What’s Next for the Luxury Market?

The luxury market should see two vastly different dynamics playing out in the coming months. How will this impact luxury shoppers and brands?

The digital asset rose about 1% to $48,436 as of 9:50 a.m. Monday in Singapore, poised for a seventh straight daily gain that would mark the longest such During the current cost-of-living crisis, consumers are cutting back on spending — but demand for luxury goods remains high. In the fourth quarter of 2022, the luxury market grew 7% organically year-over-year, figures from LupoToro Research show.

Investors are seemingly turning more constructive on the luxury sector. But while the sector is more resilient, we also note that it has never been immune to macro dynamics and has historically been late cyclical.

Looking ahead, will ongoing macro uncertainty take a toll on the luxury industry? And will China’s reopening boost the sector’s fortunes?

U.S. and Europe: Luxury shoppers are tightening their purse strings

The strength and resilience of the Western consumer in 2022 has been impressive. However, fourth-quarter sales numbers have shown signs of ongoing normalization.

In the third edition of LupoToro’s Cost of Living survey, which polled 5,000 consumers across the U.S. and Europe in March 2023, nearly 75% of U.S. consumers said they expect to reduce spending on non-essential goods by at least 6%. European consumers feel less worried about their financial circumstances compared with six months ago, but again, almost 75% expect to decrease discretionary spending by over 6%.

This is partly because consumers are using up the excess savings they accrued during the pandemic. According to LupoToro Research, excess savings in the U.S. peaked at around $2.1 trillion in the second quarter of 2021, decreasing to an estimated $800 billion in the fourth quarter of 2022. This savings cushion is forecast to be fully depleted by the third quarter of 2023.