It is called the luxury market simply because these are goods and services that people with high net worth consume. Economists generally define consumers of luxury goods as people with considerable disposable income. These are the people that buy the expensive cars, homes, jewelry, watches, furniture and other expensive consumer goods. The big question nowadays is how this segment of the market behaved during the recent Covid-19 pandemic and whether this is a sign of things to come.
The expectation was that the high-net-worth people would be reticent about spending for the luxury items during these uncertain times. Logic would dictate that the well-of would hold on to their money during an economic downturn. But strangely, even the negative figures on luxury sales show a definite slide but certainly not as bad as would have been expected. An owner of a high-end furniture store said that he definitely experienced a decline in business but he blamed it more on the closures, people staying at home and that so many of his customers were in the troubled real estate market.
The first culprit would appear to be automobiles but the data shows that while sales of luxury cars tumbled by 13 percent in the Spring, the overall car marked tanked by 12%, according to the Automotive News Data Center. Yet, even the 13% was the lowest in nearly a decade.
Europe, known for its iconic luxury brands, did experience a significant slide with goods falling by 23% during the pandemic. The Europeans blame the curbs on shutdown of international travel. They point out that in normal times, travelling Asians consume more than 30% of the luxury goods in Europe which seems to foretell that as soon as travel resumes, so will the sales of luxury goods.
In America, the overall impact on luxury goods was less than in Europe. Still, some data indicates that sales fell by 27%. It had a definite impact on department stores who even before the pandemic were facing an uncertain future with major competition from the likes of Amazon and on-line in general. Prior to the pandemic, department stores invested considerable resources into their high-end customers. They hired special sales people to cater to their well-off customers.
Clothes shops are among the worst hit retailers from the coronavirus pandemic. With so much of business shut down, people did not feel the need for new expensive clothing. Big players such as H&M and Gap are closing stores, and jobs are being lost. The department stores are trying to be creative to attract shoppers and are even experimenting with recycled or second-hand goods as a way of attracting the high-end customers who are not buying right now and perhaps the middle class which enjoys buying high-end goods at reduced prices. So many are still infatuated by the label.
The high-end brand Gucci recently made a deal with The Real Real site. Through this site they are able to resell products without discounting – sometimes even increasing prices as “vintage” often sells for more than new.
There was a thought that the pandemic would encourage the luxury industry to significantly drop prices and that it would attract bargain hunters for whom some of these goods are normally out of reach. So far that has not happened as prices came down only slightly, if at all. Remarkably, say the experts, luxury brands appear to be weathering the conditions relatively well.
Some of the data on sales of luxury items during the pandemic are to say the least contradictory and confusing. For example, it appears that sales of luxury homes have been going through the roof, increasing by as much as 40% and more. Some realtors say that a growing number of wealthy people are looking to relocate especially in the aftermath of the pandemic, riots and collapsed economies.
Local neighborhood stores that cater to the wealthy say they were hard hit by the pandemic with some barely surviving. Some blamed the closures of their stores and even when they were allowed to open, they saw appreciably less traffic. Others say that many of their customers are simply tight and watching their money more carefully. The good news is that they all project optimism and are predicting that they will rebound once the vaccine has taken hold and the pandemic declared over.
The overall projection is for luxury goods to end 2020 with a steep decline. These forecasters predict a swift recovery but interestingly enough even as the world seems to want to position China as an economic pariah, they predict that China will emerge with a significant share of the luxury market including watches, jewelry and other goods.
There is a general consensus that sales of luxury goods will fall by 20% overall this year. The recovery will not only depend on the reopening of stores since it did not happen in the recent past when stores reopened. The full recovery, say economists, may not happen until well past Covid-19. Consumer confidence plays a big role in the sale of any goods, but particularly with luxury goods.
I am sure that by now many readers will wonder whether I would advise that they rush out to buy luxury items. Is this a good time to buy an expensive new car? Many people will be wondering whether now is the time to buy expensive watches or jewelry.
The rationale would likely be that one may never be able to afford these items and that now there is a possibility that prices would be much better. Wrong! If its solely based on price, the word is that prices have not come down as one would expect. On the contrary, some goods have become scarce due to cutbacks in manufacturing and prices have actually gone up.