NEW YORK, NEW YORK….no, thank you

Luxury is not quite as popular a sector as it had been since the Spring of 2020 as it continued to benefit from post-Covid euphoria. I think the sector will grow just under 10% this year which is still well above the 20-year average but is around half the rate of growth of 2022 and enduring a sharp deceleration in the second semester.

We always talk about China and the Chinese shopper – still by far the most important for the sector – but we want to have a quick look at what happened in Europe. Virtually all Luxury brands are European and this is their heritage…including quite extensive store networks. Footfall in Europe matters. That said, on average (it does vary by brand) about ½ of sales invoiced here were to visitors/travellers…pre-Covid these were mostly Chinese and Asians with a smaller contribution from Americans and the Middle East.

Travel therefore matters a lot, as the European buyer is now too small to support the store networks.

I think the European buyer has been contracting in relative terms for some years, and was negative this year and for sure next…..but Europe has done very well in 2022-23. Why ?

We know there were no Chinese visitors to Europe in 2022 and very few this year once the Chinese authorities essentially decided that Covid never really existed. There were Koreans and Japanese visiting and spending, but very few Chinese – usually the wealthy only as travel to Europe was not only challenging but expensive. We think it will take a long time for Europe to welcome anything like the numbers it saw in 2019….it’s much more expensive, most if not all visas and passports needed renewal and border controls are stricter (plus the emergence of duty free shopping on a gargantuan scale in Hainan even for Luxury).

Anyway, fewer Asians yet Europe buzzed for some 18 months with some stores selling out of products.

This was due to the price policy of brands that effectively made shopping in Europe incredibly attractive in order to drive traffic in their many stores here and this worked spectacularly well with the North American consumer once they were able to travel again. Tens of thousands of cash-rich Luxury-hungry shoppers driven by a strong US dollar to shop abroad.

This has now slowed down a lot obviously as year-on-year comparisons are very tough….and of course the US dollar exchange rate is not as favourable but the price gap remains excessive in my view and if I were a US resident I would certainly not be buying Luxury at home (and they are not – the local weakness is a set trend for most brands).

So I decided to have a look – I picked six brands (LV, Chanel, Gucci, Moncler, Cartier, Prada), ten identical SKUs and with the help of VPN (the brands have got a lot better at stopping you from comparing prices otherwise) went exploring.

It makes for some very interesting reading – let’s compare a New York City resident buying at home, in London or in Milan. For ease of comparison, I have indexed for each brand the cost of the basket of goods at 100 if bought in NYC. Don’t forget we included local sales tax in NYC and applied tax refunds in Milan but not London given their masochistic approach to luring foreign spenders.

Bear in mind that applying a flat 13% (it’s an average…sadly in Italy there is no consistency) tax refund in Milan if prices were identical the number in Europe should be 87.

Chanel at 100 in NYC drops to 94 in London and 81 in Milan. Buy in Milan

Cartier at 100 in NYC drops to 94 in Milan but is 108 in London. Buy in Milan and avoid London for sure

Both these brands are known to apply a fairly disciplined pricing policy with limited differentials…so let’s look at the others.

Gucci at 100 in NYC drops to 85 in London, 69 in Milan. Buy in Milan, London if you have to

Louis Vuitton at 100 in NYC drops to 85 in London, 69 in Milan. Aligned to Gucci – same conclusions

Prada at 100 in NYC drops to 78 in London, 62 in Milan. Buy in Milan but even London good

Moncler at 100 in NYC drops to 72 in London, 52 in Milan. Worth the flight to Milan if you buy three pieces!

So there you have it – if we average it out, a NYC resident spending 100 at home would spend 87 in London but an incredible 71 in Milan

This is the game….with the exception of a few brands, the trick to drive traffic in a stagnant Europe was to broaden the price gap.

If I were a New Yorker I would fly to Milan and do all my shopping there (hopefully not picked up at customs!) and not really London which is far less convenient given the very peculiar policy currently enforced.

What happens in 2024…the year of the US Election and higher rates……I suspect US Sales will struggle.