Confidence in China is Driving the Luxury Market

By | January 8, 2021

A luxury product can be identified when compared to the demand for that good at a given time with another income bracket, with another income level, and at a different economic status. High luxury goods tend to have high income elasticity: they will always be bought proportionally more by wealthy consumers, as their incomes grow, they’ll buy even more. And, of course, there will always be the rich. There just isn’t enough room, unfortunately, for everyone else. So high-end goods will always be more abundant than lower-end goods – which, on average, are limited in supply (and therefore priced higher).

How about food? If luxury food products were measured by the demand elasticity of demand, then food in general would likely be a much harder business. Since people need to eat, and since there are many different forms of food, and since demand is highly price elastic, it’s very hard to create a mass market for most foods. It would be much easier if luxury food items were measured by demand for basic products, which might exist even in a worse economy.

Now let’s consider three examples. The first example is the demand for luxury items between times of economic prosperity, say during the holidays. People typically have a tendency to splurge during these times and will often go over their existing financial limits to purchase the most desirable items. While there may not actually be a large increase in demand, it’s easy to see how the rich would tend to get their items first, before the poor.

The second example is the same thing, except it concerns the affluent consumer’s willingness to accept inferior goods as long as they can afford the luxury item. This is the group that typically gives the wealthy plenty of money to spend. They’ve invested money in something, so they’re willing to accept a lower standard of living in exchange for that investment.

Finally, there’s the third example, the demand for luxury goods in the offline stores. In this market, there are plenty of products that are both high in demand and relatively inexpensive. These include things like watches, clothing, and jewelry. These products can generally be purchased on a day-to-day basis, and while this isn’t the ideal situation for wealthy consumers, it’s not completely ruled out.

One of the reasons why China has been able to successfully ride the tail of the US economy for the last two years is because they have been able to use their enormous purchasing power to push up the value of their currency. They’ve also been able to keep their currency relatively stable. If the Chinese consumers want to purchase products at home, they tend to buy products that are produced in their own country. This has allowed China to gain a solid foothold on the international scene. They’ve even managed to shift the vast majority of their overall merchandise sales abroad.

When you put all of these pieces together, you can see that China is a force to be reckoned with when it comes to the global luxury goods market. Although China’s economy hasn’t completely stabilized yet, they’ve managed to shift a huge portion of their overall merchandise sales overseas. These consumers are happy to pay more, because they know that they’re buying something that will give them good value. It’s possible that their confidence could soon erode again, but that wouldn’t be at China’s advantage. They need to maintain high levels of confidence as well, or they run the risk of losing their grip on the global economy. The government recently released some measures that could help to stabilize the economy, so it remains to be seen whether those measures will do anything to solidify consumers’ confidence in China.