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Designer goods

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It may seem indulgent, but lots of people do it. And given the opportunity, lots more would do it. Despite the glum worldwide economy, buying luxury goods is on the rise. From Rolex watches to Ferrari cars and Armani suits to Cartier bracelets, it seems we can’t get enough of the good life.

Why buy a sturdy handbag for $200 when you can own an exclusive Hermès Birkin bag for a mere $15,000? Or how about trading in your comfortable walkers for some high-priced Jimmy Choo shoes? And instead of opening a chardonnay, why not pop a 1996 Dom Pérignon Rosé Gold, Methuselah for $49,000?

Forking out large sums of money for expensive goods may not seem logical. Indeed, it requires one to willfully suspend rational thinking. But we buy merchandise that is patently overpriced (or transcends “rational utility” in economic speak) as they are objects of desire.

Expensive goods have meaning beyond their function. They help us communicate to ourselves and others who we are. Desire, status and luxury have been explored for hundreds of years. As noted by academic, Paul Harrison, from Deakin Business School:

Probably one of the best known books about this topic was by sociologist and economist, Thorstein Veblen … Veblen suggested the act of buying expensive things was a means for people to communicate their social status to others. He suggested that the purchase of luxury goods, expensive houses, or attending exclusive soirees was a form of “wealth signaling”, or what others have called “peacocking”.

Veblen coined the term “conspicuous consumption” in his 1899 book, The Theory of the Leisure Class and Veblen goods are named after the American economist. In economics, Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases.

This, of course, contradicts the law of demand. With Veblen goods, consumers actually prefer more of a good as its price rises. For example, in the 1990s when fashion jeans became popular, some retailers found they could sell more when the price was raised.

Conversely, a luxury item becomes less desirable when it drops in price. Thus, you are unlikely to find a Veblen good for sale at your local department store. If Birkin bags were lowered in price, well-heeled buyers would cease purchasing them as they would no longer be an exclusive and expensive status symbol.

To again quote Paul Harrison:

Consumption does not occur in a vacuum. The things we buy, the things we do, the people we associate with, the places we live and the places we visit all possess meaning for us as human beings.

Luxury items are also known as “positional goods” because they signal that the owner has achieved a certain position or status within society to be able to afford them. The well-off flaunt their wealth through ostentatious spending while social climbers part with their hard-earned cash to impress others.

Conspicuous consumption has become deeply embedded in the fabric of capitalism around the world and Australia is no exception. It’s a none-too-discreet way of showing you’ve made it and to broadcast your success at getting ahead of the Joneses.

Australians are spending more than ever on luxury brands and, for some, the label is everything. A pair of $1,000 Louis Vuitton jeans, emblazoned with the company’s iconic monogram, is seen as a bargain. Of course, a pair of no-frills generic or store brand denims would do the job just as well.

Aussies have doubled down on luxury spending over recent years and more high-end retailers are flocking to our shores. Luxury brands operating Down Under see Australia as ripe for picking given our increasing taste for snobbier goods and other indulgences - a case of more money than sense?

The rise of the aspirational class and the hunger for high end products is palpable. We are in the grip of “luxury fever” and our hedonistic tendencies show no signs of abating. But as I have repeatedly opined in this blog, true happiness lies in rewarding relationships, not material wealth.

Over-the-top spending appears here to stay. Perhaps the devil does sell Prada!

Paul J. Thomas, CEO


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CEO Paul Thomas