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Does it hurt the economy when people spend on luxury goods?

Cover image: Luxury goods Prague (https://www.lifestyle.luxusni-bydleni-praha.com/en/luxury-goods-prague)

On the contrary, “real” luxury goods contribute to the economy, are sustainable and are often much better for the environment than their mass-produced alternatives.

The market of luxury goods is considered to be worth more than 330 billion USD, with countries like France, Italy and Switzerland taking the lion’s share. France is home to luxury powerhouses such as Hermès, Kering and LVMH; Italy is home to Luxottica, Prada and Giorgio Armani; and Switzerland is home to Swatch Group and Richemont.

A good part of the production in these luxury groups is local, which directly contributes to their national Gross Domestic Product.

Producing luxury goods usually requires four things:

Fine raw materials. And like in the tale of the Golden Goose, producers of fine raw materials must often stick to production ratio to avoid compromising quality. That often leads to more sustainable production processes.

When it comes to animal raw materials, there is often a symbiosis (win-win solution) between humans and the animal: wool shearing is healthy for sheep because without it their fur would grow to become a serious hindrance, and sustainable cattle herding has allowed this defenceless specie to survive for centuries.

Image source: The Golden Shears: Woolly sheep bring sheer excitement to competitors

Less wasteful production facilities. Since the fine raw materials are harder to procure, more thought goes into how they are being processed, transported and handled. Waste is made use of and most luxury workshops almost always comply with safety regulations and waste disposal norms such as REACH — ECHA.

Image source: ISA TanTec Ltd.

Skilled operators. Because of the constraints, these expensive raw materials and their delicate handling process is always entrusted to skilled operators, who require years of training. They are offered higher salaries to retain them in the sector.

Image source: Types of Leather — Italian Leather Grades

Knowledgeable sales force. Distribution channels need well trained staff who can properly present the products and provide maintenance advice. Again, these jobs need to advertise slightly higher salaries than the average to retail the most competent personnel. This payroll goes directly into a country’s economy through what these employees consume (income tax, living expenses, rent, etc…)

Image source: 4 new trends in beauty B2B sales operations | Pepperi

Add to the above that luxury goods rarely gets thrown away. Consumers always have the option of having them serviced or repaired, and there is a thriving market for second-hand luxury goods. Some retail stores are specialised in these type of products, and they add to a country’s GDP through their corporate tax, sales tax, real-estate rent and payroll; and when private individuals sell their luxury goods, they usually plan to use the proceeds, which go back into the economy.

As you can see, luxury goods, especially when they are produced locally, contribute in many different ways to a country’s economy. It is much more beneficial to be on the giving end than on the receiving end of the manufacturing of luxury goods.

This answer was first posted on Quora.com.




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Francis Jacquerye

Francis Jacquerye

Luxury Industry professional, former Head of Design and Competitive Research at the Longines Watch Company

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