Recession & Spending: Predicting High Net Worth Spending through the Looming Recession

Reading time: 5 min

What does the looming recession mean for the purchase behaviour of High Net Worth Individuals?

Will how the wealthiest of us spend money on luxury goods change during the predicted upcoming recession? The markets aren’t sure and signals are mixed.

The S&P Global Luxury index, like the FTSE 100 Index for the luxury sector, is down 25% from Q1 2022. That’s despite the fact that the Bank of America has reported that luxury spending is up 14% year on year. Analysts also expect the luxury goods market to reach a total value of $296.9 billion by 2026, up from $224.8 billion in 2020.

All downturns bring challenges for businesses. Many believe that luxury sector companies are more immune because their target markets have higher disposable incomes. And, to an extent, that’s correct. However, heritage brands have it much easier than up-and-coming aspirational brands.

We’ll examine:

  • How HNWIs approach luxury spending during economic downturns
  • Heritage brands versus aspirational brands
  • Why secondary market liquidity could become a big thing in luxury
  • Problems that might affect UHNWI luxury spending
  • Lessons luxury brands have learned from previous recessions


In this article, we define a:

  • High net worth individual (HNWI) as a person who has at least $1m (£882,000) including their primary residence
  • Ultra-high net worth individual (UHNWI) as a person “with estate holdings, bonds, shares, collectables, private investments, foreign currencies, and precious metals valued at $30 million (£26.52m) or more” (source: Wall Street Mojo’s definition)

Recessionary spending on luxury items by high-net-worth individuals

So far, everything looks OK with the sector. Financial reports in recent months have indicated no slowdown in luxury sales, for example:

  • Ferrari sold 3,455 more vehicles in 2022 Q2 than Q1 and profit rose 20%
  • Brunello Cuccinelli’s revenues jumped to €207.67m, up 32.38%
  • Ermenegildo Zegna’s turnover rose to €365.02m, up 19.93%
  • Capri Holdings, owners of Versace, Michael Kors and Jimmy Choose saw a 15% increase in sales to $1.36bn

But the pain may be coming. In 2007-2009 during the last financial crisis, the size of the global market for luxury goods fell by 10%. There was an even sharper downturn following the COVID-19 pandemic.

But by 2010, the luxury market had regained all ground lost. Analysts predict that the market will be larger in 2023 than it was in pre-COVID 2019. The last 30-40 years’ history suggests that the market always snaps back within three to four years of a downturn.

Heritage brands vs aspirational brands

As reported by Bloomberg, LMVH Moet Hennessy Louis Vuitton SE beat analyst performance estimates in four out of five main divisions. This news came on the same day that the IMF warned that economic prospects were deteriorating globally. 

The company’s CFO Jean-Jacques Guiony told Bloomberg, “luxury is not a proxy for the general economy. We send up selling to affluent people and they have a behaviour of their own which is not necessarily totally aligned with economics.”

LMVH has an advantage however.

Heritage brands coveted by the very wealthy benefit from a flight to quality because there is a real social prestige premium to ownership. During the last recession, many consumers switched to making one big heritage brand purchase instead of multiple smaller purchases from aspirational brands (those with affordable price points for select consumers).

Heritage brands therefore should resist the temptation to discount because luxury items benefit from the attitude that “when people have less money, they spend it on the best”. 

But they should also prepare for cross-category indulgence

This describes when a consumer stays with a luxury brand but chooses a lower-priced product this time around because of financial constraints. Consumers are still keen to be associated with a brand and, during the last recession, brands reacted to that desire by displaying their names and logos far more prominently during the 2008-2012 financial crisis.

Aspirational brands have greater challenges.

They just don’t have the emotional cache and social proof that heritage brands possess. They have to step up their game and come up with products that are distinct from the rest of the market to create a buzz around their products to sustain revenues. The benefit of this is that it makes keeping prices higher easier because they’re offering something genuinely different.

Another option for aspirational brands is to take much greater control of supply. For example, they could build an exclusive retailer network based on their competitors so that consumers see them side by side in the same store with heritage brands. Some aspirational brands may choose to open a flagship store in a highly desirable location.

Liquidity could become important to HNWIs

We recently covered the rise of the luxury resale market where, instead of buying brand new items, customers buy second-hand items. 

In the article, we covered how, for many Gen Zers and Millennials, the resale market was their first step onto the luxury ladder. A primary draw is that secondhand luxury goods benefit from much higher residual values than mass-market products. They either decline very slowly in price or, occasionally, they can rise in price. This residual value means that they can sold later with enough funds being generated allowing the purchase of another luxury item.

This residual value is important to being HNWIs because, for many HNWIs, life is not always stable.

HWNIs are susceptible to business downturns, rising interest rates and falling property values. Their wealth lacks the robustness of a UNHWI’s wealth because they don’t have as much money, there is less diversification in their investment portfolio and many of their investments are relatively illiquid. Much of their lifestyle may also be funded by debt.

Therefore, if they do invest in luxury items, they will but those most likely to hold their value well and are easiest to sell in case they need to raise cash quickly. This has been happening in China in recent months.

Again, heritage brands benefit here over aspirational brands because they’re more in demand and have higher residual values. 

Dangers to brands targeting UNHWIs

Many UHNWIs have family offices – dedicated teams of investment advisors and strategists whose sole job is to protect and grow their client’s wealth. 

Family offices keep a certain amount of their client’s assets liquid so that they have the money to fund their lifestyles and meet bills like travel costs, schooling fees, rent and so on. Often, family offices distribute income to a number of family members once a month.

For family members’ incomes to be affected, the financial hit would have to be substantial. It’s not impossible however that a family office will move to protect the remaining pool of cash and assets by reducing payments to family members.

When this does happen though, big investments tend to be shelved first, as can be seen by the flatlining Monaco property market between 2008 and 2012.

Marketing to high-net-worth individuals during a recession

The HNWI lifestyle is not cheap. However, the reserve of cash and saleable assets available to HNWIs does make life more manageable during economic downturns.

Heritage brands will suffer less during a recession than aspirational brands. Aspirational brands have to be more careful when making decisions in these times because falling sales can often result in negative cash flows meaning they have less money to put a situation right.

Luxury brands’ gradual migration to the resale market in a time of economic restraint makes sense. Authenticity and origin are important to luxury buyers and buying resale items from a brand is a lot safer than buying them from consignment stores. They can use the funds from the future sale of those items to buy more.

Other than pursuing the innovative, building replica retail networks and opening flagship stores (if affordable), aspirational brands could focus their efforts on creating limited range products associated with a celebrity, an event or a cause to introduce further scarcity and extend desirability beyond a product’s features itself.

To discuss strategies on how your brand can prepare for any coming recession and how to better reach target audiences (and find new ones like HENRYs), please get in touch with us.

We look forward to finding out more.