What: Agility gained through navigating pandemic-related complications has left luxury in a better position to face an upcoming recession.

Why it is important: Inflation and interest rates are soaring in Europe and North America, squeezing household budgets. Despite post-pandemic ‘revenge spending’ boosting performance, there is a visible decline in consumer splurging.

Historically, luxury companies are less affected by recessions as a decline in wealthy shopper spending has a less dramatic impact. Predictions that luxury will be even more resilient this time than in previous crises, compare the upcoming recession to that of 2008 which primarily hit lower-income and middle-class consumers.

However, the importance of middle-class and ‘aspirational’ shoppers continues to make up a significant number of sales. A damaging effect could be increased as luxury brands have increased their offerings in accessible categories in recent years.

LVMH and Hermès are likely to report positive numbers due to their focus on high-paying clients and strong brand DNA. Companies that prioritise aspirational customers are likely to suffer the most within the luxury sector.

Bain & Co. continues to expect luxury industry growth between 5 and 15 percent for 2022, depending on the recovery of the Chinese market and inflation pressure in the West. Overall, the pandemic has placed brands in a better position.  The increase in DTC has led to higher margins on each sale. And supply chain optimization during the pandemic has positioned brands better to react to current events and the impending recession.

The luxury industry and the impending recession