The latest version of one of Louis Vuitton’s most famous bags, the Speedy, costs a million euros, is made of crocodile leather, has a gold chain and a padlock set with small diamonds. Don’t look for it on the brand’s website. Sales only by order. It’s a whim reserved for few, but it symbolizes the power of an industry that, despite economic uncertainty, is moving more money than ever before. The luxury bubble has been immune to economic turmoil of late, and although some question whether the boom is sustainable and there are signs of a slowdown, the outlook for the high-end market overall is mostly positive.
The super-rich are spending more and more, even at a young age. The global luxury market suffered a slowdown in 2020 due to the pandemic, but has grown strongly since then and is already above pre-coronavirus levels, although the shadow of recession and inflation pose a threat to the global economy. Forecasts for 2023 suggest the premium market will reach a record 1.5 trillion euros, between 8% and 10% more than the previous year, which also saw record levels, according to forecasts published in November by consultancy Bain & Company. “Although some challenges are emerging, such as fragile consumer confidence and macroeconomic tensions, the industry has proven that it is strong, adaptable and ready to continue growing in the long term,” says Claudia D’Arpizio, partner at Signatur. “Consumer trends have evolved, with a particular focus on experiences, which have driven spending to historic highs,” adds another partner, Federica Levato.
The Bain report, prepared jointly with the Italian association of luxury producers Altagamma, covers nine categories: personal goods (fashion, jewelry and watches), cars, travel, wines and spirits, gastronomy, decoration and household products, art, private aircraft and yachts and luxury cruises.
The generation factor is crucial. Younger consumers have become a big driver. Thus, Generations Y (Millennials, born in the 80s) and Z (their successors, those born in the late 90s) account for almost all of the growth in 2022 and this trend is expected to continue in the coming years, according to Bain. Buying luxury is happening earlier and earlier.
“The consumer profile varies depending on place of origin and age,” says Xandra Falcó, president of Círculo Fortuny, an association that brings together 70 Spanish brands and cultural institutions around luxury. The demand for sustainable products and services is increasing, across all generations. “New consumer groups are also emerging, such as the so-called discreet luxury (quiet luxury), which is associated with customers who really know a category, paying attention to quality, design, origin and not a flashy logo,” he adds added. A study by the consulting firm McKinsey, prepared in collaboration with the Círculo Fortuny and just published, estimates that the Spanish high-end market achieved a turnover of 17.7 billion euros in 2022, representing 4.5% of this sector in Europe corresponds. . “Between 2017 and 2022, growth in Spain was 2%. Despite the decline during the Covid year, there was a rapid recovery, mainly due to the increase in experiences,” explains Ignacio Marcos, senior partner at McKinsey.
Rising prices
The rise of luxury around the world has led to an extraordinary rise in prices in recent years. Inflation and rising costs, especially after the outbreak of war in Ukraine, have impacted the entire economy, and luxury is no exception. Prices have risen more than 25% since 2019, according to data from market analysis firm Edited. Chanel bags, for example, are twice as expensive as in 2016, as the New York Times recently highlighted in an article in which he expressed astonishment The classic of this brand, the 2.55: in 2008 it sold for $ 1,650; In 2023, this number will reach $10,200.
The case of the million-dollar new Louis Vuitton bag is an extreme example of price increases. It is not surprising that the owner of the prestigious brand, Bernard Arnault, is one of the richest men. The fortune of the president and largest shareholder of the French luxury giant LVMH, which also owns Dior and Céline, is superlative: 192 billion dollars (around 185 billion euros), making him the second richest person in the world. behind Elon Musk. As if that weren’t enough, in April LVMH became the first European company to exceed the half-billion-dollar mark in market value.
But since then, the French tycoon’s trading platform has lost value (it is now worth around 360 billion euros) and third-quarter results show a slowdown, as has been the case with other luxury companies. LVMH’s sales, considered a barometer of the sector’s health, grew much slower than expected. The reopening of China earlier in the year, the last major country to lift Covid restrictions, signaled a sharp rise in luxury spending, but weakness in Asia’s largest economy has slowed the trend slightly. Signs of a slowdown were also seen at French group Kering, founded by the Pinault family and owning brands such as Gucci, Balenciaga, Bottega Veneta and Yves Saint Laurent, and Switzerland’s Richemont, owner of Cartier and Van Cleef & Arpels.
Experts do not deny that there could be a slowdown, that the party of records and extraordinary growth is over, but they agree that the sector is strong. “The industry is well positioned in the long term, with a strong base and the convergence of the various luxury markets,” predicts Federica Levato, the Bain expert, emphasizing that the uncertainty in the global economy is very high. For Spain, McKinsey predicts an increase in the high-end sector of between 7% and 9% next year, depending on the level of tourism recovery and the economic and global impact on demand.
Mikel Jaso
First class on the plane
Tourism is one of the cornerstones of the future of the luxury sector. Major airlines are increasing their business and first class offerings as a profitable revenue channel, driven by booming demand. There are even more users of private flights. There are now more and more luxury hotels and even all-inclusive offers have become premium hotels.
“High-end travelers value more participatory travel; Trips to remote and beautiful places. Or explore a location while connecting with the local culture,” explains Pablo del Pozo, president and CEO of luxury travel agency Nuba. “To talk about the most luxurious trip, we must first define what luxury is; For us it is something differentiated, unique and exclusive,” from space travel to “experiences with famous people or in unforgettable places.” An example: “An expedition to the White Desert of Antarctica aboard a state-of-the-art airship or with accommodation in air-conditioned capsules designed to the millimeter for luxury and comfort.” Del Pozo explains that it costs between 100,000 and 500,000 euros “ “There is a wide range of luxury products and services that can be offered,” such as a trip to the Amazon on a scientist-led expedition.
When it comes to luxury offerings related to experiences, from hotels to gastronomy, wines, sports, water sports and decoration, Spain knows a lot, as this segment accounts for almost half of the national high-end market. “Luxury hotel openings increased 40% in 2022; and in this sense, consumer interest in spending on experiences and travel has exceeded all expectations,” explains Xandra Falcó. “In terms of experiences, the wellness and personal well-being space is experiencing 10% annual growth, driven by Generations Y and Z, but also by Boomers,” he adds.
People of all ages walk daily through the Canalejas Gallery, just a few meters from Madrid’s Puerta del Sol. It opened just over a year ago and houses stores from major luxury brands. A door connects the exclusive shopping location with the Four Seasons Hotel, where the average daily price is just under 1,000 euros. “We are proof that Madrid has translated its potential to develop the luxury market into reality,” says César Glaría, marketing director of the gallery.
The offering includes brands such as Dior and Hermès, as well as others that previously did not have a branch in Spain, such as Jil Sander and Stefano Ricci. “Our customers are mainly tourists, especially from the USA and Latin America, but also from China,” he explains, showing the large private room where VIP customers receive individual attention. You will be greeted with a bottle of Cartier champagne, which is only produced in a very limited edition. Of course, from there you can try on and buy everything without having to go to the stores.
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