Despite the great recession of 2008 and the economic catastrophe caused by the pandemic, the luxury sector resisted and even exploded, to the surprise of many, during the crisis. For this reason, at Economipedia we ask ourselves: Why do companies that offer luxury goods come out stronger in times of crisis?
The indicators consulted to date show us that, despite the economic crisis and the consequences that derive from it, luxury is a sector that hardly suffers at times when the economy is not going through a good situation. But why does this happen? Why is consumption within the luxury sector not suffering?
First of all, it is true that the rich have a powerful economic framework to protect themselves against a recession, however, it is striking that, when it is necessary to tighten their belts, companies in the luxury sector become stronger. At first glance, it seems that this is a great contradiction. Now, the answer is that luxury acts as a safe value or refuge in times of economic uncertainty.
These safe havens provide protection during crises. Thus, luxury goods retain their value and even increase it. During the recession stages, the sale of luxury goods grows considerably. Proof of this are the sales figures for objects such as works of art or jewelry. These types of items are the great safe haven values right behind gold.
In addition, looking for example in the case of Spain, if we analyze the deterioration in incomes as a consequence of the crisis by income deciles, we can see how those incomes that have fallen the least, that suffer the least, are the highest incomes. Furthermore, this trend has been seen and is seen in many other countries. The rich, in the face of an economic crisis, suffer the effects much less, and consumption in the luxury sector shows us this evidence.
Democratization of luxury products
“Luxury is no longer something exclusive to elderly men, but we are finding new profiles of the rich.”
In the same way, there are more and more different profiles within the luxury sector. Or put another way, the potential customer in the luxury sector is increasingly heterogeneous.
As can be seen in the studies that have been carried out in this regard, luxury is no longer something exclusive to elderly men, but we find new profiles of the rich. Apparently, there seems to have been a certain democratization in the world of luxury, with some of its items being more accessible to certain middle-income sectors. Thus, companies that offer luxury products have changed certain details of their strategy, covering a wider audience, but maintaining an image of quality and prestige.
A clear example would be the textile sector. Obviously, in everyday life, the middle and working classes flock to stores that offer clothes at more affordable prices. However, when faced with important events, they turn to higher quality products, indulging in a craving and buying higher quality clothing manufactured by prestigious brands.
On the other hand, you also have to understand that what we understand by luxury has changed radically in recent years. Now the rich are no longer content with acquiring products of the highest quality and that grant great social distinction. Giving a twist to this concept, the rich carry out activities beyond the reach of the ordinary citizen, such as exotic trips or the possibility of starring in great adventures.
Innovation, one of the keys
“High-end online sales, for example, have grown substantially during this pandemic.”
The development of new technologies and the internet have also contributed to boosting the luxury sector. Thanks to Big Data technology, companies are able to store a large amount of information. In this way, they know what type of customers they should be targeting, as they get a fairly rough idea of the profiles presented by their potential customers.
Also, in line with technology, it is necessary to assess the decisive impact of business investment in R&D. The development of new products and production techniques also helps to stimulate sales figures in the world of luxury. And it is that, in these times, even in the world of luxury, without innovation there is no success. Not only innovation is decisive, as this type of luxury firms increasingly shows a greater concern for having more and more qualified staff.
And all this, without forgetting online commerce. Well, by the way, high-end online sales during this pandemic have grown by 16%, while virtual experiences multiply with the passing days.
Luxury and emerging economies
“China, if the trend continues, will capture more than 60% of the world luxury market in a very short time.”
But, if the world is mired in a great economic crisis, why does luxury open its borders to new horizons? The key is in the globalization of the economy and trends. Consumerism does not understand borders and emerging economies largely explain the boom in this sector.
Thus, in recent recessions, when traditional markets such as Europe were weighed down by the recession and sales of luxury firms fell, emerging economies continued to demand luxury products. We are talking about countries like Russia, some places in the East, Latin America and China, which are showing increasing demand.
The pandemic has altered, as we can see, the luxury landscape. China, for example, has gone from being a very important market to being a key location for brands. The country will undoubtedly maintain this predominant role in the future, even as the virus has been brought under control and all regions of the world reach the new normal. This already known trend is clearly evidenced in the latest studies published in this regard.
In other words, we can say that the studies show us how China, if the trend continues, will represent more than 60% of the world luxury market in a very short term.
For this reason, we see how in crises there is no decline in the luxury sector. The fact that the customer has diversified, that large incomes have not been harmed, that digitization has allowed more purchases, among other factors, have allowed the sector to emerge stronger from this crisis. A sector that, as we said in the previous paragraph, is increasingly concentrated in the East.
What are the most popular luxury products?
“The case of luxury yachts is striking, which has increased dramatically due to the economic crisis.”
The king of luxury is still the automobile, followed by perfumes, footwear and jewelry. To a lesser extent, drinks, hotels, restaurants and, lastly, yachts lag behind. It is precisely the case of luxury yachts, which has increased dramatically due to the economic crisis caused by the COVID-19 pandemic.
The case of luxury items that have grown, such as the very strong increase in yacht sales, is largely explained by the particular circumstances of the pandemic. In this sense, the restrictions imposed by the pandemic prevented international travel in private jets and enjoying trips on luxurious cruise ships. As a result, many wealthy Americans have enjoyed leisurely sea voyages in domestic waters aboard their own yachts.
Where are the big firms in the luxury world located?
“Although we are talking about European companies, more and more people are interested in emerging economies to attract these luxury companies.”
The most prestigious companies, faithful to their tradition and strong brand image, have their roots in Europe. France and Italy are at the top, with the renowned Louis Vouitton and the famous car manufacturer Ferrari standing out among their luxury companies. Behind both countries are the renowned luxury companies of Great Britain and Switzerland.
In fact, the first luxury brands are European. Among them are companies such as Porsche, Gucci, Louis Vuitton, Cartier, Chanel, Hermès, Ferrari, Rolex, Dior and Coach. From this list of the ten most important luxury brands in the world, all are European except for the American Coach.
However, despite the fact that we are talking about European companies, more and more people are interested in emerging economies to attract these luxury companies. This is the case of Asia, which accounts for approximately 40% of the sales of the Louis Vuitton firm, of the renowned tycoon Bernard Arnault, or Gucci, which has proposed to hire numerous Asians in all its workforce throughout the planet, due to that growing demand from the Chinese market.