Wealthier Buyers Rethink Luxury as Brands Raise Prices

Are the world’s wealthy falling out of love with luxury goods?

An opinion piece published Thursday (July 4) in the Financial Times argues that the rich — and even many people in the “aspirational middle class” — are rethinking things like high-end handbags and expensive sports cars.

Now, companies that flourished during the “revenge spending” days of the immediate post-COVID era are suffering a backlash, writes Swetha Ramachandran, a global equity manager at Artemis.

She argues that Chanel is the best illustration of this trend, with the brand raising prices twice this year, something CEO Leena Nair has chalked up to the cost of raw materials.

One brand that has managed to stay winning, Ramachandran continues, is Ferrari, which saw first-quarter revenues climb nearly 11% and profits increase almost 15% while still selling essentially the same number of vehicles.

“It has increased prices, but is improving its offer to customers through things like greater personalisation,” she writes. “This is in addition to its secret sauce — keeping supply well below estimated demand, in keeping with its founder Enzo’s oft-repeated quote that he ‘would always produce one less Ferrari than the market demands.’”

Here in the U.S., Macy’s CEO Tony Spring said in May that even the chain’s higher-income customers were showing increased selectivity when buying luxury items.

“We’re certainly seeing at the high end, the Bloomingdale’s consumer is interested in purchasing, but she’s being very thoughtful in the category she’s purchasing in,” Spring said, specifying that luxury handbag and shoe sales have softened, though high-income shoppers are springing for advance contemporary products, beauty items and home goods.

He added, “The customer at the lower tier has to make choices based on rent and family obligations. The customer at the higher tier is going to do it based on where … they have interest and passion in something that we are doing. I think that creates the motivation to buy.”

Indeed, many consumers are cautious. PYMNTS Intelligence research has found that 83% of consumers express concern about the near-term economic conditions, while the majority of even high-income consumers (those who make more than $100,000 a year) do not expect their income to rise on par with inflation.

Meanwhile, PYMNTS wrote earlier this week about the way mid-market retailers have been forced to adapt their business amid the rise of the omnichannel consumer.

The PYMNTS Intelligence study “2024 Global Digital Shopping Index: U.S. Edition,” created in collaboration with Visa Acceptance Solutions, shows that 56% of shoppers prefer to engage with digital technologies at least somewhat during their retail journey.