Crypto bros saved the luxury industry | Analysis

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Chinese consumers have passed the bling baton to American shoppers.

Flush from soaring stock markets and surging cryptocurrencies, the US was the surprise leader of the luxury sector last year, as people splashed out on everything from Cartier jewelry to Christian Dior handbags. Although China is still linked to the fortunes of the industry, COVID-19 outbreaks and President Xi Jinping’s “common prosperity” agenda have curbed the country’s fierce appetite for high-end goods. Fortunately for Big Luxury, American spenders came to their rescue.

But the industry shouldn’t be celebrating just yet. With the sell-off in tech and other highly valued stocks, and a near halving of the value of Bitcoin since November, the risk is that people rein in their newfound desire to go upmarket and the red-hot US luxury market loses steam.

Consumers typically splurge when they feel wealthy. According to analysts at Jefferies, crypto gains likely accounted for up to a quarter of the growth in US luxury sales in 2021. The most obvious example was in watches, as the US overtook China last year to become the most valuable market for Swiss watch exports . But consumers spread the love everywhere, splashing on contemporary art and nonfungible tokens, as well as on top-end jewelry, boosting the likes of Cartier-owner Cie Financiere Richemont.

The new US luxury buyer is younger and interested in what Jefferies dubs “Medal” — music, experience, digital, art and luxury.

The biggest corporate winner is LVMH Moët Hennessy Louis Vuitton, with brands including Louis Vuitton and Tiffany. These partnerships have helped LVMH connect European luxury to newer, more diverse customers. Founder and CEO Bernard Arnault even said last week that Louis Vuitton was “not just a fashion brand” but “a cultural brand.” He described both the performance in the US in general, and Tiffany in particular, as “remarkable.”

Gucci and Balenciaga, which have yet to report, should also have benefited from the rise of wealthy young buyers in the US The same goes for Moncler. Even Britain’s Burberry has seen young men showing more interest in its check and branded sneakers.

But it’s not just American shoppers who are changing. In the past, US luxury was highly concentrated in the retail bastions of New York, Los Angeles and Chicago, and the sector was very dependent on department stores. The environment looks different today. With the growth of Big Tech, and more affluent Americans relocating to other cities, many more regions are thriving.

Prada, for example, already has stores in Dallas and Houston, but it is planning outlets in Austin, Atlanta, Seattle and the Baltimore-Washington, DC metropolitan areas. Britain’s Watches of Switzerland is opening stores in locations including Cincinnati, Minneapolis and Plano, Texas.

And with department stores struggling, fashion houses are opening their own shops. For mall owners, there’s an opportunity to create luxury and entertainment centers. Such a strategy is working for the American Dream mall in New Jersey.

Even so, the US may be hard-pressed to repeat its stellar 2021. The second half of this year will be compared with the period when Americans were spending big. Analysts at HSBC expect US sales growth for 2022, excluding currency movements, to be 16% — still the best in the world, but well behind last year’s 65% expansion.

The greater danger is that the current gyrations in the stock market and crypto turn into an extended rout. In the worst-case scenario, luxury companies advancing across America could be saddled with underperforming stores. That would echo their experience seven years ago in China, where, after opening hundreds of shops, brands including Prada and Hugo Boss had to retrench.

LVMH is the most exposed, with 26% of its sales coming from the US in 2021. But it should also be fairly well insulated. The biggest companies — LVMH, Hermès, Kering and Richemont — have the resources to keep their brands at the forefront of consumers’ minds, as well as the clout to raise prices to counter escalating costs. In the watch market, waiting lists for the most in-demand names, such as Rolex, can probably sustain them for the next few years.

Most vulnerable are the more affordable luxury names, such as Coach and Michael Kors, or those that are still working on amplifying their brands, such as Burberry, Prada and Ralph Lauren in the US Amid rampant inflation, higher borrowing costs and no more stimulus checks , many consumers who moved upmarket over the past two years may be forced to cut back or choose secondhand goods instead.

But if crumbling stock and crypto values ​​take a toll on the biggest spenders, then not even the bling behemoths will escape unscathed.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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