Luxury Goods Market to Continue to Grow Despite Economic Challenges
There might be economic challenges across most of the world at the moment, but it seems one market is surprisingly thriving. The luxury goods market was recently valued at $296.1 billion, after research by Transparency Market Research, and is expected to rise to $374.85 billion by 2020 – a stark contrast to many other areas of the economy.
Why Does Demand Continue to Rise?
One of the main reasons for the dramatic increase in spending on luxury goods is the continual growth in the number of high-net-worth individuals. While millions of people are finding times tougher than ever, there are always others who are prospering, and in many situations as a direct result of the economic climate. For example, with more people being made redundant or finding it hard to get work, more entrepreneurs are born. It seems less risky to give it a go if you don’t have a job anyway. Also people see niche markets to branch into which can come as a result of the situation – just ask the individuals behind the bargain stores such as Poundland and Poundworld.
The demand across the world is changing too, as the world markets are shifting. According to Export-to-china.com, China is now the world’s largest luxury market, and its luxury consumption accounted for over 25% of the entire global market.
The change in global demand also means the trends for what is popular have changed. Traditionally, the luxury goods market includes watches and jewellery, leather goods, cosmetics, wine and spirits and fragrance. More recently, two of the bigger markets are technology and luxury cars. However, reports from China, which previously saw more of its car market made up of luxury cars than the US and Europe, are suggesting the bubble could have burst. Sales of Porsches in China, which were growing strongly, are now levelling off, according to Bloomberg. It would appear the novelty of cars has worn off in China, but that is unlikely to have an impact on the rest of the luxury market. In fact, it could just mean more money is spent elsewhere.
Despite the increase in the number of wealthy individuals, it still seems hard to understand why the more expensive items have not suffered when even supermarkets, selling necessities, have felt the pinch.
Is the Luxury Market Really Immune to a Recession?
It would certainly appear so, because the people that can afford to spend £100,000 on a car and £900 on a pair of shoes are not usually those affected by price changes and interest-rate fluctuations
They are the ones with a disposable income which rarely changes because of what else is going on.
The Veblen effect is used to describe elements of thinking among buyers of luxury products.
American economist Thorstein Veblen, who wrote the book The Theory of Leisure, coined the phrase “conspicuous consumption” – this refers to people buying goods or products to make a statement about their accomplishments to others. This is still the case today, and while that thought process remains, luxury items will still be in demand.