Passionate about investing

The Cost of Luxury

19 December 2012

Hey everybody, in this blog I am going to discuss the impact of luxury on society.  What actually triggered me to write this blog was my visit to the Louis Vuitton store last week. I was trying on a couple belts while sipping on some champagne and I asked the salesperson helping me, what the most common reason was for shopping at LV? Of course he responded with a nice sales pitch about why LV was ‘the best’, but it got me thinking about what the effects were on modern day society of luxury goods. It is not a hot topic, but effecting people’s lives every day and therefore I thought it might be interesting to do some about research it.

Due to a global recession hitting us in 2008, it seems like most people have to cut back on their spending pattern.

Perhaps the following things sound familiar to you:
Buying house brand groceries instead of the premium brand, saving on electricity and water, visiting your favorite restaurant less often or even taking public transport instead of using your car this is a reality for most people nowadays, or maybe even for you, with prices rising and wages falling it isn’t so strange that we all watch our expenses a little more.

But studies show that in the same period of the recession the demand for luxury goods have risen enormously. So, are there people benefitting from the recession? Or are they cutting their spending and just being ‘penny wise & pound foolish?’

People always want to have something others don’t; all for the purpose of making them feel better than others. It gives you a certain satisfaction to see that your car is more expensive than your neighbors or colleagues doesn’t it?

For some people status and getting that wow from others is more important than being fully transparent for themselves and facing their current situation, now here is where the problem kicks in.

Modern day society is pushing people towards a point of view where being seen is the most important thing. There is no better way than to attract attention than by showing off certain luxury goods others can’t afford. It creates a certain confidence and stimulates admiration. For the people who can afford to do this, it is not more than normal to prance around dressed in the latest haut couture, driving luxury cars.

But what does this mean for the people who can’t afford that fancy car or Hermes bag?  While some people are at peace with the position that they are, others simply get blinded by what their ‘role models’ have and do everything to pursue the same luxury lifestyle.  Studies show that especially lower class people get mixed up in a world which is ruled by materialism, pretending to be something that they are not just to acquire a certain status or respect.

Before continuing my blog I would like to categorize certain types of people:
– Luxury lovers, these are the people who can afford to live a luxury lifestyle.
– Following the herd, these are the people who have to use credit cards and loans to afford to follow their ‘role models’.
-Likers, these people like simply like the patterns/designs however never or rarely make a purchase.
-Fakers, these people like to purchase fake items while trying to convince others that it’s real.

The luxury lovers are used to purchasing luxury goods and some have been in this lifestyle for many years. They do it out of love for the brands and the products, their motivation is mostly indulgence.  Luxury lovers like to set the trend instead of following one, and therefore see it as a must to be dressed in the latest and finest Haut couture. This group also has the highest brand loyalty compared to any other group. Therefore are very valuable for the companies and get certain benefits in return for their loyalty.

The followers do not have the financial power to live the luxurious lifestyle that they dream of, however still try to pursue it by using credit cards and in some extreme forms even loans. They admire the lifestyle and therefore put themselves in danger by letting them being influenced by their friends and role models. It is of course understandable that they want to show that they can keep up with the rest, however some just go too far and get themselves into certain situations where they just can’t get out of.
The motivation for this group is ‘fitting in’.
Later in my blog I will elaborate on what the impact is for these people and the banks.

For the likers the products are just appealing, nothing more. They do not have the urge to buy luxury products and therefore mostly just go for window shopping while paying a visit to their favorite brand.
This group can be tempted to buy a luxury product however that is only on very rare occasions such as being promoted or other occasions in which they have a big accomplishment.
Their motivation for purchasing luxury goods is having a reward to complement their sense of accomplishment.

Fakers are all about status, however they haven’t got the financial power to buy the ‘real thing’ so they buy quality fakes. However this category we can also divide in 2 subcategories you have the people telling others that it’s real in the hope that people actually believe them and the people that just admit it. Both parties are very annoying, especially when you do have the real thing.
The people that just admit it also shares some similarities with the likers, since they only like that product but are not willing to pay full price for it.

The next subcategory is the people wearing fake things while telling others that it’s real. As a luxury lover myself I can easily spot the differences between the real and the fakes; however what mostly works is looking the person who owns the product.

This subcategory’s motivation is simply status, they like others to think that they are part of an elite group while the actual group does not want to be associated with this type of people in any way.

From this we can conclude that luxury products mostly impact only the lower class people and the followers, since they are the ones that want to have something they actually can’t afford.

I actually knew a person that had $700 Chanel sunglasses, but had to sleep on the floor, because he couldn’t afford a bed. Now this may be an extreme case, but not such a rare case. By asking around and doing some research about it I actually found out that this happens more often than I  thought.

Personally I think it is a bit sad that you can’t take care of yourself properly but do want to go outside looking like you are the king of the hill.

Not only do the brands themselves profit from this craze about luxury and designer products but also the banks.
Due to people spending big amounts of money on their credit cards without being able to pay them back within a month, they can earn high interest fees.
I assume that you and I just immediately pay off our spending because we don’t want to owe the bank everything. However for people that can’t afford to pay it back in one month this ‘shopping spree’ can result in some big financial problems, especially for the ones that buy luxury cars.

Coming back to what I said earlier about the banks and credit card companies, Credit card companies make a large portion of their money from interest and fees paid by cardholders. Which is quite logic, however the only people who get charged interest are those who let their balance revolve. So if you carry it from one month to the next you are getting assessed a finance charge each time. Of course credit card companies and banks love these cardholders because the people who have to pay interest due to insufficient balances help increase the credit card companies’ profits by large.

As mentioned earlier most people buy luxury goods by credit cards, and luxury doesn’t come cheap. This means that if you want to ‘be seen’ you have to buy a new item as often as possible preferably every week.

Because you must be out of your mind if you think we can be seen wearing the same thing twice!
This mindset drives people into more and more debt, into which they can’t pay it off anymore and some of them even have to declare themselves bankrupt, and the bank might have to take some assets from them to retrieve the money back.

All of this hassle for a luxury car, or any other luxury good. While writing this blog it made me think about all the things some people go through just to purchase the things they desire but actually can’t have.

This may seem like Luxury goods have a bad effect on society, and in some way it actually does.
It looks like the only people benefitting from the goods are the brands themselves. I still remember when I was 17 my grandmother always used to call me a walking Gucci billboard.  At first I didn’t understand what she meant but it is actually true, because the people that wear it promote the brand. It’s just free buzz that they are creating basically, by the people who wear it just setting a high price.

Whichever way you put it, luxury is only meant for the people who can afford it, those who can’t will only be victimized by the banks or by themselves.  But if you are really passionate about living a luxury lifestyle, as always hard work is the key to success.
However if you are not willing to do that, you can love as much as you want but luxury won’t love you back, so don’t try to flirt with her.

See you at the Rolex store.

Robin Smit
E-Marketing Support Officer