown up in U.S. luxury goods sales so far, though store visits fell in March, according to Placer.ai, a company that measures store footfall.
A losing quarter for US equities and Bitcoin halving from November to January (it has since recovered ground) also threaten the boom. And while the super-rich may be relatively immune to inflation – including higher price tags on Chanel handbags – more marginal shoppers may spend more on essentials, leaving less to spend for the things they simply want, like a Moncler coat. or Burberry sneakers.
Nevertheless, as the economic outlook has darkened in other parts of the world, the United States is once again emerging as the luxury industry’s best hope.
Luxury goods makers have retreated from Russia, losing revenue there since the invasion of Ukraine, though this probably accounts for less than 5% of global sales. However, there could be a ripple effect in Europe. Expensive handbags and Swiss watches can be seen as stores of value in these trying times, but as uncertainties grow, their appeal could wane. Meanwhile, tourists from the United States and parts of Asia may be more reluctant to visit Europe.
But the biggest concern is China. After fears last year that President Xi Jinping’s Common Prosperity agenda could curb overt displays of wealth, Shanghai, China’s biggest source of luxury sales, has been plunged into a new lockdown. No wonder the valuations of luxury goods groups have collapsed.
In the long term, China is expected to drive industry growth as the world’s largest consumer population purchases luxury goods. But for now, shoppers in New York’s Meatpacking District, meandering from the Starbucks Reserve Roastery to nearby Hermes and Rolex boutiques, are a useful stand-in.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail sectors.
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