The last couple of weeks have been like no other. While attention has been fixed on BBC sports presenters, Donald Trump’s potential arrest, and Putin and Xi sitting down for tea, there have been much darker undertones circling around the edges of the news cycles.
We’ve seen a number of banks fail, spreading from California to Geneva. The impact is large, with over $50billion invested from the Swiss central bank just to help out a business in its back yard.
However, this didn’t stem the flow and only led to Credit Suisse being sold for a knockdown price. 60% of its full stock value. And if you listen to the markets, they’re bracing themselves for further fallout.
Over and above this, there’s nervousness and jitters in the finance markets.
- The global economy is still reeling from inflated food and energy prices due to the ongoing war in Ukraine
- Inflation is rising globally
- And economies, like the UK, are either in, or teetering on the edge of, recession
Investors are, understandably, tightening their belts. But while this may sound bleak, there is a silver lining for the luxury sector.
The luxury goods market swims against the tide
The last recession in 2008 had a significant impact on the UK economy. According to the Office for National Statistics (ONS), the UK economy contracted by 6.3% between the first quarter of 2008 and the second quarter of 2009. The largest quarterly contraction since the end of the Second World War. Overall, the recession led to a cumulative loss of output of around 6.9% of GDP. We can’t argue with the facts, but this doesn’t give us the full picture.
The Centre for Economics and Business Research (CEBR) found that the UK luxury goods market grew by 12% between 2008 and 2011, reaching a total value of £6.6 billion.
So while the wider market feels the impact of an economic downturn, the luxury space has proven to be recession-proof. Let’s take a look at why.
Luxury brands are more resilient in a challenging economic market
First: base rates. High-net-worth individuals benefit from interest rates going up; they have more cash from the interest earned on their savings to support their disposable income.
After years of stagnant growth, those in the wealth sector will breathe a sigh of relief as interest rates climb again.
Second: ’aspirational purchasing’. As people are forced to cut back on their spending and tighten their belts, they begin to view luxury items as a symbol of status and success.
In some cases, those who may not have been able to afford high-end luxury products in the past will begin to purchase them as a way to elevate their social status and show they’re still successful despite the difficult economic climate.
Third: the increasing wealth of the middle and upper classes in developing countries. As nations such as China and India experienced rapid economic growth, a new wave of consumers with significant purchasing power emerged.
In 2023, with China opening its doors again, we’re likely to see an influx of consumers eager to showcase their newfound wealth and status, leading to a surge in demand for high-end brands.
Finally: the last recession had a significant impact on the way people viewed their spending habits. Many consumers began to prioritise quality over quantity and looked for products that would last longer and provide greater value over time.
This shift in mindset played directly into the hands of luxury brands, which typically focus on quality materials, expert craftsmanship, and timeless design.
Using digital innovation to drive growth opportunities for your luxury brand
Overall, there’s concern around the economic outcome and indeed there might be worse days to come, but for luxury brands, these conditions are exactly the time to invest and grow market share.
While some will be scared off by the current market conditions, there are opportunities for bold brands to turn this financial hiatus into long-term growth.
Talk to us to find out how your luxury brand can use digital innovation as the optimal platform to reach new wealth consumers and double-down on growth.
Giant Leap Digital –Â
We bring together industry leaders to help understand your brand, commercial and transformational challenges, to provide clear impartial advice and skills for your digital business.
Our strategic experts will not only help you to access your wealth audiences today, but we’ll challenge the status quo to ensure your brand is dynamic and well-poised to make a Giant Leap into the future of digital.