Despite the bleak prospects facing the global economy, the luxury goods market recorded resistance to those prospects, witnessing relative prosperity in the post-Corona pandemic period, which qualified it to achieve growth of 19 to 21 percent in 2022 (according to estimates by Bain Consulting Company).
This constituted an impetus for more optimism about continuing the momentum in the current year 2023 to record a growth of 10 percent, but the winds are coming when the ships do not desire, after the market showed negative signs.
Many factors reinforced these “negative” signs, which were identified by the Chairman of the Board of Directors at Valentino and Balmain, Rashid Mohamed Rashid, in a previous interview with “Bloomberg”, including the slowdown in the American market in light of the suffering of the country’s retail stores and the decline in spending, as well as the slow recovery in China. As well as the impact of the rise in airfare and hotel prices in directing tourists in Europe to reduce spending on luxury goods.
Morgan Stanley estimates that luxury spending will decline by “low single digits” in both the United States and Europe this year.
It is noteworthy that after a sharp contraction with the world closing in early 2020, the sector quickly recovered to 1.15 trillion euros in 2021.
The nature of the consumer
In this context, the World Bank’s advisor, Dr. Mahmoud Anbar, said in exclusive statements to “Iqtisad Sky News Arabia” website, that it was natural for the luxury goods market to achieve growth following the Corona pandemic and in the short term, explaining that the nature of the consumer is that he accepts to buy goods. Which he was deprived of for a long time, and therefore he had a reserve of desire to consume those goods, while in the long term and affected by successive economic crises, he naturally reduced consumption.
The growth of the global luxury goods market was negatively affected during the last period, according to a World Bank advisor, for two main reasons:
The luxury goods market was affected, like other markets, by the inflationary wave that the world is suffering from, the state of uncertainty that prevails in economies, in addition to the crises that struck supply chains. The nature of these goods is highly elastic goods, which means that any increase in their price is matched by a decrease in demand. Any small increase in prices prompts a large number of individuals to abandon these goods, unlike low elastic goods, the amount of demand for which does not decrease after their price rises.
He pointed out that the global events that took place, led by the war in Ukraine, led to a decrease in the real incomes of citizens, which reduced the purchasing power of currencies, thus reducing the demand for these goods and those seeking to acquire them.
He continued: “With inflationary pressures, some basic commodities can turn into luxury goods for some groups,” stressing that the priority of consumption has changed, whether in terms of the type of commodity or its quantity. He also expected that the luxury goods market would continue to decline until global inflation rates stabilized, and that the consumption map for these goods would change in the future, explaining that this matter depends on several factors, including:
The extent of the persistence of the current economic crisis. Change in the consumption pattern of societies. Some countries are resorting to many austerity measures, which will have a negative impact on this market.
Supply and demand exceptions
While the economic expert, Dr. Ali Al-Idrissi, said in exclusive statements to the “Eqtisad Sky News Arabia” website, that the luxury goods market achieved growth in light of the turmoil that the world witnessed following the Corona pandemic in the year 2020 (..) because the classes with high incomes cannot Evaluating its relationship to the demand for goods or quantities required, as happens with the market as a whole, and therefore there are “exceptions” in generalizing the rule of supply and demand.
He pointed out that, for example, the demand for B-Class cars may be affected, while higher-class cars will be in high demand because the segment that requests them has a high income.
Regarding the indicators that lead to the possibility of a recent decline in the luxury goods market, the economist attributed this to two main factors:
Inflation rates have increased since last year in the world, which had an impact, even if it was minor, on this market, but it reduced demand relatively for some groups, and this increase is expected to continue until the middle of next year. The Russian-Ukrainian crisis, and some concerns among consumers around the world, especially Europeans, about the development of the crisis.
According to data from the Statista platform:
The market is expected to grow annually by 3.38 percent until 2028. The largest market segment is the luxury fashion sector, with a market size of $111.50 billion in the current year 2023. Most of the revenues were generated in the United States ($75,690.00 million in the current year 2023). ). In the luxury goods market, 13.9 percent of total revenue will be generated through online sales by 2023.
In contrast to the estimates related to the market’s decline, a previous study conducted by the American company Bain & Company, the results of which were published in the middle of this year, had expected the market (bags, clothing, watches, and jewelry sectors) to grow at rates ranging between 5 to 12 percent in 2023, after record rates in 2022. This is despite the current economic conditions.
Change in consumption trends
CEO of the Corum Center for Strategic Studies, Tariq Al-Rifai, said that consumption trends have changed a lot in the years following the Corona pandemic, especially in European countries and the United States of America.
He explained in exclusive statements to the “Eqtisad Sky News Arabia” website that in the two years following the pandemic, there was an imbalance in the numbers that reflect cases of growth and decline in various markets (..), pointing out that the estimates related to the recent decline in the growth of the luxury goods market are an indicator of future expectations or The actual performance of the global economy as a whole.
While he explained that, for example, in Britain, sales of these goods witnessed a decline compared to last year, he stressed that the world has changed after the pandemic, and that consumption in the luxury goods market in terms of retail has also changed, especially when comparing the performance of the current year with the previous year, which indicates Slowdown and decline in growth, which is evidence of economic slowdown, especially in developed countries such as the United States of America and Britain.
Mergers
A report published by “Bloomberg” talked about the boom in the merger market in the “luxury goods” sector in light of the relatively bleak picture in the sector, citing the agreement of the American luxury fashion company Tapestry last August to acquire “Capri Holdings”, which is a deal. Which was estimated at $8.5 billion. In addition, the American cosmetics company Estée Lauder acquired Tom Ford, in a deal worth $2.8 billion.
In July, French luxury goods company Kering agreed to buy a 30 percent stake in Valentino, a deal that is likely to close at the end of this year.
2023-10-08 15:38:20
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