Globalization Affects Luxury Goods Market
The luxury goods market is one of the most volatile markets in the world. Global economics, the growth and decline of commodity prices, and other factors are not in the luxury goods market’s control. As a result, when something goes down in price it can and will affect how people view the market. But there are some things that the market can predict and help manage in the luxury goods market.
The market cannot accurately predict oil prices. Commodity prices can be affected by local events and even political events in countries like Nigeria and Saudi Arabia. They can even be affected by human error or inflation. Political unrest and instability in major oil producing countries such as Venezuela, Iran, and Iraq could lead to a decrease in demand for oil leading to lower prices. Political stability and increased prosperity in many of these countries will also likely result in a stabilization of their currencies, which could help stabilize the luxury goods market.
Commodity prices can fluctuate dramatically. When a country’s economy receives a boost from one activity, like oil, it can cause commodity prices to spike up. This is true even if the economy is experiencing a downturn from that activity. If the price spikes up too high though, then sellers on the commodities market are likely to pull their goods off the market. If this happens, the supply will exceed the demand, causing an imbalance in price.
Supply is always greater than the demand in any market. In the luxury goods market this means that there is greater demand for many of the products and services on the market. This naturally drives the cost of those items up. The cost of imported luxury goods into the US is much higher than that of domestically produced commodities. However, since the demand is outstripping the supply, the price of imported goods is less than the cost of domestically produced commodities. Importers can take advantage of the US market because they can purchase large quantities and resell them offshore.
High growth countries also affect the luxury goods market. The quality of life of the luxury consumer is high in emerging markets like India and China. Because of globalization there is a requirement for lower-cost products in these markets. This is good news for buyers in the US who have been forced to tighten their belts financially. The result is that more luxury goods are being shipped from these high growth countries to the US.
Demand in developed markets like the US is usually driven by higher income levels and a desire to purchase things that are more expensive. The affluent in these markets can afford to pay more for luxury goods. In emerging markets though, the lack of higher income and financial security to prevent the affluent from spending as much as they would in the US. They have to make do with less. That is where luxury goods enter the picture.
There are three types of luxury goods. The first is luxury raw materials like clothing. These luxury goods are usually produced in third world countries, especially in China. The second type of luxury goods is luxury service like spa treatment, high end fashion designing or massage therapy. The last type of luxury goods is luxury information products like travel guides, self-help books and etc.
Luxury goods usually sell well in any market. The key is to identify the niche and then look for producers who can provide the supply chain that will get these goods to the high end consumer market. As mentioned earlier, globalization has affected the luxury goods market in the same way it has affected almost all other markets. It has created a niche for manufacturers who can provide high-end services at low cost. They can cater to the needs of the high end consumer market successfully.