More than 15 years ago, we argued that the US was an emerging market for luxury. The theme is relevant again today given the strength of US demand over the past 24 months. Is such exuberance structural, or not?
By most measures, the wealth creation in the post COVID-19 rebound in the US has been quite dramatic. Equity and property markets have made significant gains, to name just two factors. All in, wealthy Americans became even richer and their mood brightened. This played an important role in luxury’s fortunes, as did the benefits of “staycationing” as the world was broadly shut.
We argue that there were other factors also at play, including demographics and changing tastes. Luxury brands have not been able to significantly crack the US until recently, in our view, mostly because of a “one-size-fits-all” approach. In other words, many luxury brands were developing products, communications and retail concepts centrally and rolling them out around the world in an effort towards consistency and with Asian consumers in mind as the key priority. One of the silver linings of the last two years with limited travel opportunities has been the adaptation of brands to regional specifics. US consumers have responded well to changes made by brands.
Demographics are also relevant. The US as a country is still young with a median age of about 40 years (similar to mainland China) and home to diverse generations. While luxury consumption in the US was once dominated by middle-aged affluent consumers, nowadays it is increasingly driven by younger generations.
Another factor driving US growth is the increase in store locations. As per our estimates, almost half of the retail footprint for leading luxury brands are in California, New York, Florida and Texas alone. But this is set to change as many Americans moved during the pandemic but they did not leave behind their appetite for luxury goods. Cities like Austin have seen an influx of wealthy tech workers while cities like Charleston, Nashville and Atlanta have seen their median incomes rise. Brands that once had huge flagship stores only on Fifth Avenue in New York or Rodeo Drive in Los Angeles are now expanding outside these major cities and into suburban malls.
We are, thus, constructive on the short- and long-term prospects for the industry in the US market. Our growth estimate for 2022 is 16 per cent in the US, compared with a global average of 10 per cent. American consumers are awakening to brands who have adapted their communication, products and retail stores to serve them better, and we do not see this as a blip, but a lasting trend.
First published 26th April 2022.
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