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Luxury market emerged with strength from the pandemic and should maintain good performance in the coming years

1/5/2023

During the COVID-19 pandemic, demand for luxury goods initially declined, following other retail segments. Prominent brands pulled back, seizing the moment to improve their online experience and strengthen their customer relationships.

Since then, the luxury goods market has recovered strongly and many retailers are in a better position than they were pre-pandemic. An example of this are major luxury brands such as Hermès, the global luxury giant LVMH, which owns Louis Vuitton, and Richemont, which have increased their sales per quarter by more than 20% since the end of 2019.

According to Exame Invest, LVMH is expected to register double-digit growth in 2022 with the clothing and bags division, which will increase revenues by up to 20%. Hermès is also among analysts' favorite stocks, as it has already recorded good orders for bags and accessories throughout 2023.

It is worth remembering that the temporary closure of physical stores stimulated the change in sales channels for some of them, forcing digital acceleration. Retailers who have always been hesitant to embrace online sales and were reluctant to sell via e-commerce and marketplaces have incorporated digital into their sales strategy, like Patek Philippe and Rolex.

In contrast, some luxury retailers, such as Chanel, have chosen to maintain their exclusive status, selling their products only in their brick-and-mortar stores.

What explains luxury brands emerging with such strength from the pandemic?
The justification for the good performance of the luxury market is that the inflationary pressures we are experiencing have less impact on families with greater purchasing power.

Manuel Puig, Managing Partner in the Retail Area at Cushman & Wakefield, explains that at the same time the growth is a reflection of a change in the behavior of the upper middle class, which used to buy when traveling abroad and directed the consumption power towards high-end brands quality that are present in Brazil: ''the result of the change was a growth of 51.74% in this segment in September 2021 compared to the same period of the previous year'', he says.

Despite high inflation, rising prices for items such as energy, food and housing, class A/A+ consumers continue to spend in luxury retail.

What to expect for the coming years?
Taking into account the resilience with which the market has gone through one of the greatest stresses imaginable, especially for retail, it is likely that the luxury goods market will continue to perform well in the coming years, even with the new economic challenges.

‘‘Companies that operate in the luxury market in Brazil expect to have an increase of more than 20% in the next five years, returning Brazil to a hegemonic position in this luxury sector in Latin America’’, concludes Manuel.

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