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Luxury Goods: The Boom Is Back

Over-priced stuff flying off the shelves...

LUXURY goods sales just went from dip to rip, writes Frank Holmes at US Global Investors.

After plunging due to the global health crisis, the personal luxury goods market returned to pre-pandemic growth in 2021, with sales estimated to top €283 billion ($325 billion) by year-end, according to a new report by Bain & Company.

That would represent a slight increase from then-record sales of €281 billion ($318 billion) in 2019.

Bain analysts note that these figures include only high-end merchandise, from leather handbags to jewelry to fragrances. Luxury "experiences", such as travel and dining, still lag 2019 levels due to the ongoing pandemic.

The V-shaped recovery was largely powered by the US and China, with US consumers outspending their Chinese counterparts by 1.5 times, the report says.

That's despite the fact that the luxury market in China has nearly doubled since 2019. Consumers there are so hungry for luxury brands that Louis Vuitton is reportedly considering opening its first duty-free store in China, on the island-province of Hainan, which has rapidly become a luxury shopping destination for Chinese tourists unable to travel overseas due to pandemic restrictions.

Louis Vuitton, or LV, is the largest brand in the giant stable of luxury goods companies owned by LVMH Moët Hennessy Louis Vuitton. The Paris-based conglomerate reported record revenue of 44.2 billion Euros ($51 billion) in the nine months ended September 30, an 11% increase from the same period in 2019.

Looking at demographics, the biggest contributors to the global sales recovery in 2021 were millennials, the oldest of whom are 40, and the younger Gen Z group according to Bain. These two cohorts are expected to make up 70% of all spending on luxury items by 2025.

Such products include Tesla, which now ranks third among luxury automakers in the US, having surpassed Mercedes-Benz in sales during the first nine months of 2021. Toyota-owned Lexus holds the number two spot while BMW tops the list.

Retail, and particularly luxury retail, has done very well during the pandemic as consumers reallocated discretionary spending from services to goods. Low interest rates and government-issued stimulus checks also supported consumption, which doesn't appear to have been impacted by higher inflation.

Obviously these conditions won't last forever, but I'm bullish on the luxury goods market, especially in China, India and other emerging markets that are seeing a steady expansion of household income as well as growth in the number of people joining their middle class.

Frank Holmes is chief executive officer and chief investment officer of US Global Investors Inc., a registered investment adviser managing approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in US Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

See the full archive of Frank Holmes.

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