Affluent consumers continue to indulge in luxury items despite rising prices, as evident from recent trading updates from luxury brands like Hermes, Kering, L’Oreal, and Pernod Ricard. However, analysts are starting to question how long this spending boom can last as prices are expected to rise even further. Although both Hermes and Pernod Ricard have exceeded expectations in the July-September quarter, they still plan to raise prices due to higher costs. The return of American tourists to Europe and Asia, taking advantage of the strong dollar, has contributed to their success, along with Mainland China experiencing a strong rebound in sales after the lifting of COVID-19 restrictions.

While Hermes and Pernod Ricard thrive, Kering and L’Oreal face challenges in the Chinese market due to COVID-19 lockdowns. Sales for Kering’s star brand, Gucci, have declined recently. Nevertheless, industry top executives remain optimistic about the future, believing that the industry can navigate uncertainties with its experience and resources.

Despite the positive outlook, some analysts predict a potential slowdown in sales growth in the luxury industry in the fourth quarter or next year. They anticipate that well-known brands such as Chanel, Hermes, Louis Vuitton, Dior, and smaller brands like Moncler will continue to gain market share as consumers gravitate towards recognizable names. This year, the industry’s growth is expected to be around 13%, with a projected growth rate of 7% for next year.

Luxury brands like Pernod Ricard and Hermes have already increased their prices due to rising costs and inflationary pressures. Pernod Ricard has globally raised its prices by approximately 7% in the last quarter, expecting continued sales growth in the upcoming fiscal year. Hermes, famous for its exclusive handbags, plans to significantly raise prices next year following the steps of other luxury giants that have increased prices during the pandemic. The challenges faced by suppliers due to soaring inflation in raw materials and energy costs have been highlighted by both Hermes and Kering.

Surprisingly, even companies targeting less affluent consumers have been able to pass on price increases. Trading updates from Nestle and Procter & Gamble have shown that consumers are still willing to pay more for goods like Nescafe coffee and Gillette razors despite the surge in inflation.

In conclusion, though the demand for luxury goods among affluent consumers remains strong, there are concerns about its sustainability as prices continue to rise. The industry’s growth is expected to slow down, and well-established luxury brands are likely to dominate market share. However, these brands are confident in their ability to weather uncertainties and maintain long-term growth.

Useful links:
Hermes Posts 52% Rise in Q3 Sales: Kicking Off Luxury Earnings Season
Hermes Raises Expectations after Strong Q3 Sales