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Why is the global luxury goods market surging during the recession?

Not long ago, affected by the sharp drop in Tesla's stock price, Twitter owner and Tesla boss Elon Musk lost the title of the world's richest man. Bernard Arnault, chairman of the French luxury goods giant LVMH, took over the throne of the world's richest man. People couldn't stop but start to ask why can the stock price of LVMH Group, a symbol of luxury goods, soar under the slow and sluggish world economy recovery from the COVID-19 pandemic.

With the sluggish global economy, geopolitical turmoil, stagnant supply chains, and high inflation, sales of luxury goods are bucking the trend.

According to an industry research report released by Bain & Company and Italian luxury goods organization Altagamma in November, the global luxury goods market is expected to experience year-on-year growth of 21% in 2022, with a market size of 1.4 trillion euros. Mature markets in the United States and Europe show the most vigorous growth of around 25% each. According to the report, about 95% of brands have achieved positive growth. In addition, China's domestic personal luxury goods market is expected to grow by 36% in 2021, reaching nearly 471 billion yuan. China is expected to become the world's largest luxury goods market in 2025.

Against the background of enthusiastic consumers and the extremely loose monetary policy of the Federal Reserve in the past three years, the current luxury market has set off the third wave of price increases. Many luxury brands are getting more and more expensive, Luxury brands affiliated with LVMH, including Louis Vuitton, Dior, Celine and Fendi, have raised prices several times.

Another luxury giant, Kering Group's core brand Gucci, will increase the price of European products on October 26, 2022. The frequency of price increases has changed from two or three times a year to two or three times a year. The product prices of Bottega Veneta also quietly increased in the third quarter, with a range of about 10%. Brands such as Saint Laurent and Balenciaga have also joined the ranks of regular price increases in the past two years to cover the loss during the pandemic. The luxury watch brand Rolex has recently quietly raised the retail price of its entire line of products in the European market, ranging from 4.38% to 5.45%. The famous Daytona directly rose 5% to 14,600 euros.

Even amid the current economic turmoil, luxury brands continuously raise prices. The main reason is that the absolute number of high-net-worth personal luxury consumers is still increasing. Luxury groups firmly believe that the market will continue to expand in 2023 and even 2030.

Global sales of personal luxury goods, including leather accessories, clothing, footwear, jewelry, and watches, are expected to grow 22 percent in 2022, from 290 billion euros in 2021 to a record 353 billion euros, according to a Bain & Company report.

Why are some people keen on chasing luxury goods? Because in a specific range, luxury consumption and wear have become a symbol of strengthening the external advantages and emphasizing the superiority of the individual social status.

Researchers have found through big data analysis that people are more sensitive to "status" in areas with more income inequality. A study in the United States shows that in places with a large gap between rich and poor, the usage rate of luxury brands such as Louis Vuitton and Rolex is 70%, while in areas with a small income gap, this difference is not significant.

It must be noted that the global gap between rich and poor is widening further. Credit Suisse's "Global Wealth Report 2022," released in September 2022 shows that total global wealth will increase by 12.7% in 2021, which will be the largest increase since its record. In contrast, the global wealth share of the wealthiest 1% has risen for two consecutive years, from 43.9% in 2019 to 45.6% in 2021. The number of "ultra-high-net-worth individuals" with wealth over $50 million rose by 46,000.

Meanwhile, the number of people facing extreme poverty has increased by at least 75 million this year. The World Bank's latest "Poverty and Shared Prosperity Report" also pointed out that the outbreak of COVID-19 in 2020 has caused the biggest setback in global poverty reduction since 1990, and the epidemic has caused the greatest harm to the poor: the lowest income 40% of the population bears the tremendous setback. Income losses averaged 4%, twice that of the wealthiest 20% of the population. The result is the first rise in global inequality in decades. The aggravation of the inequality between the rich and the poor has made luxury goods more psychologically consumption demand and the actual purchase market.


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