NEW YORK, United States — "The shadow has passed and the state of the union is strong," said American president Barack Obama during his annual 'state of the union' address last week. "At this moment, with a growing economy, shrinking deficits, bustling industry and booming energy production, we have risen from recession freer to write our own future than any other nation on Earth."

Brands are reallocating some of the investment they made in their stores in Asia.

Indeed, in stark contrast to a still stagnant Europe and a Japanese economy that tipped back into recession in 2014, the American economy has emerged from the global financial crisis and ensuing downturn much faster and stronger than most. “Tonight, we turn the page. Tonight, after a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999. Our unemployment rate is now lower than it was before the financial crisis,” added Obama.

Now, as economic growth continues to slow in a troubled China — for several years the primary engine of the global luxury market — a resurgent America, expected to grow by 6 percent in the five-year period from 2013 to 2018, is rising to the top of the fashion industry’s agenda.

“The US market has been very positive for luxury and fashion businesses in the past two years, primarily supported by asset price rebounds, both in the stock market and in real estate,” explained Luca Solca, head of luxury goods at Exane BNP Paribas.

“A strong US dollar will allow European luxury goods companies to export more into America and the translation effect will create a positive boost for revenues, domestic demand and margins,” added Mario Ortelli, senior research analyst at Bernstein. “How the brands are reacting to this strong US market is [by reallocating] some of the investment that they made in the past years to build up their network of stores in Asia, where there is no more need to expand aggressively, and moving part of that investment to the US.”

Remarkably, the US is still very much an under-penetrated luxury market. “[America] has 30 percent of the world’s high net worth individuals (people with more than $1 million in liquid assets) and nearly a quarter of global GDP, but consumes less than a fifth of the world’s personal luxury goods, noted Olivier Abtan of the Boston Consulting Group in a piece recently published by The Economist.

“In the luxury goods sector, expansion is not only demand-driven, it is supply-driven as well. One region in which we have seen some opening of stores that is quite promising is Texas: Dallas and Houston,” said Ortelli. Areas with already dense luxury retail footprints also offer solid growth opportunities. “We do not expect that these luxury goods companies will open stores in all the cities in America. Due to the income and equality ratio, they benefit more from expanding in established cities, because consumers are more sophisticated so they are willing to trade up. New York is still under-penetrated, so it is a higher priority for a CEO to open another location in Soho, or elsewhere in downtown Manhattan, rather than opening in the Mid-West,” continued Ortelli.

“Our priority in the US is to maximise the productivity of our ten existing boutiques, located in New York, LA, Miami, etcetera, while rebuilding our business at wholesale,” said Geoffroy de La Bourdonnaye, president of Chloé. “It is definitely a resurging market. Not only is it strong commercially, due to its appeal as a tourist destination it continues to have strong impact around the world,” he continued.

Indeed, America’s international hubs, buoyed by flows of tourists, are growing faster than other centres. “I see a market that is going at two speeds. You have the American cities that are more international — the tourist hubs like New York, Miami, Las Vegas, LA — that are showing a faster growth rate, because there is a concentration of wealth in these cities. New York is growing a lot, Cincinnati is growing less. You have a boost from around the world in New York; very few people go to Cincinnati. In the growth of America, one thing that is a bit underestimated is what tourists in the gateway cities drive,” said Ortelli.

A strong US dollar, while helping to boost domestic consumption of imported luxury goods, may have a negative impact on tourist sales, however. “As fashion and luxury sales in the United States depend on tourists, too, a stronger currency will be a major headwind,” warned Solca. On the flipside, the bite of the headwind is expected to be reduced by a newly extended US-China visa agreement. “With the new agreement, we expect to see substantial growth in US touristic spend to come from the Chinese travellers. Last year’s 1.8 million Chinese tourists alone spent $21.2 billion while in the US, a lot of which was from shopping,” said Polly Nelson, the North America managing director of DFS, the world’s largest luxury travel retailer.

Domestic spending on luxury goods is expected to come disproportionately from the country’s top economic strata. “European companies are pointing to polarised US demand dynamics, backed by increasing income inequality. Luxury demand seems to have been supported by the very top-end consumer segments, while the middle class has been left behind,” said Solca. Yet America’s middle class is not going unnoticed. “Lower oil prices put more dollars in the American consumer's pocket, which could prompt higher discretionary spending, benefiting accessible and aspirational fashion and luxury too,” he added.

Certainly, at the mass end of the market, Uniqlo, owned by Japan’s Fast Retailing, is betting heavily on the American market. “The US holds great opportunity for Uniqlo given the size of the market,” said Larry Meyer, the brand’s US chief executive. Uniqlo now operates an e-commerce site and nearly 40 stores in the US, and plans to open more.

Inditex-owned Zara has also firmly planted itself in the region, having invested a reported $280 million in a 4,400-square-foot flagship in New York's Soho, which Pablo Isla, Inditex chairman and chief executive, described in a statement, as "a global standard-setting Zara store." By the end of the year, the retailer will have eight stores in Manhattan alone, as well as a further seven stores in the greater metropolitan area. This year, Zara also plans to open stores in Las Vegas, San Diego, New Jersey, Los Angeles, Boston, Houston, Dallas, Chicago, Seattle and the US territory of Puerto Rico. "The growth model for the US market consists of a combination of flagship store openings and online sales growth," added Isla.

Indeed, US e-commerce offers brands at both ends of the spectrum significant opportunity, as well as a way to tap consumers across the country’s expansive geography without having to put down expensive physical stores in areas that lack a critical density of fashion consumers. “America has the highest penetration of online purchases of luxury anywhere in the world,” said Ortelli. “Seattle is a city that is rich, but from a cultural point of view people would probably spend $10,000 on a bicycle rather than a luxury watch. So there isn’t a critical mass for opening a monobrand store, because too few customers are interested in your product; some of them are buying already online and some of them are buying while travelling, so what is the additional value of opening a store when the consumption online is growing and growing?”

In terms of product categories, the top performers in America are jewellery, leather goods, shoes and clothing, said Ortelli. "Perfume is maybe too mature. If you take Richemont's results, for example, America is one of the fast growing geographies, because of the group's focus on jewellery and watches," he said.

Male consumers in the US also constitute a releatively untapped opportunity. “There is definitely potential to increase the penetration of luxury among men,” added Ortello. “Starting with small leather goods, clothing and then eventually moving on to watches. Personal luxury is still dominated by the spend of women.”

But the market is not without its challenges. “People do like to spend in America, it is seen as an activity. However, our partners in the United States — Neiman Marcus, Saks Fifth Avenue and Bergdorf Goodman — all tell me that since the Lehman Brothers crash in 2008, the American luxury consumer has changed the way in which they shop. Consumers now pay much more attention to value for money,” cautioned de La Bourdonnaye. “But, if you have a good proposition in terms of style and quality and you hit the right sweet spots, it is a fantastic market.”

“You have got supportive foreign exchange; you have got an America in which the consumer confidence is high. When you have got a luxury company with a global footprint you will reorientate your investment according to the sentiment of the market; there are no strategies forever,” said Ortelli.

But for now, some of the best opportunities for growth lie in the original land of opportunity: America.