LOADING

Type to search

Is A Slowdown in Luxury Spending on the Horizon?

Many fine jewelry retailers broke all-time sales records in 2021. But there are worrisome new economic indicators afoot that suggest consumer spending could significantly slow soon—including inflation, the Ukrainian war, energy and supply chains disruptions, and recession warnings.

 

We spoke to two prominent retail economists to help us breakdown today’s unique economic climate and find out what jewelry companies can do to navigate the (probable? possible?) coming storm.

 

Milton Pedraza, chief executive officer of New York City-based The Luxury Institute—which counts Gucci, Net-A-Porter and Yoox among its clients—conducted a survey in June that asked CEOs, C-level executives, and consultants to predict whether the current economic slowdown will turn into a full-blown recession. A majority (59%) said they believe that the slowdown will lead to a downturn in luxury spending, while 41% said they think a full “luxury recession” is on its way.

 

In short, “Most of our clients expect the second half of 2022 to be softer in one way or another,” Pedraza says.

 

Even though diamonds prices are up and the price of gold remains high, Pedraza remains confident that the luxury consumer will continue to invest in those materials. If small independent jewelry retailers’ stock branded goods, such as Bulgari, Tiffany & Co., and Rolex, so much the better: Pedraza believes goods from well-known luxury brands retain their value better than unbranded merchandise.

 

Today’s topsy-turvy economy is a far cry from the Great Recession of 2007 to 2009, points out the National Retail Federation’s chief economist Jack Kleinhenz. Unlike in that era, when the housing market bubble burst and unemployment at one point reached a terrifying 25%, consumers are in much better shape financially today, with much more savings.

 

In the U.S., many experts are predicting a medium impact on consumer spending, thanks in part to last week’s strong jobs growth numbers (up 372,000 in June from the prior month). Strong jobs growth coupled with the low unemployment rate (holding at 3.6% for the past three months), coupled with strong retail sales suggest current inflation hikes and high gas prices might not sink consumer.

 

For the first five months of 2022, retail sales were up 7.3% compared with the same period in 2021, according to the NRF. Household spending, which includes purchases at car dealers, gas stations and restaurants, is expected to rise 9% over the next year.

 

“The economy is moving away from extremely strong growth toward moderate growth,” says Kleinhenz. “I’m not betting on a recession in the near term. I’m recognizing a unique economic landscape. We’re not going through a typical cycle. Data suggests the risk [of a recession] over the next year is about one in three but it will be touch and go in 2023.”

 

As for whether independent jewelry retailers should radically alter their strategy near term, both economists say “no.” The economy is still growing, albeit more moderately, but consumers seem to be taking inflation and higher prices in stride. It would be a mistake to treat them with kid gloves at this juncture.

 

Kleinhenz also worries about creating a self-fulling prophesy: “I worry that we’ll talk ourselves into a recession.” Unlike in 2008, when people’s net worth was destroyed and home values were under water, it’s a different story today. “Consumers still have the ability to spend despite stock market losses,” he said. “Their balance sheets are in good shape and there’s pent up demand.”

 

Rather, smaller changes may be necessary in the short term.

 

Pedraza suggests retailers get back to the “basics” with relationship-building, a focus on customer retention and savvy inventory management. “During 2021 and the first half of 2022, “luxury designers and retailers know they have been riding a wave they did not create,” he says. “They know that it’s been luck first and skill second. During the second half, they’re going to have to rely more on skill because luck isn’t going to be with them as much.” –Kristin Young

 

Photo of the Oculus in NYC by Arthur Brognoli

 

Follow The Zing Report on Instagram and Facebook

Leave a Reply

%d bloggers like this: