Global Luxury Spending Could Decline Due To The Ukraine War

Nearly one month after Russia’s military invasion of Ukraine, the conflict’s impact on global businesses has spread to luxury industries.

Most high-fashion brands, including LVMH Group, Burberry, and Kering, closed their stores in Russia earlier this month, while announcing their donations to international humanitarian efforts in Ukraine.

How the Russia-Ukraine conflict will eventually affect the global luxury industry will depend on how long it lasts, experts say.

“We see a more likely, immediate, and relevant impact on Russians personal luxury spending locally, strongly driven by local currency devaluation and restrictions in place,” says Claudia D’Arpizio, senior partner and global head of fashion and luxury at Bain & Co., a Boston-headquartered management consulting firm.

Russian luxury customers account for approximately 2%-3%, or about €7 billion (AU$10.28 million) of the total global luxury goods market, she says.

The war will also likely damp consumer confidence in European countries and North America because of increases in energy prices, stock market volatility, the interruption to tourism, and other economic uncertainties, says Federica Levato, a partner at Bain and leader of its luxury practice in Europe, the Middle East and Africa.

“Upon persistence of the crisis, financial stability could be also affected, particularly generating higher stock market volatility. American consumer confidence could potentially decline and eventually also their luxury spending,” she says.

Since Russia’s invasion, more than 19,000 have been killed, 10 million people have been displaced, and more than AU$119 billion in property has been damaged.

Near-term, the luxury brands have taken an economic hit from their decision to close stores in Russia.

In early March, LVMH temporarily closed its 124 stores in Russia. Other fashion houses—including France’s Kering, Chanel, Hermes International, Swiss group Richemont,, and Italy’s Prada—all announced that they had suspended their operations in Russia through their social media accounts.

However, it is unlikely that the luxury brands will stop doing business in Russia, says Kate Newlin, a principal of New York-based Kate Newlin Consulting.

“When you think about luxury, you think of Russian oligarchs as a major segment of customer,” Newlin says. “It will be a larger bet for LVMH to walk away than, for example, McDonald’s.”

LVMH did not respond to a request for comment. The conglomerate, which owns brands such as Dior, Fendi, and Louis Vuitton, donated €5 million to the International Committee of the Red Cross to help those affected by the war in Ukraine in early March.

British fashion house Burberry declined to comment on the war’s impact on its business. On March 11, it donated to two more organizations, Save the Children, and UNICEF, in support of their Ukraine humanitarian appeals, following an earlier donation to the British Red Cross Ukraine Crisis Appeal.

Apple has dominated the electronics supply chain for years. No more.

Artificial-intelligence companies are writing huge checks for chips, memory, specialised glass fibre and more, and they have begun to out-duel Apple in the race to secure components.

Suppliers accustomed to catering to Apple’s every whim are gaining the leverage to demand that the iPhone maker pay more.

Apple’s normally generous profit margins will face pressure this year, analysts say, and consumers could eventually feel the hit.

Chief Executive Tim Cook mentioned the problem in a Thursday earnings call, saying Apple was seeing constraints in its chip supplies and that memory prices were increasing significantly.

Those comments appeared to weigh on Apple shares, which traded flat despite blowout iPhone sales and record company profit.

“Apple is getting squeezed for sure,” said Sravan Kundojjala, who analyses the industry for research firm SemiAnalysis.

AI chip leader Nvidia recently became the largest customer of Taiwan Semiconductor Manufacturing , or TSMC, Nvidia Chief Executive Jensen Huang said on a podcast.

Apple had been TSMC’s biggest customer by a wide margin for years. TSMC is the world’s leading manufacturer of advanced chips for AI servers, smartphones and other computing devices.

Spokesmen for Apple and TSMC declined to comment.

The big computers that handle AI tasks don’t look like the smartphones consumers own, but many companies supply components for both. In particular, memory chips are in short supply as companies such as OpenAI, Alphabet’s Google, Meta , Microsoft and others collectively spend hundreds of billions of dollars to build AI computing capacity.

“The rate of increase in the price of memory is unprecedented,” said Mike Howard , an analyst for research firm TechInsights.

That applies both to the flash memory chips that store photos and videos, called NAND, as well as the memory used to run apps quickly, called DRAM.

By the end of this year, the price of DRAM will quadruple from 2023 levels, and NAND will more than triple, estimates TechInsights.

Howard estimates that Apple could pay $57 more for the two types of memory that go into the base-model iPhone 18 due this fall compared with the base model iPhone 17 currently on sale. For a device that retails for $799, that would be a big hit to profit margins.

Apple’s purchasing power and expertise in designing advanced electronics long made it an unrivaled Goliath among the Asian companies that make most of the iPhone’s parts and assemble the device.

Apple spends billions of dollars a year on NAND, for instance, according to people familiar with the figures, likely making it the single biggest buyer globally. Suppliers flocked to win Apple’s business, hoping to leverage its know-how and prestige to attract other customers.

These days, however, “the companies now pushing the boundaries of human‑scale engineering are the ones like Nvidia,” said Ming-chi Kuo, an analyst with TF International Securities.

Demand for AI hardware is poised to keep growing rapidly. Apple’s spending growth is modest in comparison with what is being spent to fill up AI data centers, even though it is breaking records with huge sales of the iPhone 17.

Samsung Electronics and SK Hynix are raising the price of a type of DRAM chip for Apple, according to people familiar with Apple’s supply chain.

Big AI companies pay generously and are willing to lock in supply and make upfront payments, giving the South Korean chip makers leverage against the iPhone maker.

Apple signs long-term contracts for memory, but it has used its heft to squeeze suppliers.

Its contracts have empowered it to negotiate prices as often as weekly, and to even refuse to buy any memory from a supplier if Apple didn’t view the price as favorable, according to people familiar with its memory purchases.

To boost leverage with suppliers, Apple even began stocking more inventory of memory. That was atypical for Cook, who normally cuts inventory to the bone to maximize Apple’s cash flow.

Apple is fighting not only for current deliveries but also for the attention of engineers at suppliers.

Glass scientists who worked on developing the smoothest and lightest smartphone displays are now also spending time on specialised glass for packaging advanced AI processing chips, according to industry executives.

Makers of sensors and other gizmos inside the iPhone are winning new business from AI companies such as OpenAI that are developing their own hardware.

Still, suppliers said they were far from giving up on business with Apple. Working with Apple is a form of education, they said, because it remains one of the most demanding and disciplined customers in the industry.

TSMC, the Taiwanese chip manufacturer, has built successive generations of its most advanced chips with Apple as its lead customer, relying on the big predictable demand for iPhones.

Now that TSMC is doing more business with Nvidia and other AI companies, people with knowledge of the chip supply chain said Apple was exploring whether some lower-end processors could be made by someone other than TSMC.

One of Apple’s biggest profit-spinners is selling extra memory for far more than the memory chips cost the company.

Last fall Apple discontinued the iPhone Pro model with 128 gigabytes of storage.

Customers who want that model must now start at 256 gigabytes and pay $100 more—the type of move that could be repeated this year to help Apple offset higher costs, wrote Craig Moffett, an analyst at Moffett Nathanson, in an investor note.

However, Apple isn’t expected to raise the price of its next iPhone models over similarly equipped iPhone 17s, said Kuo, the analyst.

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Global Luxury Spending Could Decline Due To The Ukraine War

The conflict’s impact on global businesses has spread to luxury industries.

Parts for iPhones to cost more owing to surging demand from AI companies.