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Emerging countries and the luxury sector.

The wealth effect is one of the causes of the recent impact that countries like China are having on the traditional luxury industry.

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When reading news regarding the luxury sector, there is a certain genuine excitement felt towards emerging countries, i.e. countries that were once called “developing” and whose economic level is situated between our “first world” and poor countries.

Certainly, one reason is that we are in a crisis, consumption has been restricted and, despite the “Veblen effect”, large companies in the luxury sector suffer one way or another. Thus, the emergence of new markets is always welcome and refreshing.

But there is an added reason, which is always explained in all the Economics faculties: the wealth effect. According to this phenomenon, a greater perception of wealth leads to greater consumer spending. That is, if consumers perceive (subjectively) that things are going better, income has increased, their country of residence is steadily getting richer or has ceased to be impoverished, they will be willing to spend more, even if it is a misperception.

Therefore, the relative economic improvement in countries striving to achieve the levels of more developed countries encourages a feeling of wealth among the population, and thus national spending increases significantly. In areas with a wealthier population, the incentive to strive mixes in with the inspirational desire for luxury.

The perfect example is China. Their economic results are much better than in Europe, which is why consumers in the Far East have become the target of so many marketing strategies launched by companies in the luxury sector. On top of this, they’re large and ever-increasing population intensifies the commitment from traditional European companies in the industry to deliver an effective marketing or advertising campaign in these emerging countries.

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