Luxury Leather Goods in the US

2020 IMPACT

Amid travel restrictions, luxury leather goods is most affected by COVID-19

While consumers’ increasing penchant for travel and other out-of-home experiences, as well as luxury brands’ prioritisation of handbags, wallets and other leather accessories in their marketing materials and in-store displays, lifted luxury leather goods to strong growth over 2010-2019 prior to the onset of the COVID-19 pandemic, the category recorded the sharpest sales decline among any personal luxury categories in 2020, as domestic and international travel restrictions, lockdowns and other efforts to curtail the spread of the virus diminished demand for travel and other luxury leather goods among consumers. International travel bans and self-quarantine requirements for domestic travellers all but eliminated the need for consumers to purchase new luxury travel goods, which recorded the sharpest sales decline within luxury leather goods in 2020 as business and leisure travel stood at a standstill throughout much of the year.

Closure of key retail channels further limits sales, but delivers boost to e-commerce

With the vast majority of luxury leather goods sales having occurred through store-based retail channels including bags and luggage specialist retailers, classified as non-grocery specialists, and department stores, classified as mixed retailers, prior to the pandemic, the closure of these non-essential retail stores from mid-March until May or June amid lockdowns in many states further limited sales in 2020. Being the only available sales channel for luxury leather goods products during this time as a result, e-commerce experienced a dramatic boost in its percentage value share of total sales in 2020, despite still registering a slight decline in actual value sales as demand remained depressed by consumers’ increased time spent at home.

Leading players hurt by reduction in international tourism

Despite having strong presences across e-commerce and digital marketing platforms, enabling them to advertise and sell to domestic consumers while in-store shopping is restricted, leading luxury leather goods players including Louis Vuitton, Michael Kors, Coach and Gucci, the top four players in the US, respectively, saw sales in 2020 especially impacted by the reduction in foreign expenditure brought about by travel restrictions. While international retail expenditure typically represents over 44% of total luxury leather goods sales in the US, this fell to just over 28% of a much lower total in 2020 as international and domestic travel restrictions alike, as well as limitations to the in-store shopping experience, prevented wealthy international students and travellers, key drivers of luxury leather goods sales, from visiting large cities and other tourist destinations across the US.

RECOVERY AND OPPORTUNITIES

Pent-up demand for experiences will benefit luxury leather goods in outlook

As consumers were increasingly prioritising spending on out-of-home experiences including travel and dining out prior to COVID-19, luxury leather goods had been benefiting from the shift as consumers increasingly purchased luggage, handbags and other leather goods from global luxury brands to show off and take with them. As consumers have been largely unable to enjoy these out-of-home experiences amid the pandemic, they are likely to have far more pent-up demand for experiences than goods.

Changing consumer behaviour to have divergent effect on segments

While stay-at-home orders and other restrictions intended to curb the spread of COVID-19 have many consumers eager to resume travelling, dining out, attending large social gatherings and enjoying other out-of-home experiences once they feel safe to do so, many are far less eager to return to schools, workplaces, corporate travel, and more. Therefore, not only is the outlook for luxury leather goods as a whole dependent on the length and handling of the pandemic, but individual product segments within luxury leather goods are also dependent on the changes to consumer behaviour that have already, and will continue to, come about as a result of the pandemic.

E-commerce growth at the expense of store-based retail will only accelerate

As many consumers’ only available sales channel for luxury leather goods throughout much of 2020, the dramatic boost in e-commerce penetration came as many consumers became increasingly comfortable researching, shopping for, and purchasing high-value items online, with some doing so for the first time. With more consumers than ever before now comfortable shopping for luxury leather goods products online through pure play e-commerce retailers and marketplaces such as Farfetch and Richemont’s Net-A-Porter, luxury brands’ own e-commerce sites, and the e-commerce sites of department stores such as Nordstrom and Neiman Marcus, the growth of the online sales channel is only expected to accelerate moving forward, largely at the expense of store-based retailers.