Thursday, June 26, 2008

Fantasy versus Finance: Can Luxury Goods Hold-up During Hard Times?

It's no big secret that in the U.S. we are experiencing some financial hardship. Will luxury goods (LG) be affected as well?

Some consumers see luxury goods as a status symbol and a way to trade up to a different lifestyle market. They want to purchase what the affluent consumer is purchasing for several reason 1) to keep up with the Joneses, 2) as a reward for achieving something and 3) as a perceived value of prestige and high quality goods. Items that were once only purchased a few times a year had started to turn into instant gratification items that are purchased weekly. With America heading into a slower economy will the LG soon be taking a hit? Will manufactures/retailers have to cut back on creating, stocking and selling certain items?

With the average consumer making cuts, will the demand slow? The demand for LG will not completely slow down not as long as there are consumers who still want to purchase them whether they can afford it or not. The credit card fills that financial void for those who can not. But for how long?

Most magazines continue to promote luxury goods despite the average consumer feeling the economic crunch. But don't blame them, it's there job of selling a fantasy lifestyle to consumers. However, consumers are not buying it, they are strategically making cuts to their budgets and limiting some luxury items. They are figuring out what to continue to buy and what to leave on the shelves.

Areas that are starting to see a slight decline are:

* $100+ jeans: consumers still want the top styles but are looking to more affordable brands to get those looks.

* High-end jewelry: excluding the engagement ring, consumers are making for conscious decisions about which items to purchase and are looking for one or two key stand out pieces instead of following the latest trend.

* Expensive designer watches

* Large homes

* Luxury cars

* Expensive beauty products that don't live up to their claims

* Expensive bottled water

However, there are areas that are still in demand:

* High-end Wine and Liquor

* Designer handbags and shoes

* Designer clothing: although there is a slight decline for some items such as the basic, many consumers want that special piece such as dress or coat.

* Spas and beauty treatments

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YC said...

Great article! CNBC did a similar story that stated the luxury goods industry is actually breaking records during this economic low.


Lifestyle Guru said...


I have been researching the different spikes in luxury goods based on monetary range in low, middle and high income families.

Even the super rich are making cuts and some are choosing not to purchase some items even though they can afford them.

It's quite interesting to study this.