The luxury market is set to experience contrasting dynamics in the coming months, with US consumers reducing spending on non-essential goods while China's reopening offers a tailwind for the sector, according to research from J.P. Morgan. Despite consumers cutting back on spending, demand for luxury goods remains strong, with the luxury market growing 7% organically year-over-year in Q4 2022.
Chiara Battistini, Head of European Luxury and Sporting Goods at J.P. Morgan, commented, "Investors are seemingly turning more constructive on the luxury sector. But while the sector is more resilient, we also note that it has never been immune to macro dynamics and has historically been late cyclical."
As US consumers deplete their excess savings, luxury sales are expected to be impacted. However, China's recent reopening and pent-up demand from Chinese consumers, who drive a significant portion of luxury spending, may provide a boost to the sector. Battistini estimates luxury companies could post around 35–40% sales growth in China this year.
Upscale brands and hard luxury goods, such as watches and jewelry, are anticipated to be more resilient in the uncertain macro environment, depending on specific brand momentum. Battistini added, "If the consumer becomes sensitive to inflation, we would expect higher-ticket items and coveted brands in leather goods to be more protected. Consumers might also favor purchasing hard luxury items such as watches and jewelry, which potentially represent a more attractive investment."
