Luxury goods industry is at a tipping point, so is the time to invest in luxury now?

2024-02-27 02:28:40 ET

Paris Fashion Week begins today – a landmark time of year for the luxury goods industry (including watches and jewellery, designer fashion, luxury cars, fragrances and other high-end cosmetics) as a whole.

It’s also a watershed moment for the industry currently, as things could go very well or badly for investors depending on this next juncture.

A 400-billion-dollar problem

According to a study referenced by

Fortune Business Insights

, the global luxury goods market was valued at $284 billion in 2023 and is set to be worth a staggering $392.40 billion by 2030.

That’s more than the entire global automotive industry – and shows that there’s a significant amount of cash on the table for investors when it comes to luxury brands.

And yet luxury goods have had a threadbare time since 2020.

The global pandemic upended the traditional luxury industry profoundly. No one was travelling, or buying luxury cars. And what was the point of most high fashion if no one else would see it?

Deloitte’s

Global Powers of Luxury Goods

report of that year said that the luxury industry’s composite YoY sales growth was down 12 percent, with just 1.8 percent annual growth in sales, after a growth of 8.5 percent YoY in 2019 to around $281 billion worth of sales.

In 2022, things were still not ‘normal’ yet. For the full financial year, supergroup and luxury goods bellwether stock LMVH (of Louis Vuitton, Dior and Moët champagne fame) reported that revenues were down 13 percent for 2022.

Luxury profits climb eight percent

But then in 2023, a shift occurred, according to the latest Deloitte

Global Powers of Luxury Goods

report:

Luxury goods companies have not only rebounded to pre-pandemic profitability levels but are also undergoing a significant transformation towards an environmentally responsible, circular economy business model. This shift is driven by customer demand”.

As if to prove the words true, the LVMH group

reported

profits from recurring operations at €22.8 billion, up eight percent YoY soon after.

Luxury goods are changing

There are several reasons why luxury is undergoing a shift. As Deloitte noted in the aforementioned report, the industry is noticeably embracing pioneering tech like non-fungible tokens (NFTs) and the Metaverse.

Secondly, according to

Statista

, it is the United States (not China or Europe) which will be the biggest global market for the sector from now to 2030.

This is good news for luxury, as America is looking like it’ll have far more economic growth than either in the next few years. As we all know, prosperous nations shop more, and for higher value items.

Not in the bag yet, says Forbes

This means there is money to be made – if an infamously old-fashioned industry is willing to pivot. But not everyone believes they will.

In a recent article,

Forbes

stated that luxury sales climbed just four percent in 2023, compared to 20% growth in 2022, and that “companies that experienced growth in 2023 is down from 95 percent in 2022 to about two-thirds in 2023.”

So, will the well-heeled luxury goods industry use its considerable clout to turn and go in a new direction? Perhaps we should watch the runways for the next few days to find out.