Luxury Brands Make A Killing Despite Inflation, Recession Fears

Prices for food, gas, and travel have soared over the past year – but the rich appear to be shrugging it off and are still fueling sales at luxury companies, where sneakers can go for $1,200 and sports cars easily top $300,000, Ian Krietzberg reported for CNBC.

Photo Insert: Companies that cater to the ultra-rich, including Ferrari and the parent companies of Dior, Louis Vuitton, and Versace, are reporting strong sales or hiking their profit forecasts.

Companies that cater to the ultra-rich, including Ferrari and the parent companies of Dior, Louis Vuitton, and Versace, are reporting strong sales or hiking their profit forecasts.

The upbeat results come even as recessionary fears hang over the economy, with Walmart, Best Buy, Gap, and others slashing their financial outlooks, citing a pullback in spending among lower-income consumers squeezed by inflation.

Louis Vuitton, for example, offers a pair of sneakers for $1,230, as well as a bag that costs $2,370.

The high-fashion brand’s parent company LVMH, which also owns Christian Dior, Fendi, and Givenchy, reported organic revenue growth of 21% to 36.7 billion euros ($37.8 billion) in the first half of 2022 compared to a year ago. At Versace, where the price tag for a pair of shoes or collared shirt can easily top $1,000, quarterly revenue rose nearly 30% to $275 million from a year ago.

Its parent company Capri Holdings, which also owns Michael Kors and Jimmy Choo, said overall revenue rose 15% to $1.36 billion for the period. Italian supercar maker Ferrari also boosted its guidance for the year after revenue hit a record 1.29 billion euros ($1.33 billion) in its second quarter.

The 75-year-old automaker’s 2022 Ferrari 296 GTB, which has plug-in hybrid capabilities, starts at $322,000, according to Car and Driver, while its 2022 Ferrari 812 GTS starts at around $600,000.

Though the luxury industry has always had a degree of resiliency, the growing wealth disparity fueled by the pandemic is adding to the sector’s current strength, said Amrita Banta, managing director of Agility Research & Strategy, which specializes in affluent consumers.

“The disposable income of most affluent and HNW (high net-worth) consumers has increased because less was spent on travel,” she said. Luxury companies might be noticing a spending slowdown among the 80% of their customers who are “nearly affluent,” said Milton Pedraza of the Luxury Institute.

But he said those consumers typically account for about 30% of sales. Instead, he said luxury brands often count on just 20% of its clientele − the ultra-wealthy and very wealthy -- for the majority of their sales. And since that cadre is far more inflation and recession-resistant, luxury companies tend to experience a slowdown last, he said.

“The type of clients and the amount of sales they account for in true luxury brands makes them super resilient,” he said. “Not immune, but super resilient.”

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