US Credit Card Spending Drops for Luxury Brands
According to retail lender Citi on Tuesday, American credit card purchases for luxury goods declined for the third month in a row during September, pointing to ongoing softness in the sector’s primary market as the country approaches the November 3 midterm elections. Overall US luxury credit card purchases dropped 6% from a year earlier, following 4% declines in both July and August, according to Citi analysts.
US Wealthy Shoppers Offset Luxury Sales Weakness Elsewhere
Luxury brands have dealt with extended sluggishness in China alongside the economic repercussions of the Iran war, forcing them to rely on steady buying power from affluent American consumers—such as an expanding population of AI millionaires—to balance out weaker revenues in other regions. While wealth growth among affluent consumers supported the top-end of the market in September, the broader downturn has left major brands vulnerable. Citi analysts highlighted in a research report that the luxury labels with the highest concentration of exposure to the United States include Tapestry—which operates Coach and Kate Spade—French giant LVMH, owner of labels such as Louis Vuitton and Tiffany, and Italian brand Ferragamo.
Divergence in Product Categories
Spending on leather goods and ready-to-wear items improved sequentially in September, while purchases of watches and luxury jewellery deteriorated further. Most soft luxury brands selling apparel, shoes, and leather goods have raised prices by low single digits in percentage terms this year, slightly below the low to mid-single-digit price increases implemented by watch and jewellery makers.
Luxury Brands Face Growth Contraction Before Midterm Elections
The Citi credit card data follows surveys from the Conference Board and the University of Michigan showing growing unease about the US economy ahead of the midterm elections that will decide control of Congress. Morgan Stanley analysts noted in September that the US luxury spending downturn leaves brands with little scope to deliver a return to growth after two consecutive years of contraction. LVMH is scheduled to report third-quarter sales on October 12, kicking off an earnings season where brokerages expect luxury groups to flag weaker US demand. Gucci owner Kering, which releases earnings on October 22, told analysts to expect a slowdown in the US market, according to Italian brokerage Equita.
Frequently Asked Questions About the Luxury Spending Slowdown
Which luxury brands have the highest exposure to the US market?
Citi analysts identified Tapestry, LVMH, and Ferragamo as the luxury brands most exposed to shifts in the US market.
How do price increases differ across luxury product categories?
Soft luxury brands selling apparel, shoes, and leather goods raised prices by low single digits this year, while watch and jewellery makers increased prices by low to mid-single digits.
When do major luxury groups begin reporting their third-quarter sales?
LVMH begins the earnings season by reporting third-quarter sales on October 12, followed by Kering on October 22.
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