fashion econ perimeter of luxury

Is luxury considered a standalone business sector by economists?

No. Luxury is not a sector but a segment, spanning multiple (fashion, jewellery, cars, hospitality, etc)

How do economists usually define a business sector?

By cross-price elasticity of demand: products belong to the same sector if consumers easily substitute one for another when prices change.

Why does cross-elasticity make luxury hard to define as a sector?

Because luxury goods substitutes across categories (e.g. bag vs jewelry) not within a single sector.

What is luxury from an economic point of view?

A market positioning characterised by high price, symbolic value, scarcity and strong branding

Why are the boundaries of the luxury market unclear?

No single definition exists; luxury is interpreted differently by consumers, brands and economists.

Why does this lack of clarity matter economically?

It makes market size, dominance and regulation hard to measure, enabling concentration (e.g.LVMH acquisition)

How can the size of the luxury market be measured?

Three imperfect methods:

1. Aggregate luxury purchases by consumers

2. Aggregate luxury segments across sectors

3. Aggregate revenues of luxury companies

Why are all methods problematic?

Data is incomplete, definitions differ and brand portfolios blur luxury vs non-luxury activities

What are the core characteristics of luxury goods?

• Scarcity

• Selective distribution

• High price

• Emotional

• Value and symbolic meaning

Why do luxury consumers justify high prices differently?

Prices are rationalized through quality, craftsmanship and heritage, not purchasing power

What types of value are used to sell luxury?

• Tangible: craftsmanship, innovation, materials, quality

• Intangible: emotion, exclusivity, storytelling, brand aura

What makes selective distribution possible in luxury?

Strong lobbying power allowing brands to refuse POS to protect image

How is a luxury good defined?

A combination of material and immaterial differentiation

Why are immaterial dimensions so important?

They account for a large share of perceived value and justify price premiums.

What is vertical (objective) differentiation?

Being better than competitors (quality, features)

What is horizontal (subjective) differentiation?

Being different from competitors (style, identity)

Can a brand decide to be luxury?

No. Luxury status depends on market perception, not self-declaration.

Why are boundaries between luxury and non-luxury blurred?

Brands can enter, fade or exit luxury positioning over time

What is the most reliable way to identify luxury competitors?

Ask brands who they consider their direct competitors

Why is creation central in luxury?

Luxury follows a push logic: brands shape demand instead of responding to it

What is the consequence of strong creative exclusion?

A deliberately narrow market with fewer customers.

How are singularity and internationalisation linked?

The more unique the offer, the more international the brand must be (global niche)

Why are luxury brands international from the start?

Local markets are often too small or unaffordable; scale comes from global demand.

What balance is required between product and image?

Both material quality and immaterial image are necessary, one alone is insufficient

What types of legitimacy matter in luxury?

• Traditional legitimacy (craftsmanship, heritage)

• Charismatic legitimacy (creative director, aura)

What counterintuitive practices stem from intangible value?

• Intellectual property

• Selective distribution

• Vertical Integration

• Halo effect

• Storytelling

Why do luxury brands cluster near competitors?

Proximity reinforces legitimacy and desirability through mutual halo effects.

→ Halo effect occurs when our positive impressions of people, brands, and products in one area lead us to have positive feelings in another area.

Why is culture central to luxury consumption?

Luxury value is symbolic, enabling international appeal despite cultural differences.

How does culture affect global luxury markets?

It reinforces internationalization while requiring localized creative expression.

What are the 4 mantras of luxury management?

1. Play on material and immaterial value

2. To make things properly, make them yourself

3. No one is a prophet in his country

4. Generosity calls for generosity

Why is vertical integration essential?

It ensures control over quality, image, margins and data.

What does “generosity calls for genersity” mean?

Creating distance from price through rituals, service, and storytelling, so money becomes secondary.

Is the luxury market facing a structural crisis?

No, historically it experiences cyclical shocks, not permanent decline

Which shocks impacted luxury markets historically?

9/11, 2008 financial crisis, COVID-19 and the 2024 internal slowdown

Why is 2024 different?

A downturn without a major external shock, linked to internal strategic failure.

What major shifts affect luxury consumption today?

• China: continued real estate crisis, lower consumer confidence, a changing mindset towards luxury

• Higher inflation, higher interest rates and lower job security → pressure on middle-class consumers in the US & Europe

• Most soft luxury megabrands have embraced more of the same in the post Covid 19 boom or failed to successfully innovate

• Jewelry has become cheaper in relative terms to leather goods, as soft luxury brands have jacked up prices, making it appear a better value for money to consumers

Who are VICs and VVICs

Very Important Clients and Very Very Important Clients

small in number, huge in revenue share

Why are luxury brands refocusing on VICs

They are more resilient, less price-senstitive and demand exclusivity

What risk comes from over-reliance on aspirational clients?

• volatlity

• slower growth

• diluted brand desirability

What frustrates top-tier luxury clients today?

• overexposure

• poor personalization

• crowded stores

• declining quality

• lack of recognition

What signals a potential recovery in luxury?

• product repositioning

• new creative directors

• growth in GCC, India and SEA

What are the two main challenges for luxury brands?

Reduce dependence on aspirational clients and re-seduce top-tier clients.

How is the center of gravity of luxury markets changing?

Towards Asia (excluding Japan), with geo-pricing reducing tourism arbitrage

Why are prices rising in Europe?

Global price harmonization enabled by online transparency.

What are three historical phases of luxury business models?

1. Haute Couture (export)

2. Licensing (disintegration)

3. Vertical integration

Why did brands abandon licensing?

To regain control over quality, consistency, margins, brand image

What defines luxury leaders today?

>70% accessories, >70% retail, >35% emerging markets

Why are accessories so profitable?

No sizing, low seasonlity, shorter supply chains, high perceived value

What is the virtuous circle of retailing?

Scale and control reinforce margins, data access, differentiation and entry barriers

Why do conglomerates outperform standalone brands?

Financial, operational, market power and corporate synergies

What strategic direction defines modern luxury companies?

Deepening vertical integration across physical and immaterial value chains

Why are brands expanding into experiences?

To act as lifestyle curators and reinforce symbolic legitimacy.

When are partnerships preferred over integration?

When know-how is uncertain or market maturity is unclear

Is there a limit to luxury brand extension?

Limits evolve with legitimacy, from expertise based to creative to symbolic power.