While the luxury goods industry has grown steadily since the 1990s, the Covid-19 pandemic saw that growth stall. The industry recovered in 2022 as consumers spent the money they had saved during the pandemic, but 2023 and beyond will present its own challenges. As we head out of the pandemic years and into an era that will be defined by inflation, supply chain issues, raw materials shortages, and war, luxury retailers and suppliers alike can expect continued, albeit slowed, growth, with a few caveats.
While growth stalled during the pandemic years, we can expect that growth to resume, but at a slower rate than during the years between the recession of 2008-2009 and the pandemic. Research by Bain & Co. suggests that the luxury retail sector will see growth of anywhere between 3 and 8 percent in 2023. Part of this growth will be driven by Chinese customers returning to the luxury market. Even in the face of increasing Covid cases, China is easing restrictions, and Chinese citizens are eager to return to stores, take international vacations, and treat themselves with luxury purchases.
Inflation will continue into 2023, and experts believe it may end up pricing out middle class luxury consumers. But this logic might apply to luxury apparel brands more than jewelry brands, as jewelry is seen as more of an investment, or at least a more long-term purchase, than clothing. Clothing might fall out of fashion in a season or a year. Jewelry purchases, on the other hand, are often made with a lifetime of use in mind. Jewelry’s longevity could help sell it to customers who might otherwise be curbing their luxury spending. On the other hand, rising prices across the board could prevent consumers from making any sort of luxury purchases at all.
Middle-class luxury spending might slow down, but the highest income brackets (top 2%) make up 40% of luxury consumers, and these consumers will continue to spend. Their spending, however, will likely be concentrated within the biggest, priciest brands, such as Hermès, Balenciaga, or Chanel. Mid-tier luxury brands could suffer as a result.
While Covid in China and continued inflation might look bad in the short term, luxury sales are expected to increase 60% by 2030. The industry isn’t in crisis, or shrinking, or even stagnant; it is simply growing at a slower rate than in the past. If that all sounds a little uncertain, that’s because it is. Economists are predicting a recession coming in mid-2023 as the Fed still wrestles with inflation. The key to weathering this period is knowing your customers and controlling your inventory accordingly. Are they in that top 2% income bracket who will continue to spend? If so, how can you entice them to shop smaller or lesser-known brands rather than the Chanels of the world? And if they are middle or upper-middle income consumers, how can you position luxury jewelry as something more permanent than other, more ephemeral luxury purchases? Being able to answer these questions will help you to continue to grow your business in what is shaping up to be another challenging year.