Essay on Luxury Goods

Luxury goods: Tremors from the global sell off:

Consumer spending is the factor known to maintain the American economy. Economists closely watch the consumer-spending rate because they are in constant fear that the consumers’ decision to cut back on luxury, non-essential purchases will hasten the economic slowdown. During the last decade the US economy profited from the famished appetite for luxury goods. In America products and services that were once the lot of very wealthy, from Fendi handbags to fast sports cars, bespoke tailoring to Prada shoes, became accessible, if not to everyone, then certainly to millions of people all over the country.

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However, nothing stays constant, especially in the matters of consumption, and the situation on the luxury good market has showed signals of change. In this essay I would like estimate the current and expected situation on the luxurious products market in the USA. I will do it using the article by Parija Kavilanz, “Luxury goods: Tremors from the global sell off” posted at CNNMoney at the beginning of March.

According to Kavilanz, it is obvious that Americans love to buy expensive luxury goods such as Louis Vuitton bags, Tiffany jewelry and Gucci accessories. Yet what tends to be less noticed is that luxury sales numbers, being still strong, are decreasing. There is a bent nowadays that people tend to change fancy European designers for cheaper mass markets. Consumers now are more likely to shop at Gap and Wal-Mart, which in the past “have been hurt by the housing slowdown, merchandising problems and other woes”, but now are experiencing higher sales numbers. (Kavilanz)

The author provides the survey data of the Luxury Institute, a New York firm that researches the swish market. In one of the recent surveys the consumers nationwide were asked whether under circumstances of big drops in the stock market and declining home values they would continue to buy. The results of the survey were noteworthy. As much as forty percent of consumers with the annual income of at least $150,000 said such a decrease would make them restrain their purchases of luxury goods and services. The interesting fact is that the survey also showed that even extremely wealthy millionaire – shoppers said they would as well choose to spend less.

Nevertheless, according to the article there are more dangers out there for the “luxurious” sales than the market fluctuations alone. According to Jim Hurley, a luxury goods analyst, “the biggest risk to the sector are the geopolitical tensions in the Middle East and elsewhere and what’s happening with currencies”. He thinks that the domination of euro over dollar puts pressure on Americans’ consumption rate of deluxe European goods. Today it became much more costly to import from Prada, Channel, Fendi, Dior and other high-class European brands.

Even though the US economy is going through some rough periods right now and became very sensitive to market fluctuations the economists stay optimistic. As stated in the article, there is a strong possibility for the luxury boom to last for another four years. Under conditions that the “income and job growth hold steady”. (Kavilanz)

The article dwells upon a very interesting topic. There is consumer-spending data available in the article that proves that the actual decline in the luxury purchases exists. The author, with the help of analysts, presents clear reasons for the weakening of the luxury markets as well as showing that there are still optimistic predictions to be made.

I can say that I agree with the author, because I, as a consumer, can see that the consumption of luxury goods, yet being high has a tendency to decrease nowadays. I fully concur with the optimistic estimations of the author, because in America there has been a turn to luxury in the national mood. People with some extra money are no longer afraid of spending it for they do not fear that the economy will crash the next day.

Questions may arise after reading the article discussed above. Some of the questions may be as follows, how possible it is that in the future the economy will hurt the spending on luxuries and if yes, to what extent. Because even though the changes in the economy make people save more and spend less, knowing the nature of the American consumer it is rather hard to predict whether the he will restrain from spending or not. It is also questionable whether the unemployment rate and income growth of the householders are as stable as stated in the article. Knowing that when it comes to the economical prognosis it is very hard to foresee the future fluctuations.

So the conclusion that can be driven is that if the unemployment rises and income growth declines, that would decline the luxury spending in America. But as both of these variables are quite stable in the US the optimistic forecasts for the future luxury spending seem true.

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