Luxury Fashion and Thrifting: Their effects on the Economy
- Varsha Reddy
- Nov 1, 2022
- 5 min read
In Economics, luxury goods are goods for which demand increases as a person’s income increases. They fall under the category of a Veblen good. These are goods that are demanded for their exclusivity and appeal as a status symbol. A Veblen good has an upward-sloping demand curve in contrast to the downward-sloping demand curve of a normal good. In short, luxury goods are not necessary but desirable.
The demand for luxury goods is usually constant, even when the economy may not be stable. This is evident by how the sales of luxury goods in China continued to rapidly rise during the global economic depression that started in 2008. According to Claudia D’Arpizio, a Bain & Company partner, “Despite significant macroeconomic challenges, including hyperinflation, slowing GDP growth, and the Russia-Ukraine conflict, the personal luxury goods market proved resilient once again.” Bain & Company’s recent study of the global luxury goods market also revealed that the “market reached €288 billion in value in 2021 and experienced a remarkable performance in the first quarter of 2022.” This means that the luxury goods market allows the super-rich to spend money even during worldwide economic downturns.
What is the economic impact of the luxury goods market? A study from the World Inequality Report revealed that in 2021, the richest 0.001% (51,500 adults) own 6.4% of global wealth. The poorest half of the population (2.6 billion adults) own just 2% of it. This continuous rise in income for the super-rich is what allows the luxury market to thrive. Luxury fashion is mainly aimed at the upper class and now increasingly the upper-middle class, as it provides expensive and high-quality products which flaunt elegance and sumptuousness. It is often associated with Haute couture (a model based on tailoring in which the designer is the guardian of the aesthetic tradition of the wealthiest classes) and is defined as a “creative industry.”
In time, this traditional and sartorial approach to fashion began evolving. In the 1920s, designer Coco Chanel completely revolutionised the traditional luxury goods market, making fashion more modern and practical, catering to the wealthier section of the working class.
A key concept that affects the consumption of luxury goods is brand heritage. For most consumers, luxury products have a long history and a tradition to respect, this conveys the message of something precious and refined. Luxury brands like Chanel and Dior have a long history in the fashion market and use this to communicate and market their products. Their success heavily relies upon their ability to build products based on their icons (Chanel’s pearls and Dior’s midi dresses).
This investment in the culture and spirit of a luxury firm’s heritage helps uphold the brand image. However, other luxury brands are now “rebranding” and are separating themselves from their past, as seen in Yves Saint Laurent’s radical name change to Saint Laurent. This rebranding process is highly popular amongst young and talented designers, meaning products are increasingly being catered to a younger and more modern crowd. This is evident by the latest report released by payment services company Klarna which stated, “Gen Zers (63%) and millennials (63%) purchased more luxury items than their elders (45% for Gen Xers and 25% for Baby Boomers) in the past 12 months.”
Despite criticisms of such spending, this consumption of luxury goods can also benefit the economy. Like all goods, the production of luxury goods starts from the acquisition of raw materials. When suppliers lose out on demand from other sectors during economic downturns, the luxury goods market allows them to remain a profitable business because of its constant supply of goods and thus constant demand for raw materials. During such economic downturns, most people are forced to spend only on necessities. However, the rich (who are the primary consumers of luxury goods) face no such constraints. Hence, the sustained demand from luxury goods manufacturers compared to normal goods manufacturers give suppliers a source of income while the markets for other goods may falter.
On the opposite side of the fashion spectrum is a concept known as thrifting. Thrifting is the purchase of second-hand clothing, and provides a great way of keeping garments in the market at the lowest environmental and social cost, whilst generating profit. Thrifting is part of the circular fashion industry, a regenerative system in which garments are circulated for as long as their maximum value is retained, and then returned safely to the biosphere when they are no longer of use. This is why thrifting is so important for the sustainable fashion economy.
The industrial revolution of the 19th century led to the development of new technologies including the sewing machine, the spinning jenny, and a system of standardised sizing. This allowed ready-made clothes to be manufactured in bulk at low costs and sold at cheap prices. As prices dropped (other than Haute Couture), consumption patterns changed. Lower prices meant clothes were considered more disposable, even for people with lower incomes. In response to this, clothing manufacturers began to produce more seasonal sets of clothes, creating the highly consumerist fast-fashion industry. Governments had to implement central waste management systems to deal with increasingly consumerist lifestyles. In the late 1800s, second-hand clothing stores began to appear in response to this problem. By the 1920s thrift stores were established businesses that continued to grow with rising immigrant populations, who were often employed in peddling and tailoring jobs. Non-profit thrift stores such as Salvation Army and Goodwill helped to destigmatize hygiene and racial concerns associated with second-hand clothing, helping thrifting to become a stable market in the American economy.
Thrifting reduces the number of new garments introduced into the economy and gives a garment a second life from its first owner. Hence, it aids in water preservation, chemical pollution, decreases landfill waste, and lowers carbon footprint. While thrifting has many clear benefits, the recent insertion of thrifting into the mainstream economy can limit choice and increase prices for lower-income people who were typically reliant on thrifting. While thrifting was initially catered as an affordable option for lower-income people, it is increasingly becoming popular among wealthier consumers as an alternative to buying from expensive sustainable clothing brands such as Reformation.
With the rising popularity of thrifting and as more consumers aim to live sustainably, luxury brands have decided to tap into the second-hand clothing market. This is a big step forward for the sustainable fashion economy. The most obvious example of this is when Kering, a luxury conglomerate which owns Gucci and Bottega Veneta, acquired a five percent stake in the Vestiaire collective, a luxury consignment retailer, in March of 2021. This deal created a powerful movement of luxury fashion resale. Alexander McQueen also launched a buy-back program with the Vestiaire collective. Luxury brands including Burberry, Stella McCartney and Doen have also partnered with The RealReal, a luxury resale marketplace, in an effort to move towards a circular fashion economy. Therefore, there is hope that moving forward these luxury brands will continue to value a more sustainable fashion economy over exclusivity.
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