Know what is the In thing now

Luxury Goods are booming: The surprising reasons behind the trend

Luxury good purchase

The pandemic has hit everyone hard. Many experienced mass unemployment and economic hardship during the pandemic. While simultaneously witnessing a surge in the popularity of buying luxury goods.

The Silver Lining

However, during the pandemic, consumers eagerly purchased designer leather handbags, limited-edition sneakers, classic watches. And also highly sought-after prestige beauty products that went viral on TikTok. Sales of luxury brands across various categories skyrocketed. The expansion of luxury goods now extends beyond traditional sectors like clothing, accessories, wines, and cars. In recent years, there has been an increasing demand for high-end kitchenware and other home goods. Items like a $420 Le Creuset dutch oven, a $1,500 Breville espresso maker, a $1,500 Thermomix blender. Much more like a $110 Aesop candle with the fragrance of vetiver, frankincense, and wealth have become desirable to consumers.

What are Luxury Goods?

While analysts have a vague definition of luxury goods, they typically refer to objects that possess an exceptionally high price. That offer superior craftsmanship, and exude exclusivity. Luxury goods are meant to be rare and not accessible to everyone. However, an increasing number of Americans across different age groups and income brackets are indulging in extravagant products, fueling the industry’s remarkable growth.

In April, Moët Hennessy Louis Vuitton (LVMH) surpassed a market capitalization of half a trillion dollars. Making it the most valuable luxury company globally. LVMH owns renowned brands like Dior, Givenchy, and Tiffany. Placing it among the world’s largest companies, alongside names like Meta, Tesla, Berkshire Hathaway, and Amazon. Bernard Arnault, the CEO of LVMH, even surpassed tech magnate Elon Musk as the richest person on Earth. In terms of estimated wealth, with $232 billion, according to Forbes’s real-time billionaire ranking. The success of luxury brands extends beyond Louis Vuitton handbags. While growth in the sector has slowed slightly in recent months, a staggering 95 percent of luxury brands reported increased profits in 2022, according to a Bain & Company report. Companies like Hermès, Richemont (Cartier, Chloé, Montblanc), Kering (Gucci, Saint Laurent, Balenciaga). The list doesn’t end here, Chanel, Prada, Burberry, Luxottica, and OTB (owner of Maison Margiela, Marni, and other luxury brands) all experienced positive performance.

The Reasons

Neil Saunders, managing director of retail at GlobalData, attributes luxury’s success to two key factors: economic and psychological. 

Economically, luxury goods cater to wealthy individuals who are less affected by price tags. The luxury industry is known for its resilience, as it tends to weather economic headwinds better than other sectors.

Psychologically, the motivation to purchase designer products revolves around status. The higher the price, the greater the perceived status. This phenomenon attracts not only wealthy individuals but also middle- and low-income consumers. Approximately 27 percent of regular luxury consumers in the United States have a household income of less than $50,000. Nearly equivalent to the number of luxury consumers with an income of $150,000 or more.

Luxury brands typically enjoy high-profit margins, distinguishing them from other industries. For example, Louis Vuitton’s estimated profit margin exceeded 50 percent in 2022, while Apple, the world’s most valuable company, had a profit margin of around 30 percent. The rise of social media has also provided a platform for people to flaunt their luxury brands and showcase their purchases. Luxury goods have become a means of communication, conveying taste and expertise on digital platforms. Brands recognize the significance of this and have tailored their marketing strategies to cater to young individuals who are deeply connected to internet culture. They focus on celebrity endorsements, collaborations with artists and edgy designers, and limited product releases to create a sense of exclusivity and capitalize on virality. The global popularity of streetwear and hypebeast culture has also played a significant role in transforming the way high status is portrayed. Gen Z consumers, in particular, seek differentiation from the mainstream, valuing the unique and bespoke in an age of mass production.

The Potential Risks

However, the increased awareness and engagement with luxury goods also pose potential risks for the industry. Luxury has become more democratized and globalized, resulting in a dilution of its wealth signal. Luxury brands must carefully balance growth with scarcity to maintain their status. In the past, some brands flooded the market with excessive products, devaluing themselves in the process. To combat this, many luxury brands now limit production runs and avoid discounts or sales, emphasizing exclusivity. In fact, videos of luxury brands destroying excess inventory have gained traction on social media.

The final word

Despite concerns, experts believe that luxury goods will continue to sell well. Inequality plays a role in driving consumption, and the pandemic has exacerbated income and wealth disparities. Studies indicate that higher income inequality increases awareness and anxiety about social class, leading to a greater desire for luxury goods. Even in a culture where wealth disparities persist, there is a prioritization of purchasing luxury items, often driven by desire and infatuation. Luxury brands excel at selling dreams, offering consumers the opportunity to own a piece of that dream.

You might also be interested in

Get the word out!