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<aside> 1️⃣ Where are we now?
The luxury market took a hit during the pandemic just like every other sector of the retail industry, shrinking 20 to 22% in 2020. Despite harsh economic conditions, luxury spending in the US ended up bouncing back even stronger in 2021 — sales rose 8.5% in 2021, reaching over $64.1 billion, which is nearly double the global average.
[***Everyone loves a good comeback story.***](<https://www.chartr.co/newsletters/2023-05-07>)
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<aside> 2️⃣ What caused the bump?
One key factor contributing to the resurgence in US luxury sales is an emphasis on localization — expanding outside the confines of pre-pandemic luxury hubs like New York City and meeting customers in hubs like Austin, Nashville, and beyond, drove unexpected growth.
During the early stages of the pandemic, many Americans chose to relocate from classic urban hubs like New York City to less densely populated cities such as Seattle, Denver, and Austin. Luxury retailers recognized an opportunity to follow those potential customers and adapted their strategy by opening stores in these less populated cities, all while retaining stores in established luxury markets like New York City, Los Angeles, and Chicago.
Hermès’ Austin 🐎 Credit: Courtesy of Hermès Copyright: FRANK OUDEMAN
In April 2022 for example, Hermès opened a brick-and-mortar store in Austin, becoming the first major luxury retailer to expand into the city. Versace and Christian Dior are following suit with plans to open their own first stores in Austin. And Ralph Lauren has plans to expand into 250 stores by 2025 with approximately 20 store openings in the United States alone.
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<aside> 3️⃣ Where are we headed?
Despite projections of steady luxury sales growth in the US, there are signs that it may be halting. For instance, while Chanel has opened 15 new stores in the US since the pandemic, their chief financial officer Philippe Blondiaux noted that, “We had a softening in the U.S., so no different from some of our competitors, from November of 2022, and that’s continued over the first few months of 2023.” Ferragamo’s sales also declined by 6.5% in Q1 of 2023.
Signs in the market have led investors to worry about the future of the luxury sector in the US, which has caused a decrease in the stock prices of key players in the industry — according to a Financial Times report, LVMH saw a 6.8% decline, Kering experienced a 6.8% decrease, and Hermès had a 4.3% drop.
Luxury brands and businesses should keep in mind that their growth should be tied to a clear understanding of their customer’s wants and needs. This perspective leads to long-term benefits, even if short-term gains are impacted by economic turbulence. In practice, this means identifying region-specific markets with high buying potential, analyzing localized consumer insights for target regions, investing in promotion and marketing tactics that will attract customers, and adapting in-person store experiences to meet shifting expectations and desires.
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