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Luxury: No signs of recession for the global rich

New numbers show an increase in luxury sales

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Through worldwide turmoil, inflation, and sinking stocks, said Andrea Felsted in Bloomberg, the rich seem to just keep spending. The world's largest purveyor of "bling," LVMH Moet Hennessy Louis Vuitton, smashed expectations in the third quarter with a 19 percent boost in sales. "The third quarter was always going to be a blockbuster with travel restrictions easing and many Americans venturing back to Europe to make the most of a strong dollar." But browsing through the numbers LVMH released last week and comments from its leaders, "you would be forgiven for thinking the world wasn't facing geopolitical turmoil, soaring inflation, and sinking stock markets." LVMH's chief financial officer Jean-Jacques Guiony said that for all the talk of recession, "nobody had seen it yet." Luxury retailers won't be immune to a global downturn, particularly if it diminishes China's rapacious appetite for Western indulgence brands. But LVMH has just "set a very high bar for the forthcoming reporting season."

Luxury brands already had high expectations, said Carol Ryan in The Wall Street Journal. Last year, the industry's sales grew 33 percent, to a record $285 billion thanks to dramatic increases in the value of financial assets. That trend has reversed in 2022. But despite the current economic gloom, the number of new millionaires globally is still expected to increase by 40 percent between now and 2026, with the population of millionaires "expected to more than double in Brazil and India." Luxury brands just keep growing, said John Gapper in the Financial Times. LVMH's fashion and leather goods division, for instance, is "more than five times the size it was two decades ago," which translates into "a lot of fancy handbags." That growth has enabled LVMH co-founder and chief executive Bernard Arnault to surpass Jeff Bezos as the world's second-richest man. The biggest danger these megabrands face in a downturn is fighting the impulse to make "it easier for the world's aspiring luxury consumers to afford their logos." Then, "their mystique evaporates."

Americans say they're feeling gloomy about the economy, said The Economist, but they're not spending like it. Investors have long looked to surveys such as the University of Michigan's consumer-sentiment index "for clues about where consumer spending is heading and whether the economy is poised for a recession." But lately they have been a poor gauge of how consumers actually spend. "Between June 2021 and June 2022, Michigan's index tumbled by more than 40 percent, even as consumer spending grew by 9.3." Though higher prices are weighing on "consumer morale," so far they have not affected spending. That will change if inflation persists, said Jessica Dickler at CNBC. "As of August, 60 percent of Americans were living paycheck to paycheck, according to a recent LendingClub report." Even those earning above six figures "are feeling the strain" of rising prices and falling markets. Another year of unrelenting inflation and even the wealthiest shoppers might tighten their luxury purse strings. 

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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