Secondhand markets are affecting 'aspirational consumers' purchasing luxury brands: Exec

Former LVMH Chairman of North America Pauline Brown joins Yahoo Finance Live to discuss the state of the luxury consumer and how it's being impacted by inflation.

Video transcript

SEANA SMITH: All right, Ralph Lauren, Michael Kors, owner of Capri Holdings, blowing past the Street's earnings expectations-- the latest sign that luxury retailers are still seeing high demand for its products despite soaring inflation. We want to bring in Pauline Brown, former LVMH Chairman of North America, also Columbia Business School marketing professor.

It's great to have you. Once again, these numbers that were out this morning really pointing to the fact that inflation isn't yet affecting the high end consumer. The question though, going forward, is that still going to be the case? Or are we starting to see some consumer trends change a bit?

PAULINE BROWN: Well, a few trends that you should pay attention to-- I mean, one that, very broadly speaking, there's two types of luxury consumer. There are the Uber affluent and then there's the aspirational consumer. Ralph Lauren and Capri are much more dependent on the aspirational than are, say, LVMH and Caring, and certainly much more dependent than Hermes.

And what we're seeing from those latest numbers is while Ralph Lauren and Capri beat expectations, they grew significantly slower than their European counterparts. And so I think that that does indicate that at least on the margin of luxury goods, that there is some fraying. But there is also a segment of buyer that is utterly immune to the kind of forces that we're talking about.

RACHELLE AKUFFO: That's certainly something we all aspire to be. So, Pauline, though, as we look at the numbers themselves, is it more about the people are buying more of these goods or that inflation sort of tacking on and seeing some of these prices rise on some of these products is also sort of ballooning the sales as well?

PAULINE BROWN: Well, I would say it's primarily because they're buying 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 that sustainable? For a while.

I mean, the reason people are buying, and they are buying in volume, but they're also paying more-- but they're not paying more per unit. As I said, they're just not looking for discounts in the way that they historically have. Number one, because there's a lot of occasions. There's travel, and there's weddings, and there's other celebrations. And that is a big impetus for people to go into the stores.

And so the other point I would make, though, is all of these companies are anniversarying against really soft results. I mean, remember how hard luxury goods at every segment of luxury was hit during COVID. And so I would say that in general, with the exception, maybe, of what's happening with the China consumer, which has slowed down for reasons that go above and beyond COVID and post-COVID, that the US consumer, which is consistently showing the fastest growth, is still in a pretty healthy recovery mode from a year ago, and even from two years ago.

DAVE BRIGGS: Yeah, I'm going to put myself in the aspirational category. How significant was the pull back in China, given the COVID lockdowns? And how impactful has been the strengthening US dollar?

PAULINE BROWN: So the first question-- it was very significant, and not just because of the quarantining and the restrictions-- also, because China has become saturated. It was for a long time the biggest growth driver of all luxury brands. It also became, in rapid succession, the fastest and the biggest market of luxury goods in the world.

So keep in mind, just to grow off of a base that's pretty considerable right now is tough. The quarantining has slowed that down. I'd say an even bigger variable is the fact that the Chinese are not traveling in the numbers that they did. And a big part of growth of Chinese consumers was what they were buying when they were coming to cities like London, and Milan, and Paris, and New York, and snapping up goods. On the question of the strong dollar-- that is helping primarily American tourists in Europe. And I hear this day in and day out. Tourism is back, and people are really incentivized when they're over there, which is primarily the Americans right now, to buy what they can.

RACHELLE AKUFFO: And, Pauline, I want to ask you about the luxury reselling market, things like the Real Reel, Poshmark-- how is that affecting the broader luxury market?

PAULINE BROWN: Well, I would say it's affecting the aspirational consumer. There is a segment of consumers for whom they would normally not be buying the likes of an Hermes, or Vuitton, or Chanel. But they might aspire to Coach. They might aspire to more contemporary brands.

They might buy what we call the sort of mid-tier or the bridge price points. And for them, it's giving them access to those better brands at prices they can still afford. And it's also opened for a lot of buyers, opened their eyes to the fact that they have sellability-- that what they buy actually can retain its value and they can sell it back.

So that changes the math of the purchase. How big, how sustainable? Well, I don't think we're going to go back. I think it's real. I know there was a piece in today's "Wall Street Journal" about how far it can extend to, including yoga wear and footwear. And I will say there's a natural limitation on how many people will go above and 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 we do thank you for your insights today. Thank you so much, Pauline Brown, for joining us this afternoon.