Since China lifted its COVID-related lockdowns earlier this year, the luxury market has rebounded. Chinese consumers are buying more luxury goods at home, but especially in Europe. As a result, high-end brands such as Louis Vuitton, Tiffany, and Dior have posted double-digit gains in the first quarter.
And menswear vendors seem to be doing particularly well. Italian brand Brunello Cucinelli recorded a 35% gain in first-quarter sales (thanks to a 56% increase in Asia), while Tom Ford saw a 20% revenue increase, and Zegna recorded a 13% rise. Amid this spending frenzy, and rising inflation, many luxury brands have decided to raise their prices, which is having a knock-on effect in the U.S. market.
Luxury goods in the U.S are becoming more expensive, just as the market faces a potential slowdown. In fact, Insider Intelligence forecasts that U.S. personal luxury retail sales will slow from a 13.3% rate in 2022 to just 6.7% this year.
Meanwhile, luxury shoppers have been spotting knit crew necks for $1,700, $10,000 sports jackets, and $1,400 T-shirts. This means that only the super rich can assemble a luxury wardrobe these days.
“For the super rich, higher prices just mean fewer people can afford these items, which makes them more exclusive. This exclusivity makes them want it more,” says Blacks Retail President Steve Pruitt.
So what does this situation mean for our higher-end retailers? One trend we can point to is that men’s Clothing categories outpaced almost every other category over the last two years, indicating that demand for higher-priced goods has not slowed, despite price increases. Many luxury brands have raised their prices by 15% to 20% in 2022 and plan similar increases this year, according to a recent report in the New York Times.
But still, we are starting to hear some push back on price hikes that take consumers out of their comfort zones. For instance, one merchant told us about a customer who ordered three sport coats assuming they would cost close to what they did last year. But when they saw the price tag of over $10,000 apiece they balked and cancelled the order. This can be a sticky situation for merchants to manage.
Fortunately, a couple of new vendors have come in to fill the gap, and we expect more on the way. One such vendor is men’s jacket maker Sartorio Napoli, an offshoot of super luxe brand Kiton.
“More vendors will come to fill the space, it just may take a couple of seasons,” Pruitt says.
In the meantime some customers will have sticker shock. One thing retailers should not do is decrease their margins, however.
“That would be a big mistake,” Pruitt says. Guiding them to another price point or vendor option is a better move, he adds, because you will still have a customer who wants to buy the higher priced items at your full margin rate.
While pent-up demand has made the luxury market the new Wild West, it should stabilize soon when we get more options and inflation cools. The one factor that looks to be here to stay is the Chinese consumers’ role in the luxury market. They expect to make up 40% of all luxury consumers by 2030, according to Bain & Company and Altagamma.
So, what they like, and what they are willing to pay, could shape how the category grows.