Dive Brief:
- Instability in the U.S. has negatively affected the global luxury sector, according to a March HSBC white paper assessing the luxury goods market.
- The report cited multiple issues including the recent U.S. tariff reversals on Canada and Mexico and “uncertainty around Europe.” It noted that the combined ramifications were “unlikely to be helping businesses to easily project future investment or consumers to gain confidence.”
- On the other hand, report authors said there may be a sector upturn in China and that the loss in luxury market share could positively impact sporting goods.
Dive Insight:
The HSBC report comes at a time when the luxury sector is struggling against a slowdown, with companies including LVMH and Hugo Boss posting sluggish 2024 revenues.
The consequences of U.S. geopolitical, economic and market news have created a “textbook definition of VUCA: Volatility, uncertainty, complexity and ambiguity,” said analysts led by Erwan Rambourg, global head of consumer and retail research at HSBC.
European talks of rearmament, as well as a weak U.S. dollar, have been “a clear negative for a luxury sector,” since it primarily produces products in Europe and distributes across the globe, per the report. As a result, authors highlighted three major areas of concern.
First, report authors said it’s unlikely the U.S. dollar and the euro will reach equal value in the immediate future, which will impact European luxury exports.
Second, markets including equity and cryptocurrency have been “sharply down since Valentine’s Day,” per the report, which added that “US consumers’ 401k retirement accounts have not seen much love lately.”
Third, report authors said that “consumers don’t buy luxury only because they are wealthy but also because they are confident about future prospects. For that reason, the “many fits and starts on tariffs” as well as “unexpected changes in the US relationship with Ukraine, Russia, NATO, and more,” have had consequences that will directly affect luxury demand, per the report.
“All three points are undoubtedly going to weigh on luxury consumer psychology even if, as yet, we haven’t picked up comments around demand deterioration from the US consumer,” report authors said.
However, report authors said that while equity markets were down sharply in the U.S. at the beginning of March, “they are still significantly up on a 1-, 2- or 5-year view,” which means “wealth creation has been real.”
Analysts also said they still saw growth potential in the U.S. luxury market.
“[A]lthough the recent return of the aspirational consumer might be impaired somewhat, we continue to believe in brands’ capacity to recruit in the market via better product,” such as Louis Vuitton’s recent revival of its Murakami collaboration, as well as a greater footprint.
In regards to a potential upswing in China, report authors said they were “encouraged by the recent equity market pickup there.” They added that “a more pro-business attitude from the Chinese administration and conversations with luxury managers in the region” point to “a likely trough in demand a few months ago now.”
