Luxury Industry: Health is the New Wealth

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We expect soft global luxury demand to persist as Chinese consumption of high-end luxury goods continues to wane, but also due to the rising importance of healthy living and active lifestyle, which appears to be replacing traditional luxury goods as the most important social badge of status, affluence, and style.

Today, health, fitness, and leading an active lifestyle are powerful ways to express education, affluence, style, work ethic, and motivation, a phenomenon that is magnified in a digitally connected world where everyone has a high-definition camera in their pocket and a social media profile to maintain.
 
Interestingly, while this dynamic has become well established in North America and Europe over the last five years, it is now rapidly spreading into Asia and emerging markets in other regions. For example, the Chinese government is making a concerted effort to encourage health and fitness across its population. Last year, the Chinese State Council publicly set a goal for total sport spending to rise from 0.6% of GDP to 2.5%-3.0% (in line with Western countries) over the next decade, which would equate to hundreds of billions of dollars of growth.
 
This effort is already quite visible on the ground in China, where gyms, fitness centers, running clubs and yoga studios are popping up everywhere. Although we have seen boom and bust cycles in China before (including in the athletic market after the 2008 Beijing Olympics), it seems the measures being implemented today have a better chance of taking root, as they are focused on institutionalizing activity through sports programs and school curriculum and on encouraging parents to allow kids to shift some focus from exams toward active and team-oriented endeavors. It is clear that China’s new policy is aimed at a much broader participation in sports.
 
The luxury goods market is understandably worried that society’s current obsession with health, fitness and sports is more of a temporary fashion/lifestyle trend than a structurally sustainable phenomenon. However, we believe that consumers are just beginning to integrate sports into their fashion choices. In fact, consumer desire to display wealth through an active lifestyle is even causing them to build highly specialized dual sports wardrobes; one for actual sport performance usage and one for sport fashion purposes.
 
Given these factors, we believe the best way to invest now in the high-end consumer is via athletic and related stocks instead of traditional luxury sectors, such as Swiss watches, European handbags and fine jewelry.
 
Editor’s note: Evercore ISI is a leading provider of sell-side research in the United States and one of the range of Evercore Wealth Management research providers. Here, Omar Saad, Head of the Luxury, Apparel & Footwear team, discusses the outlook for the industry.

 

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