Shares of Watches of Switzerland, a leading UK retailer of luxury timepieces such as Rolex and Omega, experienced a sharp decline, dropping by over a third in a single day. This drop resulted in a decrease in market value of approximately £516 million. The company attributed this decline to a shift in consumer spending away from luxury watches to other categories like fashion, beauty, hospitality, and travel. Watches of Switzerland’s announcement aligns with recent trends observed in the luxury retail sector in the UK. Companies like Burberry and Mulberry, along with Frasers Group, have also indicated a slowdown in high-end consumer spending. This trend marks a shift from the increased luxury spending observed during the pandemic when restrictions on travel and dining out led to accumulated savings being spent on luxury goods.
Analysts at Bain, a US consultancy firm, have reported that growth in luxury spending slowed to less than 5% in 2023, a decrease from the double-digit growth rates of the previous two years. The slowdown is particularly noticeable in luxury goods as consumers increasingly allocate their spending to high-end experiences like hospitality and travel. The Bain-Altagamma study of the global luxury goods market, released this week, highlights a normalization in growth patterns, with some luxury companies struggling to adapt to this change. The study also points out the impact of dwindling savings, fluctuating property markets, and rising interest rates worldwide, leading even affluent consumers to reassess their spending habits. The luxury goods market has seen significant price increases in recent years. For instance, the price of Chanel’s 2.55 handbag has nearly doubled since 2020, and Prada’s Galleria bag has also seen a substantial price hike. These rising costs have impacted the purchasing power of consumers seeking luxury items.
Luca Solca, a global luxury goods analyst at Bernstein, notes a continuing polarization in the luxury goods market, with top-tier brands maintaining their growth while lower-ranking brands face challenges. Solca observes that competition in the industry is intensifying, favoring larger groups with more resources. Several factors are influencing the luxury market. The anticipated spending surge by Chinese consumers post-pandemic has been dampened by rising travel costs and economic uncertainties. Additionally, changes in the UK’s VAT tax policies post-Brexit have affected sales, with non-UK shoppers now more likely to spend in other European cities. UK brands also face internal challenges. Burberry is undergoing leadership changes and creative shifts, and Mulberry’s profits are pressured by rising costs despite increasing international sales.
Watches of Switzerland has specifically pointed out supply issues with Rolex, its most crucial brand, as a factor in its performance. Despite the current trends, analysts at Bain predict continued growth in the luxury market, albeit at a slower pace of up to 4% in 2024. Nick Steyn from consultancy Anew suggests a shift in the concept of luxury towards more experiential elements rather than overt branding.
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