Luxury Spending and Buyer Power

 




(Image sourced from Audemars Piguet website)

This week, I read this article on WSJ: https://www.wsj.com/business/retail/some-luxury-goods-had-a-better-christmas-than-others-973d5d3d?mod=retail_news_article_pos5 

The article states that luxury goods that were marketed to the wealthiest customers did better in the 4th quarter of 2023 than other, more accessible luxury goods. This is interesting to me because theoretically, all luxury goods are very elastic. When there is a contraction in spending, the first place to cut would be unnecessary items like expensive watches.

But, the article also points out that the wealthiest only decreased their luxury spending by 3%. Thinking about this, it makes sense. The more a family's income is, the less their luxury items are as a percent of their annual expenditures. So, purchasing a $15,000 watch on a $100,000 annual income is a significant portion of total budget, but that's not the case for someone making $500,000 per year. 

The article didn't relate this to income inequality, but that's what I thought of next. As more capital is concentrated in fewer hands, it would make sense that high-end luxury items will continue to do well, as they are still in demand by the few who can afford them, and their high price points aren't a barrier to those customers. However, as inequality continues to worsen, and as prices for basics like groceries remain high, it will be interesting to see whether this trend continues.

In the Porter's 5 Forces Model, Porter suggests that the presence of rival firms decreases profitability. In this case, I wonder whether legacy brands like Rolex or other traditional and well-known luxury brands will do well, or whether the introduction of newer luxury brands (especially "quiet luxury" brands like The Row) will create competition in these markets. When income inequality rises, it may become less beneficial for the wealthy to display their wealth with logos and traditional markers of wealth. Instead, the "if you know, you know" brands might begin to increase their market share. 

As a final note, if this article is a harbinger of things to come, I would expect accessible luxury brands like Tory Burch, Kate Spade and others to do poorly this year or offer additional discounts to continue to appeal to middle-class shoppers. 

Comments

Post a Comment

Popular posts from this blog

Why are urban, professional women buying construction worker overalls?

Image
 This week I read this really interesting style piece on WSJ: https://www.wsj.com/style/fashion/high-fashion-or-hunting-gear-why-chic-city-women-are-shopping-at-traditional-sporting-stores-ca4de233?mod=style_feat2_fashion_pos4 The article states that there is a rise in interest in brands that have traditionally been considered entirely functional, and even overtly ugly. Brands like Ariat and Barbour have been taken up by the fashion set for quite some time (I own Ariats and was *this close* to getting my husband to buy himself waxed Barbour jacket). Extending this trend, I've noticed an uptick in my friends showing up to parties in Carhartt jackets. What's going on? From a marketing perspective, it appears that traditionally functional brands are identifying new segments to target. We can see this in a range of products. The ubiquitous Stanley cup once belonged to a brand that made twist-top thermoses that my dad swears by. Today, I can't find the Stanley in the light pink ...
Read more

Digital AI Operations: Could Healthcare Benefit?

Image
 This week I watched this video on WSJ: https://www.wsj.com/video/series/travel-guides/how-ai-is-transforming-air-traffic-control-towers/1E2C984E-F047-47F7-B1AB-1F7D1104F9E1?mod=Searchresults_pos15&page=1 The video shows how digital AI traffic control towers are changing operations at Heathrow Airport in London. The system is powered by algorithms that identifies plans and then overlay satellite information, and can function in clouds or even "see through" buildings, improvements over human air traffic control skills.  This made me think about what other operations could be improved and made more efficient using AI. I work in healthcare, and one area of inefficiency is the process of consulting specialists for a patient. Currently, it works like this: The patient's primary team identifies a problem that they don't have the knowledge or skills to address (a mental health need, an infection, etc.)  The primary team identifies the best specialist service to consult ...
Read more

Why Can't We Fix Mental Health Care?

Image
 This week, I read this WSJ article about suicide rates during and after the pandemic: https://www.wsj.com/health/healthcare/americans-suicide-highest-level-2022-02eb10ea?mod=healthcare_more_article_pos44  This blog post is a long one, so bear with me. At the end of this article, you'll see why mental health care is so hard to access and how medical systems seeking to reduce their costs should counterintuitively hire more psychologists, not less, even though psychologists don't generate enough revenue to cover their  salaries and benefits.  Image from PlanStreet The article discusses ongoing populations at risk of suicide (older, white men), and how suicide rates are finally declining for younger people. Importantly though, the article points out that mental health care - which was hard to access before COVID - is now even harder to find. This begs the question, how can it be with all the increased attention on mental health and increased need for mental health ...
Read more