Yeah, yeah, yeah—inflation. So your food budget is completely out of control, and who knows when you’ll be able to buy a house or a car, or much of anything else, thanks to economic uncertainty, inflation, and rising interest rates.
But some consumers have had enough of scrimping—at least, they’ve had enough of scrimping for everything. They seemingly are embracing a novel shopping trend, labeled the “split-brain budget”: While feeling as if they are constantly shopping around for the cheapest staples, consumers also are finding some reserves to spend on luxury travel or a really nice pair of pants.
Kelly Taylor, a Los Angeles resident, explained that even though her rent had increased, forcing her to cut out unnecessary purchases to get her credit card debt under control, she decided to take a trip to Cabo San Lucas, Mexico, while wearing a new top from Versace. “I have to live,” she noted.
The most recent Bain-Altagamma Luxury Goods Worldwide Market Study puts numbers to these trends. It shows that despite all the reasons the current market should spell bad news for super-expensive products, the global luxury goods market actually expanded in 2022—and is posed to grow again in 2023, and then to keep growing through at least the end of the decade. Luxury cars had their best year ever in 2022. Fine wines and spirits, gourmet food and fine dining, high-end furniture and housewares, fine art, and private jets and yachts are also selling well. The only sectors of the luxury market that have not met or exceeded pre-pandemic levels are luxury hospitality and cruises.
This surge in spending is in part because more customers are willing to spend a lot on fancy things—Bain finds that the luxury market consumer base is expected to grow from 400 million people in 2022 to 500 million by 2030—and also because the shares of so-called “top customers” is also growing. These are shoppers ready to spend, and spend some more, on the most unique products and services. And how! In 2022, Bain finds, shoppers spent about $385.5 billion on luxury goods and services. By 2030, that figure is expected to grow to as much as $633 billion. For perspective: That’s just barely less than 20 times the annual gross domestic product of the entire state of Vermont.
Thank the young. Millennials and Gen Y accounted for nearly all the growth in the luxury market in 2022. Gen Z and Generation Alpha—have you even heard of this generation yet? They’re just younger than Gen Z—are nipping at their elders’ heels. The younger generations are dipping their toes into shopping for fine things years earlier in their lives than older generations had done.
Finally, it has just been a sad and scary few years. Sometimes, buying something beautiful can offer a little sense of control, and a little sense of hope. “I get to put that luxury item on and remember life is going to be OK,” explained another consumer.
Discussion Questions:
- Why is the luxury market growing?
- If you were advising a luxury clothing company, what would you tell it to do to attract more customers right now?
- Do you agree that the luxury market is likely to continue expanding through the rest of the decade?
Sources: Rachel Wolfe, “Consumers Tired of Inflation Scrimp—and Splurge,” The Wall Street Journal, January 24, 2023; Florine Eppe Beauloye, “The Future of Luxury: 7 Trends to Stay Ahead in 2023,” Luxe Digital, January 10, 2023; Claudia D’Arpizio, Federica Levato, Filippo Prete, and Joëlle de Montgolfier, “Renaissance in Uncertainty: Luxury Builds on Its Rebound,” bain.com, January 17, 2023
Photo from iStock.com/resulmuslu