Former LVMH North America President Pauline Brown joins Yahoo Finance Live to discuss the state of the luxury consumer and the impact of inflation.
SEANA SMITH: Agree Ralph Lauren, owner of Capri Holdings, Michael Kors, is beating high street profit expectations – the latest sign that luxury retailers are still seeing strong demand for its products despite soaring inflation. We would like to call on Pauline Brown, former Chairman of LVMH North America, who is also a marketing professor at Columbia Business School.
It’s great to have you. Again, these numbers released this morning really indicate that inflation is not yet affecting the high-end consumer. The question though, in the future, will this still be the case? Or are we starting to see some consumer trends change a bit?
Pauline Brown: Well, a few trends you should pay attention to – I mean, one that, very broadly speaking, there are two types of luxury consumers. There are the rich Uber and then there is the ambitious consumer. Ralph Lauren and Capri are much more dependent on the aspirational than are, say, LVMH and Caring, and certainly much more dependent than Hermès.
And what we see in these latest numbers is that while Ralph Lauren and Capri have exceeded expectations, they have grown significantly more slowly than their European counterparts. And so I think that indicates that at least at the fringe of luxury goods, there is fraying. But there’s also a buyer segment that’s totally immune to the kind of forces we’re talking about.
RACHELLE AKUFFO: It is certainly something we all aspire to. So Pauline, though, as we look at the numbers themselves, is it more about people buying more of these products or inflation continuing and seeing some of these prices go up on some of these products, it’s also a kind of balloon the sales too?
Pauline Brown: Well, I’d say that’s mainly because they buy it at full price. And in years past, it was a very promotional environment. And that’s great for the bottom line of these companies. Is it sustainable? For a certain time.
I mean, the reason why people buy, and they buy in volume, but they also pay more — but they don’t pay more per unit. Like I said, they just don’t chase discounts like they always have. First, because there are a lot of opportunities. There are trips, weddings and other celebrations. And that’s a big push for people to go to the stores.
And so the other point that I would like to make, though, is that all of these companies are celebrating their birthday against really weak results. I mean, remember how hard luxury goods across all luxury segments have been impacted during COVID. And so I would say that in general, with the exception, perhaps, of what’s happening with the Chinese consumer, which has slowed down for reasons that go beyond COVID and post-COVID, that the consumer American, which consistently shows the fastest growth, is still in a fairly healthy recovery mode from a year ago, and even two years ago.
DAVE BRIGGS: Yeah, I’ll put myself in the aspirations category. How big was the pushback in China, given the COVID lockdowns? And what has been the impact of the stronger US dollar?
Pauline Brown: So the first question – it was very important, and not just because of quarantine and restrictions – also, because China has become saturated. It has long been the biggest growth driver for all luxury brands. It has also become, in quick succession, the fastest growing and largest market for luxury goods in the world.
So keep in mind that it’s hard to grow from a sizable base right now. Quarantine has slowed that down. I would say an even bigger variable is the fact that the Chinese don’t travel as much as they used to. And a lot of the growth of Chinese consumers was what they bought when they came to cities like London, Milan, Paris and New York, and bought goods. On the question of the strong dollar, this mainly helps American tourists in Europe. And I hear that day after day. Tourism is back, and people have a real incentive when they’re there, which is mostly Americans right now, to buy what they can.
RACHELLE AKUFFO: And, Pauline, I want to ask you about the luxury resale market, things like Real Reel, Poshmark – how does that affect the luxury market at large?
Pauline Brown: Well, I would say it affects the ambitious consumer. There is a segment of consumers for whom they would not normally buy Hermès, Vuitton or Chanel. But they could aspire to be a coach. They might yearn for more contemporary brands.
They could buy what we call the kind of middle or bridge price. And for them, it gives them access to these top brands at prices they can still afford. And it’s also opened up to a lot of buyers, it’s opened their eyes to the fact that they have sellability — that what they’re buying can actually hold its value and they can resell it.
This therefore changes the calculation of the purchase. What size, what durability? Well, I don’t think we’re going to go back. I think it’s real. I know there was an article in today’s “Wall Street Journal” about how far this can go, including yoga clothes and shoes. And I will say that there is a natural limit to the number of people who will go beyond designer handbags, jewelry and, to a lesser extent, ready-to-wear.
RACHELLE AKUFFO: Yes. I’m not quite ready to buy anyone’s used leggings, but thank you for your ideas today. Thank you very much, Pauline Brown, for being with us this afternoon.