Luxury goods
In economics, a luxury good (or upmarket good) is a good for which demand increases more than proportionally as income rises, and is a contrast to a "necessity good", where demand increases proportionally less than income.[1]Luxury goods is often used synonymously with superior goods and Veblen goods.
The word "luxury" originated from the Latin word “Luxus,” which means indulgence of the senses, regardless of cost.[2]
Contents
1 Market characteristics
2 Market trends
3 Market size
4 Art history
5 Scope of the term
6 Socioeconomic significance
7 Luxury brands
8 Luxury department stores
9 Luxury shopping districts
10 See also
11 References
12 Further reading
Market characteristics
Luxury goods are said to have high income elasticity of demand: as people become wealthier, they will buy more luxury goods. This also means, however, that should there be a decline in income its demand will drop. Income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. That is to say, a luxury good may become a normal good or even an inferior good at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his or her automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).
Some luxury products have been claimed to be examples of Veblen goods, with a positive price elasticity of demand: for example, making a perfume more expensive can increase its perceived value as a luxury good to such an extent that sales can go up, rather than down.
Although the technical term luxury good is independent of the goods' quality, they are generally considered to be goods at the highest end of the market in terms of quality and price. Classic luxury goods include haute couture clothing, accessories, and luggage. Many markets have a luxury segment including, for example, automobile, yacht, wine, bottled water, coffee, tea, foods, watches, clothes, jewelry, and high fidelity.
Luxuries may be services. The hiring of full-time or live-in domestic servants is a luxury reflecting disparities of income. Some financial services, especially in some brokerage houses, can be considered luxury services by default because persons in lower-income brackets generally do not use them.
Luxury goods often have special Luxury packaging to differentiate the products from mainstream competitors.
Market trends
The three dominant trends are the main factors that have accelerated the rapid growth of the industry, including the customer base and variations in the consumptions of different brands.[3] The three dominant trends in the global luxury goods market are globalization, consolidation, and diversification.[citation needed] Consolidation involves the growth of big companies and ownership of brands across many segments of luxury products. Examples include LVMH, Richemont, and Kering, which dominate the market in areas ranging from luxury drinks to fashion and cosmetics.[4] Global consumer companies, such as Procter & Gamble, are also attracted to the industry, due to the difficulty of making a profit in the mass consumer goods market.[5] The customer base for various luxury goods continue to be more culturally diversified, and this presents more unseen challenges and new opportunities to companies in this industry.[3]
Market size
The luxury goods market has been on an upward climb for many years. Apart from the setback caused by the 1997 Asian Financial Crisis, the industry has performed well, particularly in 2000. In that year, the world luxury goods market – which includes drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage, handbags – was worth close to $170 billion and grew 7.9 percent.[6] The United States has been the largest regional market for luxury goods and is estimated to continue to be the leading personal luxury goods market in 2013, with a value of 62.5 billion euros.[7] The largest sector in this category was luxury drinks, including premium whisky, Champagne, Cognac. This sector was the only one that suffered a decline in value (-0.9 percent).[citation needed] The watches and jewelry section showed the strongest performance, growing in value by 23.3 percent, while the clothing and accessories section grew 11.6 percent between 1996 and 2000, to $32.8 billion. North America is the largest regional market for luxury goods.[citation needed] The largest ten markets for luxury goods account for 83 percent of overall sales, and include Japan, China, United States, Russia, Germany, Italy, France, United Kingdom, Brazil, Spain, and Switzerland.[citation needed]
In 2012, China surpassed Japan as the world's largest luxury market.[8] China's luxury consumption accounts for over 25% of the global market.[9]The Economist Intelligence Unit published a report on the outlook for luxury goods in Asia[10] which explores the trends and forecasts for the luxury goods market across key markets in Asia. In 2014, the luxury sector is expected to grow over the next 10 years because of 440 million consumers spending a total of 880 billion euros, or $1.2 trillion.[11]
Art history
Though often verging on the meaningless in modern marketing, "luxury" remains a legitimate[clarification needed] and current technical term in art history for objects that are especially highly decorated to very high standards and use expensive materials. The term is especially used for medieval manuscripts to distinguish between practical working books for normal use, and fully illuminated manuscripts, that were often bound in treasure bindings with metalwork and jewels. These are often much larger, with less text on each page and many illustrations, and if liturgical texts were originally usually kept on the altar or sacristy rather any library that the church or monastery who owned them may have had. Secular luxury manuscripts were commissioned by the very wealthy and differed in the same ways from cheaper books.[citation needed]
"Luxury" may be used for other applied arts where both utilitarian and luxury versions of the same types of objects were made. This might cover metalwork, ceramics, glass, arms and armour, and a wide range of objects. It is much less used for objects with no function beyond being an artwork: paintings, drawings and sculpture, even though the disparity in cost between an expensive and cheap work may have been as large.[citation needed]
Scope of the term
With increasing "democratization" of luxury goods,[12] new product categories have been created within the luxury market, called "accessible luxury" or "mass luxury". These are meant specifically for the middle class, which sometimes called the "aspiring class" in this context. Because luxury has now diffused into the masses, defining the word has become more difficult.[13]
Bringing up to the modern day the long and generally very unsuccessful history of sumptuary laws designed to curb excessive personal consumption, in February 2013, the Chinese government banned advertisements for luxury goods on its official state radio and television channels.[14]
Socioeconomic significance
Several manufactured products attain the status of "luxury goods" due to their design, quality, durability or performance that are remarkably superior to the comparable substitutes.[15] Thus, virtually every category of goods available on the market today includes a subset of similar products whose "luxury" is marked by better-quality components and materials, solid construction, stylish appearance, increased durability, better performance, advanced features, and so on. As such, these luxury goods may retain or improve the basic functionality for which all items of a given category are originally designed.[citation needed]
There are also goods that are perceived as luxurious by the public simply because they play a role of status symbols as such goods tend to signify the purchasing power of those who acquire them.[citation needed] These items, while not necessarily being better (in quality, performance, or appearance) than their less expensive substitutes, are purchased with the main purpose of displaying wealth or income of their owners.[citation needed] These kinds of goods are the objects of a socio-economic phenomenon called conspicuous consumption and commonly include luxury vehicles, watches, jewelry, designer clothing, yachts, as well as large residences, urban mansions, and country houses.[citation needed]
Luxury brands
A luxury brand or prestige brand is a brand for which a majority of its products are luxury goods. It may also include certain brands whose names are associated with luxury, high price, or high quality, though few, if any, of their goods are currently considered luxury goods.[citation needed]
LVMH (Louis Vuitton Moet Hennessy) is the largest luxury good producer in the world with over fifty brands, including Louis Vuitton, the brand with the world's first fashion designer label.[citation needed] The LVMH group made a profit of €2 billion on sales of €12 billion in 2003.[citation needed] Other market leaders[citation needed] include Richemont and Kering (previously named PPR).
A rather small group in comparison, the wealthy tend to be extremely influential.[citation needed] Once a brand gets an "endorsement" from members of this group, then the brand can be defined as a true "luxury" brand. An example of different product lines in the same brand is found in the automotive industry, with "entry-level" cars marketed to younger, less wealthy consumers, and higher-cost models for older and more wealthy consumers.[citation needed]
The advertising expenditure for the average luxury brand is 5-15% of sales revenue, or about 25% with the inclusion of other communications such as public relations, events and sponsorships.[16]
Luxury department stores
Since the uprising of the 'luxury brand' in the 1800s, department stores dedicated to selling all major luxury brands have popped up in most major cities around the world. Le Bon Marche located in Paris, France is credited for being one of the first of its kind, but also Neiman Marcus, Selfridges, Lane Crawford, Isetan, Fortnum & Mason, Lord & Taylor, Harvey Nichols, Barneys New York, Saks Fifth Avenue, David Jones, KaDeWe, Harrods and Holt Renfrew are seen as some of the most influential and historical.
Luxury shopping districts
Fashion brands within the luxury goods market tend to be concentrated in exclusive or affluent districts of cities around the world. These include:
Amsterdam's P.C. Hooftstraat
Athens' Voukourestiou Street and Kolonaki district
Bangalore's UB City
Barcelona's Passeig de Gràcia
Berlin's Kurfürstendamm
Bogotá's Zona T
Boston's Newbury Street
Brussels' Louizalaan/Avenue Louise
Buenos Aires' Recoleta
Cartagena's Bocagrande
Chicago's Oak Street
Düsseldorf's Königsallee
Florence's Via de' Tornabuoni
Frankfurt's Freßgass
Hamburg's Neuer Wall
Hong Kong's Central, TST and Admiralty
Istanbul's Abdi İpekçi Street and İstinye Park
Johannesburg's Sandton (Nelson Mandela Square)
Kuala Lumpur's Bukit Bintang and KLCC
Leeds' Victoria Quarter
Lisbon's Avenida da Liberdade
London's Bond Street and Sloane Street
Los Angeles' Beverly Hills (Rodeo Drive)
Madrid's Calle de Serrano
Medellín's El Poblado
Melbourne's Collins Street
Montería's Passage of the Sun
Mexico City's Avenida Presidente Masaryk
Milan's Via Monte Napoleone
Moscow's Tverskaya Street
Munich's Maximilianstraße
New York's Madison Avenue, Fifth Avenue and SoHo
Paris' Champs-Élysées, Avenue Montaigne and Rue du Faubourg Saint-Honoré
Panama City's Multiplaza Pacific
Prague's Pařížská
Rome's Via Condotti
San Jose’s Santana Row
Santiago's Parque Arauco
São Paulo's Rua Oscar Freire
Shanghai's Middle Huaihai Road
Singapore's Orchard Road
Stockholm's Biblioteksgatan
Sydney's Castlereagh Street
Tel Aviv's Kikar Hamedina
Tokyo's Ginza and Aoyama
Toronto's Mink Mile
See also
- Commodity fetishism
- Designer label
- Collecting
- Luxury real estate
- Positional good
- Veblen goods
- Wealth effect
- Superior good
- Inferior good
References
^ Varian, Hal (1992). "Choice". Microeconomic Analysis (Third ed.). New York: W.W. Norton. pp. 116–143 [p. 117]. ISBN 0-393-95735-7.[...] as the consumer gets more income, he consumes more of both goods but proportionally more of one good (the luxury good) than of the other (the necessary good).
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^ Salehzadeh, Reza; Pool, Javad (19 Oct 2016). "Brand Attitude and Perceived Value and Purchase Intention toward Global Luxury Brands". Journal of International Consumer Marketing. 29 (2): 74–82. doi:10.1080/08961530.2016.1236311.
^ ab Seo, Yuri; Oliver, Margo Buchanan (2015). "Luxury branding: the industry, trends, and future conceptualisations". Asia Pacific Journal of Marketing and Logistics. 27(1): 82–98.
^ "LVMH, Kering, Richemont? Where to Place Your Bets". The Business of Fashion. 2016-06-13. Retrieved 2018-07-28.
^ "Procter & Gamble Cleans Up With Luxury Paper Towels". Bloomberg.com. Retrieved 2018-07-28.
^ “The World Market for Luxury Goods.” Global Market for Luxury Goods. Nov 1, 2001, March 5, 2007.
^ "Topic: Global Luxury Goods Industry". www.statista.com. Retrieved 2015-10-20.
^ "China bans television ads for bling". Retrieved February 15, 2013.
^ "Export to China". export-to-china.com. Retrieved 18 March 2015.
^ Asia Luxury Goods
^ Zargani, Luisa (28 January 2014). "Luxe Spending to Grow to $1.2 Trillion". WWD. Retrieved 29 January 2014.
^ Wong, N. Y.; Ahuvia, A. C. (1998). "Personal taste and family face: Luxury consumption in Confucian and Western societies". Psychology & Marketing. 15 (5): 423–441. doi:10.1002/(SICI)1520-6793(199808)15:5<423::AID-MAR2>3.0.CO;2-9.
^ "What is luxury?". Paurav Shukla. 2010-05-14. Retrieved 2010-08-09.
^ Inocencio, Ramy (February 8, 2013). "China bans television ads for bling". CNN. Retrieved February 15, 2013.
^ Parker, Christopher J.; Doyle, Stephen (2018). "1". In Ozuem, Wilson; Azemi, Yllka. Designing Indulgent Interaction: Luxury Fashion, M-Commerce, and Übermensch. 1: IGI Global. pp. 1–21. ISBN 9781522526971.
^ Okonkwo, Uché. Luxury fashion branding: trends, tactics, techniques . Page 145.
Further reading
- Chadha, Radha; Husband, Paul. (2006). The Cult of the Luxury Brand: Inside Asia's Love Affair with Luxury.
ISBN 1-904838-05-7. - Heine, Klaus: (2011) The Concept of Luxury Brands. Luxury Brand Management, No. 1,
ISSN 2193-1208