US luxury card spending falls 6% in September, a third straight drop

US credit card spending on luxury brands fell 6% from a year earlier in September, retail lender Citi said on Tuesday. It was the third consecutive monthly decline, following drops of 4% in both July and August, and it signals further weakness in the industry's biggest market.

The September slide lands weeks before the November 3 midterm elections, when voters will decide control of Congress. Citi's data, built from millions of credit card transactions, follows surveys from the Conference Board and the University of Michigan showing growing unease about the US economy.

Prolonged weakness in China and the economic fallout of the Iran war have pushed luxury groups to pin their hopes on wealthy American shoppers, including a growing cohort of AI millionaires, to make up for softer sales elsewhere and help end a long downturn.

That dependence makes September's figure uncomfortable. Overall luxury credit card purchases declined 6% year on year, steeper than the two preceding months at 4%, even as continued wealth growth among affluent consumers supported the top end of the market.

The brands most exposed to the US include Tapestry, owner of Coach and Kate Spade; French conglomerate LVMH, known for Louis Vuitton and Tiffany; and Italy's Ferragamo, Citi analysts said. Citi added that houses serving higher-end consumers should stay relatively resilient, helped by gains in equity markets.

The picture differed sharply by category. Spending on leather goods and ready-to-wear improved sequentially in September, the note said, while watches and luxury jewellery deteriorated even further. The two sides of the market are now moving in opposite directions.

Pricing is part of the backdrop. Most soft luxury brands selling apparel, shoes and leather goods have raised prices by low single digits in percentage terms so far this year, Citi said, slightly below the low to mid-single-digit increases from watch and jewellery makers.

So the categories with the bigger price rises are the ones losing more ground. Watch and jewellery makers have pushed prices up by slightly more than their soft luxury peers, and their card spending still weakened further in September.

Why election season adds pressure

The weeks before an election tend to bring more caution from consumers and businesses alike, as political uncertainty colours spending decisions. Economists also say rising US Treasury yields and mortgage rates could cool economic activity further.

The weakness deepens a downturn that is already two years old. Morgan Stanley analysts said in September that the fall in US luxury spending leaves brands little room to deliver the long-awaited return to growth after two consecutive years of contraction.

The earnings dates to watch

Morgan Stanley expects luxury groups to flag weaker US demand in the coming earnings season. It begins on October 12, when LVMH reports third-quarter sales. The group is widely seen as a bellwether for the industry.

Gucci owner Kering reports earnings on October 22, and it has already prepared investors. Kering told analysts last week that US sales would slow, Italian brokerage Equita reported.

The Citi note draws a line between resilience and exposure. Brands with greater reliance on higher-end clients, whose portfolios move with equity markets, are expected to hold up better than those that depend on less wealthy shoppers.

For the sector's hope of a return to growth, the timing is awkward. A third straight decline arrives just as earnings season opens, and the sources point to LVMH on October 12 and Kering on October 22 as the first tests.

What Citi's note cannot yet answer is the election question. The midterms arrive on November 3, and with yields and mortgage rates rising, a fourth month of decline would be the next data point on whether caution lingers past the vote.

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Image: FashionNetwork