Watch Economic Observatory: Will the luxury goods boom continue as the wealthy continue to spend on luxury goods?

There is a strong general public pessimistic view of the economy beyond 2024, citing concerns about the collapse of the Chinese economic bubble and the slowdown of the US economy. But should we really be pessimistic about the outlook for luxury goods, including luxury watches and jewelry? Leading economic journalist Tomoyuki Isoyama analyzes and considers the outlook for the two major markets of the US and China.

The wealthy's ability to spend on luxury goods remains undiminished, so will the luxury goods boom continue?

　With dark clouds gathering over the global economy, what will happen to the luxury goods market, including watches and jewelry? While concerns are growing about a slowdown in the United States and China, the two major markets that determine the global economy, some believe that the luxury goods boom will continue, as the wealthy have grown in size and their spending power for luxury goods is not likely to decline easily. Some say that even if the economy goes into recession, it will not affect the wealthy, and that the economy is becoming increasingly fragmented.

　That said, with such growing uncertainty about the future, bullish voices are becoming less vocal. Take stock prices, for example. The stock prices of major luxury brand companies around the world have fallen significantly since around June 2023.

　For example, the stock price of LVMH (Moët Hennessy Louis Vuitton), the world's largest luxury brand group and a French company that owns brands such as Tiffany, Hublot, and Chaumet, was 892 euros on July 14, but fell to 660 euros on October 13, a drop of 26% during this period.

　Furthermore, the shares of Swiss company Richemont, the world's second-largest luxury goods manufacturer and owner of brands such as Cartier, IWC, Panerai, and Vacheron Constantin, fell 32% from 153 Swiss francs on July 14 to 104 Swiss francs on October 26. While both stocks have recently recovered somewhat, there are few signs of a full-scale rise in their prices. Concerns that there may be a change in the outlook for luxury goods demand, which had grown significantly in reaction to the end of the COVID-19 pandemic, are dragging down stock prices. Investors have a habit of looking far into the future, so it's fair to say that stock prices are falling in anticipation of a slowdown from 2024 onwards, rather than 2023.

Swiss watch exports expected to hit record high in 2023

　In fact, global demand for luxury goods is not slowing down suddenly. According to export statistics from the Federation of the Swiss Watch Industry (FH), cumulative exports from January to October 2023 totaled 22,092.8 million Swiss francs (approximately 3.694 trillion yen), an 8.3% increase compared to the same period last year. While export prices in Swiss francs have risen due to rising global prices, overall exports are performing well. Of the top 30 export destinations, only South Korea (11th), Qatar (21st), and Portugal (29th) were down year-on-year as of October. The other 27 countries and regions are seeing year-on-year growth.

　Swiss watch exports hit a record high in 2022, at 24,834.8 million Swiss francs, so it's certain that 2023 will surpass this and set another record. This isn't just about Swiss watches; for example, LVMH announced on October 10 that its sales for the January-September period of 2023 increased by 10% compared to the same period last year. The company announced that in real terms, taking into account the growth of comparable businesses, sales increased by 14%, making its financial results extremely favorable. Looking at just the watch and jewelry division, sales increased by 5% (9% in real terms).

The US market remains strong

　The recent financial results are also being boosted by the fact that demand for luxury goods in the United States, which has been attracting attention, is showing no signs of slowing down. There were concerns that the economy would suddenly cool down due to repeated interest rate hikes by the Federal Reserve, but the unemployment rate has not fallen, wages have continued to rise, and luxury goods consumption has remained solid. Rather, the trend of the wealthy purchasing luxury watches and jewelry to protect their assets from inflation continues.

　The US market continues to perform well as an export destination for Swiss watches. The cumulative growth rate for January to October 2011 was 7.3% compared to the same period last year, making it the world's largest export destination.

The Chinese market is divided into two segments

　Another cause for concern is China. With the collapse of real estate companies and the stalling of local government public works projects becoming apparent, there is a growing view that the huge debt problem could shake the Chinese economy to its core. Some say that the country is on the brink of a financial crisis, and that the collapse of the bubble is becoming a real possibility. In this environment, it has been speculated that luxury goods consumption may also run out of steam.

　However, exports of Swiss watches to mainland China maintained a cumulative growth rate of 9.0% from January to October 2011, and in October alone, they showed a significant increase of 24.3% compared to the same month last year. With unemployment rising in China, especially among young people, general consumption is seen to be rapidly cooling, but on the other hand, demand for luxury goods among the wealthy is said to be increasing. Consumption is said to be completely divided. The wealthy are said to be converting their assets into physical assets such as jewelry in order to protect their own assets.

　How long will this luxury goods boom continue? Will it start to lose steam as early as 24, as stock prices predict? It will be worth keeping a close eye on this.