Could the USA be luxury's next El Dorado after China?
As a popular new destination for store openings, catwalk shows and other fashion events, the USA is thriving. The buzz around this market, especially for high-end brands, has been palpable for many months. A positive trend that was confirmed by the surprising rebound recorded by major groups and labels when they published their latest quarterly results. Enough for the US to be a promising alternative to China for the luxury industry.
Between January and March 2021, Kering’s comparable sales soared in the USA, rising by 46%, especially its online sales, which posted in the US their highest growth rate, increasing by 134%. Retail sales for Gucci, the group's flagship brand, jumped up by 51%, while Saint Laurent’s sales rose by 46%.
In the same period, LVMH recorded a 23% increase over Q1 2020, and a 15% increase over Q1 2019. And this while the Covid-19 pandemic is still a factor in the country. The sales rise recorded by Hermès was instead 23%. “The US has resumed growing, having started to do so at the end of 2020, and has recorded a positive Q1 despite local restrictions,” underlined Hermès at its results’ publication.
Sales for Salvatore Ferragamo have increased by 18.2% at constant exchange rates in North America. Michele Norsa, the Florentine label’s executive vice president, said that tourist destinations such as Miami, Las Vegas and Los Angeles are experiencing a bona fide luxury shopping bonanza, triggered by “revenge shopping” following months of frustration.
Los Angeles was chosen by Gucci as the venue of its November 3 show for the label’s centennial celebrations, and by Golden Goose for the opening of a Beverly Hills store on Rodeo Drive, while New York has attracted Moschino, which is set to show there on September 9, and Montblanc, which has just opened a store in Manhattan.
The USA is back centre stage according to Claudia D’Arpizio, a partner at Bain & Company. “[The USA] always used to be the most important market for the luxury industry. Then it was Asia’s turn to emerge. [The USA] undoubtedly is the new El Dorado after China, and its potential is all the more promising as we are witnessing a renewal of its customer base, with an injection of new, younger consumers. Market dynamics are more interesting [in the US],” said D’Arpizio.
The economic recovery in this market, which in 2021 is expected to fully return to its 2019 levels, was felt as early as Q4 2020, especially via the younger generations, less psychologically thwarted by Covid-19. In the USA, where health restrictions have been less rigid, the younger generation’s appetite for luxury goods has burgeoned. Besides, an extraordinary amount of extra value has been created on the stock market and the economy at large, driven by improved health conditions and a rapid vaccination campaign.
The huge investment plan launched by the Biden administration, including a $1.8 trillion 10-year spending package to support household consumption and a $2.0 trillion infrastructure stimulus, have given the US economy a big boost. This led to a 6.4% rise in GDP in Q1.
“The US market reacts very quickly to this type of stimulus. We are clearly at the beginning of a long cycle. We are witnessing a significant rise in confidence, comparable to the crazy years of the 1920s. All of this has had an immediate impact on the wealthy, but also on middle-income families. And, as there are still restrictions in place on travel and on in-person leisure experiences, [consumer] expenditure has shifted to products,” said D’Arpizio.
It is a fact that sales of luxury goods have been soaring since the start of the year in the USA. Notably, retail sales jumped by 23% in April compared to the same period a year earlier, but they were still 10.8% down compared to April 2019. Online sales instead rose by 19.9% and 95.6% respectively, according to the Mastercard Business Observatory.
“We are witnessing a marked change in scenario in retail distribution with, on the one hand, the continuing crisis of department stores, which are proving to be the least able to attract young consumers, and on the other, a proliferation of specialized e-tailers and new online players that specifically target young people by mixing casual collections by leading labels like Balenciaga and Gucci with Californian denim, sneakers, and collabs. This phenomenon is on the rise sharply,” said D’Arpizio.
Her advice to luxury labels is to invest more on the US market in this phase, paying attention to the underlying social and cultural dynamics, as the African-American and Latin American communities are much more active than before. “As is the case in China, [labels] need to make strongly localised efforts, to segment the market, understand their target(s) well and foster a continuous conversation with them," she indicated.
Likewise, luxury labels should not lose sight of American consumers as they move to the seaside, the mountains or the countryside, by meeting their needs for proximity via pop-up stores and clienteling. Driven by the habits that have become prevalent during lockdown, the USA is in fact moving towards a ruralisation of wealth.
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