Lap of Luxury
Rising prices over the last 12 months have put pressure on retailers’ bottom lines. Simply put, as basic necessities like food and electricity cost more, discretionary spending goes down. There are signs those pricing pressures are having less of an impact on wealthier consumers, however.
Luxury-good sellers are enjoying a booming market for things like exotic travel packages, sports cars, and other premium products. This is arguably a direct result of pandemic-era wealth growth. There are also more millennial millionaires shopping for luxury goods, and a concept known as “revenge spending” — which also connects to the pandemic. The thinking around “revenge spending” is that people are spending more than they normally would as a form of rebellion against the lockdowns and general isolation experienced over the past few years.
Brand consultants report that demand remains robust for luxury goods, and sales figures back that up. Market-research firm Statista Ltd. reports global luxury goods revenue will go above $349 billion for 2022 as a whole, which is up from $309.6 billion last year. The company estimates sales will hit $419 billion in 2027.
Luxury brands are also aggressively marketing their products according to ad agencies. This year’s budget outpaced 2021, and that doesn’t appear to be changing as planning gets underway for next year. Some ad execs say this is aimed at building long-term equity since luxury goods technically aren’t produced fast enough to keep up with established demand.
Wine, Travel, and Sports Cars
Some luxury products are doing especially well in the current environment. That includes wine, which can also be considered a non-luxury item. St. Michelle Wine Estates Ltd. has boosted its marketing budget 15% on an annual basis. The company says while lower-value wine is in decline, bottles in the $15-plus category are on the upswing.
Luxury travel packages are also in demand. Marriott (MAR) increased its 2022 marketing budget for its luxury brands, while Four Seasons Hotels (FS) said its paid media budget will increase 300% this year, in comparison to 2021.
For some established brands, even the word luxury is an insufficient label. Aston Martin (ARGGY) has begun describing itself as “ultra-luxury.” Many retailers are currently focused on finding ways to save customers money. On the high end, it’s the spending that counts.
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