Inflation is at an all-time high, peaking at 9.1 percent. Thankfully, the price of gas is going down, easing the burden on customers’ wallets. At the same time, rent and housing prices are at a premium high. There are two schools of economic thought right now, one saying we are in a recession, and one saying we aren’t. There are also those economists who say we aren’t in a recession yet, but one is on the way.
Fashion is often one of the biggest casualties of a recession, as people have less discretionary income to spend. Priorities become necessities like gas, food, and housing. Things like shopping for clothes and travel decline as disposable income shrinks. Despite a recession hanging over global economies' heads like a gray cloud that may or may not cause rain, luxury fashion is still growing at an impressive rate.
Is luxury fashion well positioned to weather an economic downturn?
Luxury fashion does better than other fashion categories during periods of economic downturn, due to its primary customer base being high-income consumers poised to weather a recession. COVID-19 also proved luxury’s ability to rebound after an economic crisis. A study by Bain & Co. showed luxury sales recovered 301 billion dollars in 2021, up 7 percent from 2019 and pre-COVID-19 lockdown levels. Chanel’s sales are at a historic peak of 15 billion dollars for fiscal year 2021.
Despite soaring inflation rates, luxury is still doing fine. The decline of the Euro as well has made tourists more prone to shop, as they are getting more bang for their buck, so to speak. American tourists are also shopping more when they travel to Europe, since the euro is close to on par with the dollar.
There are still concerns about luxury’s growth. China, a key player in luxury fashion, is experiencing waves of COVID-19 lockdowns due to the country’s “zero COVID” policy. Also, the war crisis in Eastern Europe, namely Ukraine’s ongoing conflict with Russia, threatens growth in Europe. Many luxury brands, including Chanel, Hermès, Louis Vuitton, and Prada, have all ceased operations in Russia for the foreseeable future.
Between U.S. inflation, China’s lockdowns, and Europe’s foreign policy issues, it’s the perfect but not so perfect storm for a global recession. The difference between this recession and past recessions is that people are still spending money. The U.S. unemployment rate is also at a stable 3.5 percent, and 528,000 jobs were added in July. according to the U.S. Bureau of Labor Statistics.
Luxury brands that sell pieces known for retaining or increasing in value are some of the best positioned to weather a recession. Leather goods, especially, are seen as an investment by luxury fashion shoppers due to their long shelf lives and potential return on investment if still in good condition. Both the Hermès Birkin and the Chanel classic flap bag tend to fetch more than buyers originally pay for them on the resale market.
In the end, the market will continue to correct itself, and the economy will forever go through highs and lows. As luxury currently stands, it looks like it will rather the present or looming recession just fine.