Having thoughts of splurging on a new Coach bag for the spring? Picturing yourself with the new white iPhone 4? Well you’re not the only one.
The sales of high-end luxury items have increased over the past few months, a sign that further economic growth is not far behind.
A number of high-end retailers are showing marked improvements from even just last year. Saks Inc. reported a 5.8 percent increase in sales in April 2011 compared to the previous year. Total sales for the first quarter of 2011 were $713.7 million, an increase of 8.7 percent from 201o.
“The core customer is coming back, and they’re spending again,” said Steve Sadove, chief executive of Saks Inc, during an interview with VegasInc on May 5. “We aren’t seeing it at pre-recession levels, but it’s substantially higher than it was.”
Recent increases in the price of gas and food prices put a slight damper on overall consumer outlook, but spending has followed a steady growth upwards that looks to continue.
“Confidence fell, but weekly measures of consumer spending remain fairly buoyant, and the second quarter is looking very much like the first quarter,” said Tom Porcelli, chief US economist at RBC Captial Markets. “In other words, consumption is not losing momentum.”
A strong holiday season closed 2010 with a 14 percent increase in luxury sales versus the previous year, finishing with $256.6 billion in sales. This tops the previous record, which was $253.7 billion in 2007, according to a worldwide market study of luxury goods by Bain & Company.
2011 is expected to bring even more luxury good sales growth worldwide, as an 8 percent increase is forecasted by Bain & Company, which would bring worldwide sales totals to more than $276 billion.
The biggest reason for that growth is the strength of sales in emerging markets, such as Russia, Brazil and China, where lifestyle changes, investment by international brands and faster accumulation of wealth has fostered new markets.
Hugo Boss, LVMH and Burberry have all seen sales jumps in 2011 as Asian demand for European luxury items has fueled further expansion of products and flagship stores.
China has recently surpassed Japan to become the world’s second largest consumer of luxury goods.
Shares of Hugo Boss have more than doubled in the past year, and first quarter sales rose 21 percent, as the company was able to maintain prices and avoid absorbing higher raw good costs that many low-end retailers like H&M cannot.
However, the world’s largest luxury goods market, the United States, is not to be outdone. Bain & Company estimates that sales within America will increase by 8 percent over the course of the year as well, with revenues totaling $77.5 billion.
Driving that increase is the willingness of America’s rich to start spending again.
A survey of 1,458 households with an annual discretionary expenditure of $100,000 found that 15 percent of that group intended to boost their purchases of high-end goods over the course of 2011.
The survey, conducted by the Harrison Group, expects that these additional purchases will add $26.6 billion to the U.S. economy, with that group of Americans spending an annual of $359 billion on luxury expenditures.
“The growing strength in personal and family economies is sparking the luxury marketplace,” said Jim Taylor, vice chairman of the Harrison Group. “Much of the motive is purchasing items delayed by the recession.”
However, there is fear that recent growth is due only to a swell of purchases because of holiday sales from consumers who have kept themselves out of the market.
“Buying one high-end item after waiting months doesn’t have the market impact as multiple purchases,” said Sean Incremona, economist at 4CAST Ltd. “This could be nothing more than a seasonal adjustment issue.”
But proponents of future luxury growth say that just because people aren’t spending recklessly, does not mean the overall expenditures won’t increase.
“There will be more money spent,” said Taylor. “But it doesn’t mean it won’t be spent without the prudent skills learned as a result of a very difficult recession.”