No luxury markets outperformed the FTSE 100 last year
The once reliable luxury market suffered last year, with even the top performers in the market only posting modest gains in a weak market.
The Knight Frank Luxury Investment Index (KFLII), which tracks the performance of 10 popular investments, fell 3.3 per cent for the second year in a row. The FTSE100, meanwhile, posted gains of 5.4 per cent.
Even the year’s top-performing investment, handbags, only rose by 2.8 per cent. Jewellery, coins and cars posted gains of 2.3 per cent, 2.1 per cent and 1.2 per cent, respectively.
The weakest sectors were fine art, wine and whisky. Art was down 18.3 per cent, with the market seeing a reversal from the double-digit growth of 2023 and a worse performance than during the Covid-19 crisis.
The next-weakest sector was fine wine, which fell 9.1 per cent. Global wine production has been affected by a changing climate, which has made many sites untenable.
“Luxury collectables have delivered for investors over the long term,” Liam Bailey, global head of research at Knight Frank said.
“[But] the past decade, and the past five years in particular, has seen a consistent pattern of stronger returns from the financial sector,” Bailey added.
Weakness in primary luxury markets
The primary luxury market has been significantly affected by two interwoven trends: the rise of secondary marketplaces – particularly online – and widespread weakness in demand for high-priced goods during the last two years.
Young shoppers have been particularly attracted to the online reselling market, which has gone from a corner of the internet to a $50bn sector, covering just over 10 per cent of the total luxury market.
Significant price increases in the primary luxury market in 2022, driven by a post-pandemic boom in demand, have also pushed people into the resale market over the last two years.
“Prices did get overinflated during the bull run… a correction was needed,” Tom Burchfield of Liv-ex, the global fine wine exchange, said.
But the price correction has created a luxury world where “scarcity no longer guarantees returns,” Knight Frank said.
“Investors need good reasons to venture into the world of luxury. In many cases these reasons come down to the pleasure of investing,” Knight Frank said, adding that the biggest driver for purchasing luxury collectables was the “joy of ownership” in every world region except Asia.