Luxury not going out of fashion despite the recession

One of the more controversial claims in the new book ‘Supertrends’ by Danish futurologist and entrepreneur Lars Tvede is that luxury has a fantastic future as billions of new consumers from emerging markets develop a taste for the finer things in life, despite the global recession.

Actually when rolled up into that sentence this appears something of a truism. If the mass affluence of the post-war era has brought significant growth in the luxury sector then why should new consumers from the former Third World not have a similar impact? Luxury is after all what everybody wants given the chance, or at least a certain amount of it.

Luxury makes money

Mr Tvede highlights just how luxury products have mushroomed in the past decades. Louis Vuitton has gone from two shops selling suitcases to a business empire valued at $21 billion. Ferrari was once a small manufacturer of sports cars.

But the big growth for all the major luxury brands is now in China. Mature markets still consume but the growth for luxury products is not so euphoric as in the emerging world. It seems that once your wealth passes beyond a certain point luxury becomes a consuming passion, literally for consumers.

In the air-conditioned shopping malls of modern Dubai it is the watches, jewelry and fashion that command attention. Household items and groceries are confined to the basement levels.

Mr Tvede also points to the power of branding to enhance prices. He cites the artist Damian Hirst and his ability to transform a dead shark into a work of art worth millions of dollars. This is an extreme case but it illustrates how the brand Hirst can add value.

It also demonstrates the inherent profitability of luxury brands. The problem is that they are hard to create. You can fake the products but fooling people into buying an unknown name is hard. Brands usually come with a distinguished heritage and, let us be fair, years of advertising expenditure behind them.

Luxurious future

So the future lies with luxury, still only worth 0.8 per cent of global GDP on Mr Tvede’s calculations. He thinks there is more scope to grow the luxury segment as profitable business than any other. It is hard to disagree with him unless something happens to stop the growth of emerging economies and the rising affluence of their populations.

Cities that have emphasized the luxury segment in their recent development, like Dubai, have therefore likely done the right thing for future prosperity, however daft it might look in a global recession. The Armani hotel in the Burj Khalifa must have a great future!