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Welcome to “Paper Review,” the official newsletter of the Starting Finance Club Statale. This sharing and in-depth space is dedicated to all those who are passionate about economic and financial issues. With this newsletter, we aim to bring you detailed analysis, exclusive insights and a fresh perspective on the economic and financial dynamics that are shaping our world.

Overview

Luxury, an always on the move word. Historically, it’s been associated with the lifestyles of the powerful, the wealthy, and the elite, making it attractive to the classes just below, who aspire to elevate themselves, even symbolically. Three core truths define luxury:

First would be the concept of luxury: what is the concept of luxury? It shares the same origin as luxation, connoting a gap, a step ahead, a world apart or a disruption, in line with the different meanings of "excess”. Second is the business or economic sector of luxury, as Hume (David Hume, 1711-1776) identified "luxury" as the creation and production of goods meant to satisfy the senses, linking it to "art and industry." Hume argued that agriculture would not develop unless attractive manufactured goods were available for farmers and landlords to buy, and thus that development in Britain had been started by imports of luxury goods from the continent. And finally there's a specific approach called the "luxury strategy," which is distinct from fashion, premium, or mass-market strategies. 

Luxury Redefined; From Possessions to Experiences

Throughout history, luxury has been linked to the lifestyle of the riches and the elites, hence its attractive incentive among the lower classes to experience it one day. Today, the luxury phenomenon has a new trend toward experiences and services rather than just material goods which we refer to as luxury tourism. It offers exceptional travel experiences for travelers with the highest standards, featuring premium accommodation, personalized services, and prestigious destinations. From elegant private villas to high-quality meals, it provides an unparalleled level of comfort and sophistication throughout the journey. This shift is because of changing consumer preferences, especially among millennials (born 1981–1996) and Gen Z (born 1997–2012), who intend to experience and travel more rather than possess an expensive good. E-commerce platforms, Influencers and social media, along with digital marketing, have helped luxury brands in reaching a global audience and engaging with customers. Luxury brands are investing heavily in their online presence to enhance customer experience and drive sales by offerings such as exclusive events and personalized services that we will talk more about later in this article. 

A win-win game

From the viewpoint of three actors in the luxury market, there can be winners on their side. Economically, there is relief in knowing that not all negative economic aspects will significantly affect wealthy consumers of luxury products. This ensures that a portion of the GDP in countries with luxury production will remain relatively stable, even during times of recession or inflation. While some high-net-worth individuals have been criticized for relocating to reduce their tax burdens, their tax liabilities remain substantial. As long as there is a market for luxury goods, they will continue to contribute to the economy through their purchases.

Luxury plays a vital role for the wealthy, allowing them to stand out by reflecting their taste and values in ways that mass-produced items can’t. For brands, this creates opportunities to innovate in bespoke offerings and to craft compelling narratives around the uniqueness of their products, all while reaping profits from sales. However, there is a concern for both economies and brands that political and economic uncertainties might dampen the instinct to invest in luxury.

What Makes Luxury More Than Just a Price Tag

Luxury pricing has not been talked about much in academic literature. But the existing studies often discuss the concept of snob effect which describes how a product becomes desirable because its high price makes it out of reach of the majority group, allowing snobs to be different from conformists.  Economists refer to this phenomenon as a form of discriminatory pricing where exclusively is achieved by targeting consumers willing to pay a premium. To determine exactly a price threshold for luxury products may be challenging as research indicates that consumer’s idea of luxury is subjective and not tied to a specific price point. For example, a high-end bar or restaurant may be considered luxurious not solely due to its pricing but because of its exclusivity, such as long waiting lists resulting from high demand and limited supply. This reflects how luxury is defined by both perceived exclusivity and the overall experience, not just cost.

The concept of luxury extends beyond price to encompass a brand's reputation, craftsmanship, and distinctive identity. Take Rolex as an example: its luxury status is not only due to high pricing but also the quality of its materials, the artistry of its design team, and its signature aesthetic. These factors inherently require greater investment, which justifies the higher price.

Interestingly, even when luxury brands introduce promotions or launch more affordable products to attract younger consumers, their core identity as luxury brands remains intact. This demonstrates that luxury is not merely about being expensive but about the perception of exclusivity and prestige, cultivated through superior quality, design, and brand heritage.

Luxury market global trends

Reports indicate that spending power and wealth in many regions of the globe, particularly in densely populated countries like China and India, has shifted in a positive direction. Younger consumers around the world, such as millennials and Generation Z (as discussed in previous section), are increasingly entering this market, driving demand for more contemporary and experiential luxury offerings. This improvement, along with the rise of international travel in the post-COVID era, has become a key driver of growth in the global luxury market. Tourism marketing, which involves promoting destinations and experiences to attract travelers, plays a significant role in this expansion. Additionally, The rise of social media and influencer marketing has greatly impacted the visibility and desirability of luxury products.

Global luxury market size is estimated at USD 366.23 billion in 2023 and is expected to grow at a CAGR (Compound Annual Growth Rate) of 6.8% from 2024 to 2030.

Who buys Luxury?

In a recent analysis Alexandra Dogaru in “Volume 13 (2023) of Journal of Economics” refers to economic theory that explains how luxury goods and income have high elasticity meaning that the wealthier an individual is the more she can afford expensive goods and that luxury items should be accessible only to those fortunate enough to have higher incomes. But this is the opposite of what is happening in the real world. Close observation of human behavior shows how most people own luxury items, regardless of their income. Generally, people’s desire to overcome their financial conditions and appeal to a higher social group has created a society that lacks sound economic reasoning. While purchasing expensive items can increase one’s utility and perceived social status, the long-term consequences of such spending can negatively impact people’s financial situations. In other words, luxury branded products are not genuinely worthy investments as they provide little real economic benefit besides the satisfaction of belonging to a group. 

More than half (60.2%) of global revenue in 2023 was made by the women’s luxury market. Increasing wealth and financial independence of women globally is the reason. Their growing awareness of style and appearance has increased demand for luxury fashion items allowing them to express their unique identity and sense of style. 

In the men’s segment, one of the primary factors driving the market is the increasing disposable income of the male population. As men’s earning power grows, they are more likely to invest in high-end, luxury items. Moreover, men’s attitudes towards fashion and luxury have evolved significantly over the years. This shift in consumer preferences has resulted in a demand rise for premium products tailored specifically for men.The market is projected to grow by 7.2% from 2024 to 2030.

Luxury Sector and the Global Economy

- Gross Domestic Product (GDP) impact

This contribution is sometimes direct, through the sales of luxury goods and services, and indirect, by boosting related sectors such as tourism, hospitality, manufacturing, and financial services.

The contribution of the luxury sector to the French and Italian economy exemplifies its direct impact on GDP, driven by strong exports and high domestic demand for high-end products. In 2024, the luxury industry accounted for more than 4% of France's GDP. Exports of luxury goods, including textiles, leather, and automobiles, represent a significant portion of Italy's foreign trade, contributing substantially to the country's positive trade balance, for approximately 3% of Italy's GDP, or about €65 billion. In the United States, the technology companies that have ventured into the luxury sector, such as Apple with its high-end products, have also significantly contributed to this growth.

Emerging markets such as China, India, Brazil, and Mexico have shown rapid growth in the luxury sector. In 2024, China became the largest luxury market in the world, with an estimated spending on personal luxury goods of over $80 billion, representing approximately 3% of the country's GDP. 

- Job Creation

By knowing that in 2024, more than 2.5 million people directly and up to 6 million people were employed in the luxury industry worldwide it is obvious that this sector is a significant generator of employment, both direct and indirect. In France, more than 180.000 people are employed directly in the luxury industry in 2024, with a 3% increase compared to previous year. Similarly, in Italy, the sector has created significant employment opportunities in areas such as textile manufacturing, leather production, and retail services. In the United States with a 4% growth, the luxury retail sector directly employs more than 100.000 people in 2024. In Asia, the expansion of the luxury market has driven substantial job creation, particularly in countries like China and India, where more than half a million people are employed in the manufacturing and sale of luxury goods.

- Government Income, and Contributions to the Public Fund

In the European Union, taxes on luxury goods and import regulations generate significant fiscal revenues. In 2024, it is estimated that taxes on luxury goods contributed more than €15 billion to EU fiscal revenues. Additionally, import regulations for luxury products in the EU have generated additional tariffs that benefit member states. For the United States, sales tax rates in cities with a high concentration of luxury boutiques, such as New York and Los Angeles, have significantly contributed to local and state revenues. Along with more than $3 billion increase in revenues in 2024 due to tariffs generated on imported luxury goods.

In Latin America, Brazil and Mexico are the largest luxury markets, and both countries have seen an increase in fiscal revenues from the sale of luxury goods, with more than $2 billion and approximately $1.5 billion in 2024, respectively. These revenues are essential for funding social and economic development projects.

- FDI and Infrastructure Growth

The luxury sector is a catalyst for attracting foreign investments and developing local infrastructure, especially in emerging markets and developing regions.

In Europe, investments in luxury infrastructures have been significant. In Paris and Milan, investments in new stores and renovations of historic buildings exceeded €500 million in 2024 which not only generate employment during the construction phase but also increase property value and contribute to urban regeneration and tourist attractiveness.

Substantial investments in commercial and logistical infrastructure of Asian cities like Shanghai, Singapore, and Dubai in 2024 were estimated at over $2 billion. Dubai has experienced a boom in the construction of flagship stores and luxury malls, which has boosted local economic development and generated thousands of jobs.

 In 2024, investments in luxury infrastructure in Latin America reached approximately $800 million, with new stores and distribution centers established in major cities such as São Paulo, Rio de Janeiro, Mexico City, and Buenos Aires. These investments have generated local employment and improved commercial infrastructure.

Investments in the luxury sector in Africa as a new frontier for the luxury market were estimated at $500 million, focusing on the expansion of flagship stores and high-end malls in key cities such as Johannesburg, Lagos, and Casablanca.

- Boost to Luxury Tourism and Hospitality

In Europe, Paris with its high-net-worth tourists spending on luxury boutiques, high-end restaurants, and exclusive hotels, and London, with its famous luxury shopping streets are the pioneer cities. In Asia and especially Japan, luxury tourism accounted for more than 15% of total tourist spending in 2024, equivalent to more than $5 billion. In Thailand, luxury tourism has been identified as a priority sector for economic development, with spending growth of 10% annually over the past three years. In the Middle East, particularly Dubai and Abu Dhabi, has emerged as a prime destination for luxury tourism: In 2024, Dubai generated more than $7 billion from it. In the United States, luxury tourism in cities like New York, Miami, and Los Angeles has been a key driver of the local economy. 

- Innovation, Sustainability, and Technological Development

Luxury has been a pioneering sector in adopting advanced technologies. Online luxury sales reached approximately 14% of the total personal luxury goods market in 2024. Luxury brands like Dior and Gucci are using technologies such as virtual reality (VR) to offer unique shopping experiences such as virtual fitting rooms where customers can experience products in a digital environment before making a purchase.

Regional highlights of luxury Sales

The global ranking by region changed in 2023, as Europe regained the top position for personal luxury goods sales. The Americas decelerated and switched to second position, followed by mainland China.

All European markets performed well, despite a slowdown in local customer purchases throughout the year due to macroeconomic uncertainty.

The personal luxury goods market in the Americas region decelerated throughout the year, with aspirational customers hitting the brakes on luxury purchases. However, top customers still held up, yet partially shifted their spending abroad and toward luxury segments other than products. Most countries in Latin America suffered, except for Mexico.

In Asia, Mainland China is likely to increase local spending and investment in new megacities like Hainan to become a key luxury destination, as China plans to make it a duty-free island by 2025 with a special tax system. Southeast Asia showed growth, supported by a growing local customer base, strong tourism, and foreign investments. Thailand led in terms of growth, South Korea remains a primary source of influence in the region and as for Japan a weak Yen attracted tourist inflows.

The Middle East showed strong growth across the board, Dubai remains the key regional hub. Saudi Arabia is accelerating and still offers large untapped potential that attracts investments from major luxury brands. Australia is showing strong potential for growth, with local brands starting to attract interest from luxury consumers.

Conclusion

 Jean Baptiste Say, a classical French economist, studied the nature of markets in his 1803 book “Treatise on Political Economy” and put forth the view that supply creates its own demand and that economic agents must first engage in production before they can demand goods and services in the market. (Say’s Law of Markets). This means that the more productive an economic agent is, the more income they have. So, for example if an actor has more revenue than a plumber, the goods and services offered to him also should be different. If this does not hold true, then no incentive exists for individuals to be more productive than before. I am of the conviction that luxury is not defined by traditional standards, it simply represents a higher level of quality in any good or service. What may be considered luxury to some can be a regular consumption for others in different communities. From another perspective, it's noteworthy how countries like the UAE have made luxury and tourism their primary sources of income: by becoming a luxury destination, they attracted foreign direct investment (FDI), created employment opportunities, fostered innovation, and boosted government revenues, factors that every economy seeks. The luxury sector is well-positioned to remain a vital economic force for many emerging regions and the world in the years to come.

Resources

• https://www.emerald.com/insight/content/doi/10.1108/IMR-04-2021-0155/full/html

• https://www.grandviewresearch.com/industry-analysis/luxury-goods-market-report

• https://www.euronews.com/culture/2023/06/26/can-you-guess-which-country-spends-the-most-on-luxury-goods

• https://luxonomy.net/luxonomy-ranking-leading-cities-in-annual-luxury-consumption/

• Anthony Brewer, 1998. "Luxury and Economic Development: David Hume and Adam Smith," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(1), pages 78-98, February.

• Bykova, N. 2014. "Luxury as an indicator of the country's economic development, " Chernivtsi Trade and Economics Institute of KNTEU

• https://www.forbes.com/sites/pamdanziger/2024/02/19/387-billion-luxury-market-remain-turbulent-here-are-the-bright-spots/

• https://www.luxuo.com/business/how-much-does-the-luxury-goods-industry-contribute-to-the-economy.html