Depending on the type of luxury goods, they can contribute a large amount to the economy. For example, some of the biggest countries in the world have their economies supplemented by companies that specialise in luxury goods.
Today, we will be examining what type of luxury goods drive the economy, and we will establish whether or not they contribute a considerable amount to the economy. Some people have highlighted that luxury goods can contribute negatively to inflation. Establishing what causes inflation is a good start to understanding how the economy works. However, for many strong economies, luxury goods can attract highly wealthy individuals to spend money in their nation.
The world’s richest
A recent study has shown that Elon Musk is no longer the world’s richest man. Due to the price of Tesla stock declining and his multibillion-dollar takeover of Twitter, he has now been replaced by Bernard Arnault, the CEO of LVMH. LVMH controls dozens of some of the biggest luxury companies in the world. Some of these companies include:
- Christian Dior
- Marc Jacobs
- Tiffany & Co.
This might be a strong indicator that despite a bleak economic outlook and a cost of living crisis that i beginning to tighten its grip on many of the large economies across Europe, there is still a huge market for luxury goods. Arnault, the CEO of a company that primarily deals in luxury goods, has increased his net worth to an astonishing US$180 billion. Although Arnault has been criticised for potential tax evasion schemes, he has paid billions of dollars in tax. He has also contributed massively to the French economy.
Other luxury items
As long as there is a considerable market for luxury goods, there will be an underlying economy that provides jobs and helps fuel job creation. There is a counterargument, of course, that this money can be better spent, especially in the case of Arnault, who has a dizzying net worth that he couldn’t spend in 50 lifetimes. Studies have shown that the production of a luxury car adds more to a country’s GDP than a standard vehicle, due to the higher market value of a luxury vehicle.
The same applies to other luxury items, such as watches. Some of the top watchmakers in the world create items that sell for upwards of US$30 million. Rolex and Patek Philippe are the two biggest luxury watchmakers in the world, and overall, the luxury watchmaking industry provides a staggering 1.5 per cent of Switzerland’s GDP. This may sound like a small percentage, but the Swiss GDP is over US$800 billion per annum.
The bulk of the Swiss economy comes from manufacturing and pharmaceuticals. Although luxury watches make up a small percentage of this overall market, it adds glamour and mystique internationally. Many people won’t know Switzerland for its manufacturing or pharmaceutical industry. They will, however, be aware of its penchant for world-class watch design, as the premium watches are worn by some of the world’s most recognisable faces.
Some of the world’s biggest superyachts sell for over US$100 million. A company that manufactures these awesome contraptions only needs to sell one yacht to turn over a mega profit that year. Many luxury yacht providers will hold events where they advertise their products to the mega-rich in the hope of building one for them. Benetti is considered the premium luxury yacht maker in the world. They have won a multitude of prestigious awards and boast a turnover that is considered somewhere in the region of US$1 billion per year.
Luxury goods contribute a sizeable amount to some of the world’s biggest economies. It is important to note that global economic superpowers such as those we have mentioned have several huge corporations operating within their borders, causing them to turn over so much profit annually.
For example, the United States of America has a gigantic tech sector, with some of the biggest companies in the world operating out of the country. Luxury goods comprise a small section of their economy, but some of the world’s richest individuals will indulge in them.
Many economists consider luxury items a recession-proof industry because their focus is solely on customers who will not be hugely affected by any economic downturn. Therefore, the contribution to the economy doesn’t waiver, and some luxury companies continue to post impressive figures. This includes luxury watch sales increasing by 40 per cent in 2022.
While some high net-worth individuals have been accused of moving away from their homeland to pay less tax, their tax liability remains considerable, and as long as there is a market for luxury goods, they will contribute to the economy by purchasing them.
For more business reads, click here.