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High-End Pullback? Or High-End Shift to Europe

Thomas Paulson
Jul 15, 2022
High-End Pullback? Or High-End Shift to Europe

Last week we wrote about a surprisingly sharp deceleration in luxury goods spending in the U.S. during June, which is consistent with Placer.ai's visitation data for the luxury retail category (below).

This week, we heard more anecdotes about that from Costco (see additional commentary later in this report) and Burberry’s 2Q22 update, where its Americas region slipped into decline versus +28% growth in 1Q22. Next week we will learn more on the topic when LVMH reports (traffic to Louis Vuitton stores is down in the U.S.). To get to the heart of the matter before that release, we wanted to look at America’s largest true prestige luxury brand, Tiffany. (As a reminder, LVMH is now the owner of Tiffany.)

  • For the end of 2021, LVMH shared that Tiffany's sales and profit level were higher than prior to the pandemic. Below, we show that traffic is substantially down from last year’s level. Working to offset that decline are higher sales and conversion rates.

  • Indeed, it looks like prestige luxury in the U.S. is softening against an incredibly high base period. Last week, we speculated that the softness could be due to affluent U.S. households vacationing abroad, especially to Europe given the Euro-Dollar parity. U.S. government data on travel has a six-month lag which makes understanding the magnitude of the increase hard to grasp. (Last week we shared that YoY travelers to Europe were expected to be up 600% over the summer.) However, this week Delta’s CFO Glen Hauenstein stated, “Latin America and Transatlantic exceeded 2019 levels in June…[And] September, what we have on the books today, which is about 60% of the total bookings for international, is at record levels much higher than what we experienced in June.Additionally, there were numerous reports over the week of European airports being overrun by strong demand, and airports telling airlines to stop selling tickets for flights this summer.  
  • Since we're looking at Tiffany, we also decided to look at how its customer has changed since 2019. (We wrote about Tiffany’s new contemporized and inclusive brand positioning in our April 15 report). As such, we looked at the True Trade Area for the Top 10 Tiffany locations in Placer.ai and compared the estimated customer profile in 1H22 compared to 1H19. Our observations are as follows:
  • Using Experian Mosaic customer profiles, Tiffany’s largest type, the Power Elite, gained a lot as a portion of visits and in visits (up 34%). The Power Elite out-indexes in type by 2X at the state level and that also increased. Tiffany’s second largest type, the Singles & Starters, dropped a lot (from 12.8% to 11.1%) as did Significant Singles. Is the decline due to the transition to owning one’s own home, suburban living, and work-from-home? That seems a plausible hypothesis, but unvalidated by us thus far.

  • Looking by generation, Gen-Z dropped, whereas Gen-X gained. Millennials gained in visits simply because their larger size within the trade areas. By race, white dropped, whereas minorities gained.
  • Surprisingly, average household incomes were little changed at $99.6K.
  • As was the case in 2019, most customers are college educated, married (49%), and own their own home (58%).

  • Conversion rate (transactions as a percentage of visitation) versus 2019 improved from 49% to 55%, and average ticket picked up a lot, from $268 to $363, or +36%. Average revenue per location increased 30% and sales per sq-ft averaged $1,084. Such large gains lead us to believe that some reset is inevitable with the fade of the pandemic and the increase in other spending occasions and desires.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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