Key facts
- US luxury credit card purchases fell 6% in September year-on-year.
- Spending on luxury brands has declined for three consecutive months.
- Tapestry, LVMH, and Ferragamo are among luxury brands most exposed to the US market.
- Spending on leather goods and ready-to-wear items improved sequentially in September.
- Watch and luxury jewelry sales deteriorated further in September.
- Most soft luxury brands have raised prices by low single digits this year.
US credit card spending on luxury brands fell for a third consecutive month in September, signaling continued weakness in the sector's largest market as the US heads into the November 3 midterm elections. Retail lender Citi reported that overall US luxury credit card purchases declined 6% from a year earlier, following 4% drops in both July and August.
Luxury brands have been buffeted by prolonged weakness in China and the economic fallout of the Iran war, pinning hopes on resilient demand from wealthy US shoppers to offset softer sales elsewhere. While continued wealth growth among affluent consumers supported the top-end of the market in September, the overall decline indicates broader economic headwinds.
The Citi data, based on millions of credit card transactions, follows surveys from the Conference Board and the University of Michigan that showed growing unease about the US economy ahead of the midterm elections. Economists point to rising US Treasury yields and mortgage rates as factors that could further cool economic activity.
Brands most exposed to the US market include Tapestry, owner of Coach and Kate Spade; French conglomerate LVMH, known for brands like Louis Vuitton and Tiffany; and Italy's Ferragamo. Citi analysts noted that brands with greater exposure to higher-end consumers should remain relatively resilient due to equity-market wealth effects.
Spending on leather goods and ready-to-wear items improved sequentially in September, but sales of watches and luxury jewelry deteriorated further. Most soft luxury brands have raised prices by low single digits this year, slightly below the price increases from watch and jewelry makers. Morgan Stanley analysts stated that the downturn leaves luxury brands with little scope for a return to growth after two consecutive years of contraction. The brokerage expects luxury groups to flag weaker US demand during the upcoming earnings season, which begins on October 12 with LVMH's third-quarter sales report. Gucci owner Kering also anticipates a slowdown in the US market, according to Italian brokerage Equita.