Geopolitics and Luxury. The American way of life gets the blues

In 2023, the American luxury market failed to live up to the expectations of luxury conglomerates. LVMH and Hermès have seen their growth slow significantly or even decline, like Kering. This massive deceleration worries the giants of the industry far more than the caution shown by the Chinese market, which is still affected by the aftermath of the pandemic.

The American customer seems to have partially given up on the superfluous spending that once defined the American way of life. In the first nine months of the year, the spirits sector saw its sales decline by 14%. Part of this decline can be attributed to a normalization of consumption following the post-pandemic rebound, but the reasons also lie in the decisions made by the Biden administration in the context of global geopolitics. To recall, in 2021, the U.S. president launched a series of very significant investment plans, among which stood out a $1.8 trillion project for households spread over ten years. This aid had given a strong boost to the economy and spending. Between January and March 2021, Kering and LVMH had recorded a significant surge in sales (46% and 23%, respectively).

However, today, the prospect of the U.S. presidential elections scheduled for 2024 and the intense international context on several fronts are weighing on the country's economic health. The issue of the war in Ukraine has become a domestic political concern, linked to the massive financial aid that the United States has provided since the start of the conflict, even though the Ukrainian counteroffensive has not seen success.

The extensive bombings of Israel against Hamas in Gaza also raise serious concerns, as does the potential defense issue of Taiwan in the event of a Chinese attack. Republicans and Democrats are deeply divided on the solutions to be taken. Although the U.S. Treasury has announced the possibility of providing assistance on multiple fronts, Republicans will take the opportunity to highlight the risks of weakening the domestic economy. An anti-Biden revolt based on these election-related fears could exacerbate tensions and increase the fear of a financial collapse and a significant reduction in Treasury reserves. This effect could paralyze the domestic economy and consequently affect investments, including those in the luxury sector. The U.S. president recently announced his intention to request a $100 billion allocation from Congress for aid to Ukraine, Israel, and Taiwan. He then hastened to communicate that part of these funds would be allocated to managing the migration crisis with Mexico, attempting to appease Republicans who are worried, skeptical, or even opposed to foreign economic aid.

As a result, Biden could fail in the upcoming presidential elections due to external circumstances, accused by opponents of jeopardizing the country's economic stability. The return of Republicans, driven by Trumpist ideas related to the concept of 'America first,' could have a lasting impact on foreign investments. Indeed, the current climate in the United States is already generating caution among major economic players, including those in the luxury sector, limiting their growth strategies in the American market. The American way of life is decidedly subdued today.