Luxury Brands Don’t Just Sell to the Super-Rich

Hermès sells $50 packs of cardboard nail files and $105 hand cream. Luxury brands shift millions of these kinds of small treats each year to shoppers who may not be able to afford a $10,000 handbag. 

It is this more affordable part of the luxury goods industry that is now shaping up to be a weak spot.European luxury stocks lost billions of euros in value this week. Prada fell 11%, while Hermès and LVMH Moët Hennessy Louis Vuitton which are considered the two safest bets in the industry, dipped 5%. Investors seem to have been spooked by comments at an industry conference that demand for entry-priced designer goods like sneakers or wallets that target so-called aspirational shoppers is falling in the U.S.

The trend isn’t new, but it is gaining steam. Credit-card data shows U.S. luxury spending has been cooling for at least five months, especially among younger shoppers who have been squeezed by inflation. In April, Americans spent 18% less than they did in the same month of last year, according to Citi luxury analyst Thomas Chauvet, whose data tracks U.S. spending both at home and overseas. On Wednesday, Chanel, which is privately owned but reports annual sales, became the latest brand to say it has noticed a change in its American stores.

Expensive brands have a reputation for selling to the super-rich, but they rely heavily on shoppers further down the income scale too. Luxury sales are driven by “millions of people buying small things and a handful of people spending gigantic amounts of money,” according to Luca Solca, luxury goods analyst at Bernstein.

The top 5% of wealthiest shoppers drive around 40% of global luxury sales, according to a report from Boston Consulting Group. The rest comes from affluent consumers who spend up to €2,000 a year on luxury goods, equivalent to $2,147 at current exchange rates. 

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source: The Wall Street Journal