The luxury bubble is immune to the crisis: the super-rich spend more and younger and younger

Bernard Arnault is one of the richest men in history.

The fortune of the president and largest shareholder of the French luxury giant LVMH is superlative: 221,000 million dollars (just over 200,000 million euros), a figure only surpassed so far by Elon Musk.

Neither Amazon's Jeff Bezos nor investor Warren Buffet nor Bill Gates have managed to amass that much money.

As if that were not enough, Arnault's company has become this week the first European company worth more than half a billion dollars (about 460,000 million euros) on the Stock Market.

Arnault has never had money problems, but his wealth has grown faster in the last five years, fueled by the unprecedented growth of the luxury market.

The shadow of recession and inflation threaten the global economy;

interest rates have risen six times in a few months and stock markets lost 20% last year.

But none of this has managed to stop the demand for luxury products: in 2022, spending on this type of premium object and experience (includes luxury tourism, cars and personal goods such as jewelry and clothing, among other categories) reached 1.38 trillion euros, 20% more than in 2021 and even 9% higher than pre-pandemic levels, in 2019, according to the consulting firm Bain & Company.

A surprising increase after the contraction recorded in 2020 due to the pandemic, which was followed by a rapid recovery in 2021. Forecasts for 2023 point to growth of up to 8%.

The rich live in another economic world, in a bubble oblivious to the crisis and in which you don't have to bother to check if there is a balance in the bank to get a Dior bag for 5,000 euros.

In a store of the French brand, located in a shopping center in Madrid, a dozen young people, some already loaded with Gucci, Louis Vuitton and Hermès bags, attended the explanations of various vendors this Friday.

"I don't speak Spanish, only English... and Chinese", clarified one of the clients when leaving the establishment, without wanting to give more details about what he has bought.

Nor did they want to give many explanations about their acquisitions, two girls from the same group.

From clothes to shoes and bags that cost thousands of euros, to jewelry, luxury cars, five-star hotels and private planes, this business is experiencing a real boom.

and it moves more money than ever, despite price increases and geopolitical tensions.

"The luxury market has historically shown great resilience to crises and uncertainties in the environment," explains Enrique Porta, KPMG's Consumer and Distribution partner in Spain.

“It is a market that is more protected against inflation because the elasticity of demand at price is lower than in other sectors: exclusivity, scarcity management and the aspirationality that characterize the sector mean that there is always more demand than supply, which it helps to protect its evolution”, he adds.

Generation Y and Z

The generational factor is key.

Younger consumers have become a great engine.

“Generation Y [millennials, born in the 1980s] and Generation Z [its successor, those born in the late 1990s] explain all the growth in the market in 2022 and will do so in the coming years, because their spending is expected to grow by 2030 three times faster than other generations, to represent a third of the market, thanks also to earlier purchases of luxury products”, explains Federica Levato, partner at Bain & Company.

The next generation, the Alpha, born in the 2010s, points in the same ways.

People posing outside a Gucci store in Beverly Hills, USA, in October 2020. AaronP/Bauer-Griffin (GC Images)

Every time they become younger customers.

Generation Z start buying luxury goods three to five times sooner than millennials

(15 years, compared to 18-20 years).

"It is a market that is clearly benefiting from the recovery of international tourism and the global incorporation of new generations of consumers who are increasingly interested in their image and exposure on social networks," explains Porta.

Why is luxury more popular among young people?

"These new generations are now finding new ways to access and enjoy their favorite brands through formulas such as rental, pay-per-use or second-hand, which also favor the sustainability of the sector," adds the KPMG partner.

“By their nature, these companies are also at the forefront of adopting emerging technologies (metaverse, NFT, etc.) that allow them to explore and exploit new ways to connect with younger generations of consumers.”

Rental and purchase services for second-hand jewelry, watches, handbags and luxury accessories have proliferated for years.

One of them is Kewaybag, who works in Spain.

One of her clients, Jesús, 31, explains: "For me, buying a luxury bag is more than a whim, it's an object that I like to have and I value design and quality."

You just bought a second-hand Gucci shoulder bag for 350 euros;

if it were new, he calculates that it would have cost him 900 euros.

“In the world of luxury there are those who are ultra-rich and buy a Hermès bag as if it were a Zara one, and other types of middle-class, upper-middle-class clients, who buy specific things for the pleasure of having them,” he highlights.

All areas of luxury are on the rise, with the exception of hospitality (particularly as covid restrictions in Asia have continued through all of 2022) and cruises, which are still below pre-pandemic levels.

The luxury personal goods market in particular, considered the heart of the sector (which also includes all kinds of services and experiences), grew considerably in 2022, 22%, to 353,000 million euros, triple that of a decade, a figure driven mainly by the increase in Chinese clients, according to the consultancy.

95% of brands grew.

Regarding the regions, America surpassed Asia as the first buyer.

It is not surprising that companies in the sector have substantially improved their results.

LVMH, the great leader with brands such as Louis Vuitton, Christian Dior and Celine, last year obtained the highest profits in its history, up to 14,084 million euros, 17% more, thanks to a new sales record.

The French group Hermès also hit highs in its results last year: it earned 38% more, to 3.4 billion, and sales rose 30% to 11.6 billion.

It's not just clothes.

Ferrari, for example, surprised the market with its 2022 results by reaching a record profit of 939 million euros, 13% more than in 2021.

LVMH Chairman Bernard Arnault and his wife Hélène Mercier at the Louis Vuitton Foundation in Paris in February 2019. GETTY

The profile of luxury clients is increasingly focused on large fortunes.

While consumers who spent close to 1,000 euros in 2019 on these types of products have cut their budget in half in 2022, according to an analysis by the consulting firm Bernstein, spending among the richest is skyrocketing: those who have spent close to 50,000 euros in 2019 in luxury they increased the figure to 135,000 euros in 2022. The return of Chinese consumers after the end of the restrictions due to the pandemic promises to further increase the figures in 2023. So it is very likely that, at this rate, Bernard Arnault beat your own record this year too.

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