According to the Bureau of Economic Analysis, the savings rate in the U.S. shot up 20% in January—a number not seen since 1960—while Fidelity Investments shows that Americans saved an average of 9.1% of their salaries. As consumers are gearing up to spend in a post-Covid climate, McKinsey & Company reports 30% say they will spend more on in-person restaurant dining, out-of- home entertainment and travel.
“The combination of an unleashing of significant pent-up demand and overflowing excess saving will drive a surge in consumer spending across the globe as countries approach herd immunity and open up,” said Mark Zandi, chief economist at Moody’s Analytics.
In China, the reopening of Hermès flagship store in Guangzhou’s Taikoo Hui after lockdown supposedly led to a record-breaking $2.7 million in sales on one day, and the company reported Q1 revenue was up 44%. Other luxury goods brands saw an increase in revenue for the first quarter: 45% for LVMH and 25.8% for Kering, which own Balenciaga and Gucci.
Yet new report by France IG says that the luxury goods market will have to reinvent itself in the wake of the pandemic.
While it claims the French luxury industry was one of the first to recover from the Covid financial crisis (LVMH, L'Oréal, Kering and Hermès are among the top 11 of the world's largest luxury companies), all luxury goods have experienced a real recession. Clothing sales dropped more than 30% compared to less upscale brands.
The IG France study states the global luxury sales plummeted 23% last year to €217 billion euros from €281 billion in 2019. In Europe, the decline was worse at 29%, followed by North America (-22%). The Asian market fared better with only a 5% drop.
“Covid-19 and its confinement measures, air traffic disruption and border closures have brought an end to more than a decade of sustained growth,” the report says.
A steep decline in sales was coupled with companies “having been forced to pivot to meet urgent public health needs and provide financial support to their employees. LVMH and Hermès, for example, have reallocated their production facilities to make hydroalcoholic gels, while Kering, Chanel and Louis Vuitton have embarked on the manufacturing of masks.”
Moreover, companies like Hermès, proposed measures such as reducing dividends paid to shareholders, abolishing compensation increases or even reducing executive compensations. (Bernard Arnault, Chairman and CEO of LVMH who gave up two months' salary, has an estimated net worth of $199.1 billion; Arnault and his family are the world’s third richest family in the 2021 Forbes Billionaire List.)
A study published by Bain & Company Luxury Study, said the luxury market will have to wait until 2022 or 2023 to see profits at 2019 levels. "Market growth, which will depend essentially on the level of consumer confidence, tourist flows and the ability of brands to anticipate and respond to new consumer demands, will gradually resume to reach around 320 or 330 billion euros in the next five years. By 2025, the state of the luxury market should be back to normal with more than 450 million luxury consumers around the world, or 60 million more customers than today,” estimates France IG.
The study points out that in “2019, Chinese consumers generated 90% of the sector’s growth globally, and it is estimated that nearly half of the world’s luxury sales will be made by Chinese consumers of here 2025.” This means industry players will need to strengthen their presence in China because “until then, Chinese customers used to purchasing designer items abroad in cities such as Paris, London or New York, will now be more likely to make their luxury purchases in their country.”