Luxury must be kept affordably exclusive

The global luxury industry, largely headquartered in Europe, is perilously close to pricing itself out of the market. Top international brands have been growing their margins by increasing prices, a process that speeded up since the pandemic. The industry now derives an enormous part of its business from the top tier of its clientele, and growth is stalling, especially with Chinese consumers, who account for a third of global luxury sales, tightening their LVMH purse-strings. For any other industry, this should not pose an insurmountable obstacle. But luxury has to be cautious. Since economics works differently for the industry, retaining the value proposition is easier accomplished when prices of Veblen goods rise, not when they fall. Volumes will have to adjust, but in a controlled manner that doesn't affect exclusivity. The idea would be to redistribute business within existing consumers, favouring those lower down in the pecking order. Remember, de-premiumisation has a bearing both on quantity and quality.

But the industry should find a quick equilibrium. Demand has spread to newer geographies and to younger customers. The demand dynamics work in favour of affordable luxury if the supply response is appropriate. The much-awaited renaissance in luxury may be delayed, but it hasn't been put off indefinitely provided luxury bosses get their act together. It could be as simple as making 100 expensive handbags in place of the one whose price makes your eyes water. Rising affluence is reaching for those 'cheaper' bags - and many more of them. Their makers need to distribute craftsmanship accordingly. This can be achieved without luxury products descending into the mosh pit of mere utility.

Luxury works on the principle of producer choice, as opposed to consumer choice for regular goods. Brands will have to make individual choices. But collectively, they must choose their customers well. The industry has been fairly sharp in thinning out customers. It should apply the same acuity in growing those lush numbers.