Necessary luxury
Coco Chanel once described luxury as “a necessity that begins where necessity ends” — a maddening phrase for any old-school economists whose models can’t understand why people spend $30,000 on a timepiece that tells the same time as a $30 watch. The answer, of course, is a combination of two very human things: because they can, and because it feels good.
And both of those reasons have gotten stronger in the last decade or so. Luxury spending, understandably, tends to grow faster than the rest of the economy in the good times and collapses when things get tight — as seen in the pandemic, when spending on luxury goods plummeted 20%, despite global GDP only dropping ~3%.
But, luxury spending bounced back even stronger in 2021, capping more than a decade of growth that’s taken the market for luxury goods to more than $370bn a year (per data from Bain & Co.).
China rising
One of the biggest drivers of luxury spending in the last decade has been China, where GDP per capita has risen more than tenfold in just two decades — creating an enormous middle and upper class that are now enjoying the finer things en masse. Indeed, luxury aficionados predict that China may represent around 40% of global luxury purchases by 2030.
And luxury brands haven't missed the memo on inflation. Chanel, Dior and Hermès — a company that sometimes has a waiting list for its €20,000 handbags — have started to prefer higher prices over more volume, with ~70% of the growth in leather luxury goods driven by price increases in 2022, compared to 50% in 2019, as high-income and price-insensitive shoppers remain luxury’s top spenders.
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