As the world struggles against the destructive effects of inflation, the consumption of increasingly expensive luxury goods is experiencing its golden age. According to a study conducted by Bain & Co and Altagamma, the representative of Italian luxury brands, the global luxury goods market grew by 21% in 2022, despite extremely uncertain economic conditions, compared to the previous year.
The report predicts that the luxury goods market will reach 1.4 trillion euros by the end of 2022 and will continue to grow until 2030.
On the other hand, rising inflation and the high cost of living continue to affect people in many countries, with experts stating that economic inequality is increasing.
The International Monetary Fund (IMF) stated in its World Economic Outlook report, published in October, that “the worst has not yet been seen” in the challenges facing the global economy and that ” 2023 will feel like a recession” for many people.
We asked experts why the consumption of luxury goods increases when the economy is deteriorating.
The luxury goods market is much more resistant
According to a report published by Bain & Co and Altagamma in November 2022, the trend of growth in the luxury goods market will continue until 2030.
Analysts say that the US luxury goods market continues to be strong, while the European market has rebounded from recent economic shocks.
Analysts who have recorded a significant increase in luxury goods consumption in China in recent years predict that the market share, which was 21% in 2021, will again rise after the lifting of Covid-19 restrictions.
This study, which particularly emphasizes that the luxury goods market is “much more resistant” compared to the 2008 economic crisis in the event of a possible economic downturn, cites the fact that the consumer base is now wider and more intense as the reason for this.
There is a significant difference in the number of consumers in the luxury goods market compared to the past. While the number of luxury goods consumers was around 20 million in 2012, it is estimated to reach 70 million by 2024.
According to the report, this trend will continue as the middle class in emerging economies continues to grow and luxury goods become more accessible.
Luxury goods are perceived as a sign of success
According to the report, consumers who buy luxury goods are increasingly motivated by the need to show their success to others.
The report states that the younger generation, especially those born in the 1980s and 1990s, attach great importance to the image they create on social media and are more likely to buy luxury goods to show their success.
In addition, the report states that consumers who have experienced a significant increase in income in recent years are more likely to spend this increase on luxury goods.
According to the report, consumers who have experienced a significant increase in income are more likely to spend this increase on luxury goods as a way of showing their success.
Luxury goods as an investment option
Experts also point out that luxury goods are considered as an investment option by some consumers.
According to the report, consumers are increasingly choosing luxury goods as an investment option, as these goods are expected to increase in value over time.
In addition, the report states that consumers are increasingly looking for unique and exclusive products, and this trend is driving the demand for luxury goods.
The report states that consumers are increasingly looking for unique and exclusive products, and this trend is driving the demand for luxury goods.
Products we buy to satisfy ourselves
According to Ashok Som, a professor of global strategy at the Business School of the French Institute of Economic and Commercial Sciences (ESSEC), products that generate desire, confer status and desire to identify with a certain group through this status are referred to as “luxury products.”
According to Som, the author of the book “The Road to Luxury: The Evolution, Markets, and Strategies of Luxury Brand Management”, the distinctive features of the products in the luxury consumption trend that emerged in France and Italy are that they are “quality, innovative, creative and durable, i.e. transmissible from generation to generation”.
Som, who says that watches, jewelry, perfume and cosmetics, and boats come to mind when “luxury” is mentioned, also points out that technological devices such as iPhones, various travel and vacation experiences, and products such as NFT (digital certification of the reality of something) can also be included in this category today.
“Any product we buy to satisfy our desires is a luxury product when we have extra income to spend on ourselves,” says Som, highlighting that these products can now even be in Metaverse.
Democratization and awareness of the new generation
Som says that there has been a “democratization” in the consumption of luxury products, with the middle and upper-middle classes also being able to access the market more.
According to Som, one of the reasons for this is the creation of new categories that also include cheaper products in luxury consumption. Another reason is that people are saving money and consuming less, but choosing more expensive products:
“It is true that a large part of the wealthy segment has become even wealthier in recent times, but these people are not buying hundreds of bags or thousands of cars. People who cannot afford a house or a boat but buy the most expensive phone, an iPhone, or an expensive lipstick or perfume are also luxury consumers. They also want to satisfy their desires and show their status.
Two different worlds
Although luxury product consumers are “democratizing” as Som says, a large part of this group still consists of the world’s top 1% and 10%.
Speaking to the Financial Times about the economic resilience of the luxury goods sector, Claudia D’Arpizio, a partner at Bain & Co, said, “Sales are concentrated among ultra-rich who have disposable income and are less likely to be affected by economic turmoil.”
According to the Credit Suisse 2021 Global Wealth Report, the top 1% of the world’s wealthy owns 45.8% of the total global wealth.
On the other hand, 55% of the global population can only access 1.3% of global wealth.
Dr. Toke Aidt from the Department of Economics at the University of Cambridge told BBC Turkish that inequality has increased “extraordinarily” over the past 20 years and that “two different worlds” have been created.
According to Aidt, the top 1% consists of people who earn a large part of their income from wealth management and who have various investment tools to protect themselves from inflation.
Aidt says, “It is very normal that the trend of luxury product consumption is increasing because this segment, which is not affected by the 2008 economic crisis, pandemics, and inflation shocks, still has purchasing power. Those who are lower down the income distribution and who are affected by such crises do not participate in the luxury goods market.”
Aidt says that when we examine the top 10% in terms of global income and wealth distribution, we encounter a group that was less affected by the pandemic, has enough savings to cope with economic turmoil, and still has purchasing power:
“People in this segment, such as lawyers, business owners, and executives, are not at a level where they can completely isolate themselves from inflation, but they have enough savings not to have to cut their expenses, so they continue to consume luxury goods.
Is there a solution to inequality?
Russia’s invasion of Ukraine on February 24 caused concerns about energy and food shortages in many countries.
Rapidly rising prices caused inflation crises.
While much of the world struggled with rising energy bills and rising food prices, some sectors and companies benefited from the crisis.
Experts are worried that inequality will increase as a result.
We asked Aidt, who has worked on taxation and wealth distribution, if there is a solution to inequality.
Aidt, who points out that the top 1% is a relatively small group and is therefore difficult to tax because it is so mobile, suggests focusing on the top 10%.
“Taxation is a controversial issue, and the question of how taxes can be raised fairly and efficiently without reducing investment incentives is important. But systems that work well, provide quality public services in exchange for paid taxes, are possible,” Aidt said, adding:
“The Scandinavian welfare system is a good example. It is important to have a consensus in society and for people to be willing to pay higher taxes in return for quality public services such as schools, highways, and hospitals. This is a two-way street and it is not easy.
Aidt emphasized that, particularly in the UK and the US, the opposite system is applied, with a significant drop in the quality of public services provided in exchange for low taxes:
“This is also one of the important factors in the increase in inequality. Countries that do not increase inequality have strong welfare systems and prioritize wealth distribution.