EDITOR NOTE: One of the most important gauges of economic recovery is consumer discretionary spending. Once people begin purchasing goods that are more “wants” than “needs,” it tells you that perhaps they’re generating enough income to do so. Luxury goods may be unaffordable to most, but certainly affordable on a discretionary level to the wealthy. And we’re seeing a major decline in spending on luxury goods--in fact, a decline that can wipe out six years of industry growth. If this tells us anything, the prospect of a global economic recovery isn’t as close as we thought it was just a few months back.
Luxury retail sales for 2020 are forecasted to crash globally as a result of the pandemic, with estimates that luxury apparel, jewelry and beauty products could fall by 23% for the year.
The plunge "wipes out more than six years of growth," according to AP. The silver lining, if there is one, is that the crash is actually lower than the 35% plunge that was predicted at the beginning of the pandemic. That has mostly been due to a recovery in China, which generates about 33% of all luxury goods sales.
The sector is expected to generate $256 billion in sales for 2020, which is lower than 2014 levels and is down nearly $80 billion from 2019. It's the first decrease in the sector, which has been buoyed just like all senselessly expensive assets have by Central Bank policies globally, since 2009.
A further bounce back is uncertain, especially as global governments brace for a second set of shutdowns heading into the winter.
Bain partner Claudia D’Arpizio, who helped write the report on the sector, said: “I see a lot of uncertainty for next year, with less uncertainty for the longer term.”
Additionally, forecasts for 2021 have been unclear. While they fall in a growth range of 10% to 19%, it's a small respite after profits have dropped an estimated 60% this year. They are only expected to recover half of that in 2021.
In China, Bain sees a "full global recovery" heading from 2022 into 2023. They expect Chinese consumers will make up almost half of all sales by 2025.
Apparel sales plunged 30% and footwear sales fell 12% due to the pandemic and its ensuing lockdowns. Jewelry sales fell 15%, even after being "cushioned" by a recovery in Asia.
D’Arpizio warned some brands could wind up "running out of cash" and being forced to restructure. She concluded: “The pandemic has eliminated the excuses for brands that didn’t understand the trends, to give a sense of urgency to the right investments. The more the situation is sustained, the more we risk the crisis will be permanent.”
We wonder: are politicians advocating for more draconian lockdowns capable of understanding this?
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