The Crypto brothers saved the luxury industry | To analyse

Chinese consumers have passed the baton of bling to American shoppers.

Due to soaring stock markets and soaring cryptocurrencies, the United States was the surprise leader in the luxury sector last year, as people splashed on everything from Cartier jewelry to handbags. Christian Dior hand. Although China is still tied to the fortunes of the industry, COVID-19 outbreaks and President Xi Jinping’s “common prosperity” agenda have dampened the country’s fierce appetite for high-end products. Luckily for Big Luxury, American spenders came to their rescue.

But the industry should not rejoice just yet. With the liquidation of tech and other highly rated stocks, and a nearly halving in value of Bitcoin since November, the risk is that people will dampen their newfound desire to move upmarket and the US luxury market burning out of breath.

Consumers usually splurge when they feel rich. Crypto gains likely accounted for up to a quarter of US luxury sales growth in 2021, Jefferies analysts say. China last year to become the most valuable market for Swiss watch exports. . But consumers are spreading the love everywhere, splashing on contemporary art and non-fungible tokens, as well as high-end jewelry, boosting the likes of Cie Financière Richemont, owner of Cartier.

The new American luxury shopper is younger and interested in what Jefferies dubs “Medal” – music, experience, digital, art and luxury.

The biggest winning company is LVMH Moët Hennessy Louis Vuitton, with brands including Louis Vuitton and Tiffany. These partnerships have helped LVMH connect European luxury to newer and more diverse customers. Founder and CEO Bernard Arnault even said last week that Louis Vuitton was “not just a fashion brand” but “a cultural brand”. He described the performance in the United States in general, and at Tiffany in particular, as “remarkable”.

Gucci and Balenciaga, who have not yet communicated, should also have benefited from the rise of young, wealthy buyers in the United States. The same goes for Moncler. Even Britain’s Burberry has seen younger men take more interest in its checkered and branded sneakers.

But it’s not just American buyers who are changing. In the past, American luxury was heavily concentrated in the commercial strongholds of New York, Los Angeles and Chicago, and the sector was highly dependent on department stores. The environment looks different today. With the growth of Big Tech and the migration of more affluent Americans to other cities, many other regions are thriving.

Prada, for example, already has stores in Dallas and Houston, but plans outlets in Austin, Atlanta, Seattle and the Baltimore-Washington, DC metro areas. British company Watches of Switzerland is opening stores in locations including Cincinnati, Minneapolis and Plano, Texas.

And with department stores struggling, fashion houses are opening their own boutiques. For mall owners, there is an opportunity to create luxury and entertainment centers. Such a strategy works for the American Dream mall in New Jersey.

Even so, the US may struggle to repeat its stellar 2021. The second half of this year will be compared to when Americans were big spenders. HSBC analysts expect US sales growth for 2022, excluding currency movements, to be 16% – still the best in the world, but well below the 65% expansion of the ‘last year.

The greatest danger is that the current fluctuations in the stock market and crypto will turn into a protracted rout. In the worst-case scenario, luxury companies making progress across America could find themselves struggling with underperforming stores. It would echo their experience seven years ago in China, where, after opening hundreds of stores, brands like Prada and Hugo Boss had to retreat.

LVMH is the most exposed, with 26% of its sales in the United States in 2021. But it should also be quite well insulated. The biggest companies – LVMH, Hermès, Kering and Richemont – have the resources to keep their brands at the forefront of consumers’ minds, as well as the clout to raise prices to counter escalating costs. In the watch market, the waiting lists for the most in-demand names, like Rolex, can probably sustain them for the next few years.

Most vulnerable are the more affordable luxury names, such as Coach and Michael Kors, or those still working to amplify their brands, such as Burberry, Prada and Ralph Lauren in the United States. , many consumers who have moved upmarket in the last two years may be forced to reduce or favor used products.

But if the erosion of stocks and crypto values ​​is weighing on the biggest spenders, then even the bling behemoths won’t come out unscathed.

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