Half a lifetime ago I was working in Paris for a very famous Champagne brand. Analyzing global sales data was proving difficult because the Japanese section just didn’t make any sense. The country’s economic bubble had famously burst, yet Japanese clients were apparently drinking more high-end Champagne than ever before.
Certain of an error in the data, I queried it with my French CEO. He gave a Gallic shrug and said: “When you are on the plane, and the plane is about to crash, you don’t drink piss.”
The relationship between economic conditions and luxury spending has never been linear. In boom times, luxury sales explode, but tough economic conditions aren’t always bad for luxury either.
Leonard Lauder called it the “lipstick effect,” the theory that economic hardship drives consumers toward small luxuries as substitutes for larger ones they can no longer afford. When you can’t buy a fur coat, a Chanel lipstick provides an affordable indulgence.
Boom or bust, luxury brands traditionally do well. Add global expansion, the luxury obsession of the Chinese, and a general democratization of luxury from thousands of clients to millions today, and you had a golden formula for unprecedented growth since the start of the Century.
According to Bain & Company, the global luxury market tripled from $120 billion in 2000 to $400 billion in 2023. LVMH’s share price tells the same story: from $100 in 2007 to nearly $1,000 by April 2023, making Bernard Arnault the world’s richest man.
But change is in the air. Bain’s latest data confirms that luxury goods spending will decline this year and the number of consumers buying luxury items will drop from 400 million in 2022 to around 340 million.
That trend is borne out by consultancy group MAD who estimate that 20% of affluent and high-net-worth individuals intend to spend less on designer fashion this year. For leather goods, that figure is 30%. For jewelry, 32%. For watches, 44%. Wealthy consumers making no luxury purchases at all grew from 15% in 2019 to 25% today.
The reasons are manifold. Post-pandemic price increases were too aggressive and often unjustified. Consumers began to question the value proposition of a cotton Gucci T-shirt priced north of $1,000. Geopolitical tensions disrupted Chinese tourism and dampened confidence. The aspirational middle-class consumer who drove so much growth has been squeezed by inflation. And younger consumers increasingly prefer experiences over products.
Today’s economy is marked by a strange uncertainty. We live in a period of neither boom nor bust — an odd, unsettled phase in which AI, political upheaval, and technological disruption have somehow undermined the enduring allure of luxury.
The key strategic question is how luxury brands will respond. The usual 21st Century options – more stores, global expansion, price increases – have been exhausted. And the perennial question of luxury brand management now presents itself to a new generation of managers: go up or go down?
Going down means embracing “masstige”: accessible luxury that captures aspirational consumers without pretending to be something it’s not. Coach has executed this strategy brilliantly. After nearly a decade in the wilderness, dismissed as “grocery bags” by fashion snobs, the brand leaned into its heritage as quality American leather goods at attainable prices.
