Despite the great recession of 2008 and the economic catastrophe caused by the pandemic, the luxury sector resists and even skyrockets, 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 its consequences, 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 doesn't consumption suffer within the luxury sector?
In the first place, it is true that the rich have a powerful economic framework to protect themselves against a recession, however, it is striking that, when the belt has to be tightened, companies in the luxury sector become stronger. At first glance, it seems that this is a great contradiction. Now, the answer lies in the fact that luxury acts as a safe value or refuge in times of economic uncertainty.
These refuge values provide protection during crises. Thus, luxury goods retain their value and even increase it. During 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 haven values just behind gold.
In addition, observing the case of Spain, for example, if we analyze the deterioration of income as a result of the crisis by income deciles, we can observe how those incomes that have fallen the least, that suffer the least, are the highest incomes. In addition, this trend has been seen and is seen in many other countries. The rich, faced with an economic crisis, suffer much less from the effects, and consumption in the luxury sector shows us this evidence.
Democratization of luxury products
In the same way, there are more and more different profiles within the luxury sector. Or put another way, the potential client of 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 older men, but rather 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 becoming more accessible to certain middle-income sectors. Thus, companies that offer luxury products have changed certain details of their strategy, reaching a broader public, 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 go to stores that offer clothes at more affordable prices. However, before important events, they resort to higher quality products, indulging in a craving and buying higher quality clothing made by highly prestigious brands.
On the other hand, we must also understand that what we understand by luxury has changed radically in recent years. Now the rich are no longer satisfied with acquiring products of the highest quality and that grant a great social distinction. Giving a twist to this concept, the rich carry out activities beyond the reach of ordinary citizens, such as exotic trips or the possibility of starring in great adventures.
Innovation, one of the keys
The development of new technologies and the internet have also helped boost 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 clients they should target, since they have a fairly approximate idea of the profiles that their potential clients present.
Also, in line with technology, the decisive impact of business investment in R&D must be assessed. The development of new products and production techniques also help boost 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 is innovation decisive, as these types of luxury firms are increasingly showing greater concern for having increasingly 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 are multiplying with the passing of days.
Luxury and emerging economies
But, if the world is plunged into a great economic crisis, why is luxury opening its borders to new horizons? The key is in the globalization of the economy and trends. Consumerism knows no borders and emerging economies largely explain the rise of 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 such as Russia, some places in the East, Latin America and China, which are showing an increasing demand.
The pandemic has altered, as we can see, the landscape of luxury. China, for example, has gone from being a very important market to being a defining location for brands. The country will undoubtedly maintain this predominant role in the future, even when the virus has been brought under control and all regions of the world reach the new normal. This well-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 global luxury market in a very short time.
For this reason, we see how in crises a fall in the luxury sector is not observed. The fact that the customer has diversified, that large incomes have not been affected, that digitization has allowed a greater purchase, 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 demanded luxury products?
The king of luxury is still the car, followed by perfumes, footwear and jewelry. To a lesser extent, beverages, hotels, restaurants and, lastly, yachts lag behind. It is precisely the case of luxury yachts that is striking, 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 on private jets and luxury cruises. For this reason, many wealthy Americans have enjoyed leisurely sea voyages in national waters aboard their own yachts.
Where are the big firms in the world of luxury located?
The most prestigious companies, faithful to their tradition and powerful brand image, have their roots in Europe. France and Italy are at the forefront, with the renowned Louis Vouitton house or 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. Of 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, there are more and more 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 firm Louis Vuitton, of the renowned tycoon Bernard Arnault, or Gucci, which has proposed to hire numerous Asians in all its templates throughout the planet, due to that growing demand from the Chinese market.
