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Gucci: is the luxury brand bubble about to burst?

Singer Billie Eilish decked out in Gucci. Credit: Getty

March 22, 2024 - 4:00pm

Trouble is brewing in the luxury brands market. This week Gucci’s parent company Kering announced that it expects a first quarter sales decline of 10%, almost all of which was driven by a 20% decline in Gucci sales. Markets are now debating whether the Gucci disease is specific to the company or if it will soon spread to other brands. The general thinking seems to be that if this is a trend, it is being driven by lower Chinese sales.

There is another possibility, however, and that is that the boom in luxury good sales over the past decade and a half is related to low interest rates. When interest rates are lowered, it is harder to get a return on savings. This drives investors into ever more exotic markets. Stock markets rise, housing markets boom, and as the pool of available assets at reasonable prices dries up investors look for alternatives.

Thanks to the Quantitative Easing (QE) programmes initiated by various central banks since the 2008 crisis, luxury goods markets have taken off like a rocket. Price movements among designer handbags, one of Gucci’s biggest markets, are not easy to track. But newspaper articles show that a Bottega Veneta tote bag could be bought for around $1800 in 2008. A similar bag is listed on its website today for $3100 — a price increase of 72%.

Luxury handbags are only one among many goods that saw their price skyrocket during the QE period. The price of classic cars has gone gangbusters in the past 15 years. Luxury watches such as Rolex and Patek Philippe grew in value by 27% between 2020 and 2022. If you talk to collectors of either product, they will tell you that buying these goods is as much an investment as anything else. In short, QE has turned the market for luxury consumer goods into an asset market not unlike stocks or bonds.

But now that interest rates have risen in the face of inflation, this appears to be reversing. Prices of luxury watches have been falling since 2022. Classic car enthusiasts are saying in hushed tones that the market might soon suffer a correction after years of robust price gains. And lo and behold: the resale value of luxury handbags is falling in lockstep. This seems like a much stronger explanation for the drop in Gucci sales than anything to do with China.

The financialisation of the market for luxury goods has not been good for the fashion industry. Even before QE, the quality of luxury fashion products had been falling. In the past these goods were sold based on their quality but, as the brands started to harden, they became increasingly able to sell just on recognition. This is a serious problem, as the fashion industry is inherently addicted to margins, which has pushed it to flog junk to consumers purely based on the name on the label. This in turn has given rise to the vulgar haute couture trends we see today.

“The margins on a ‘designer’ tracksuit and sneakers is much higher than, say, on a well-made suit or a pair of handmade leather shoes,” explains fashion blogger Marcus Jaye. “Nobody will complain if their $800 pair of sports shoes are made of plastic and glue but they will if their new snaffle loafers aren’t stitched and are instead glued.” Since the fashionistas set the trends as well as make the clothes, this means that consumers are herded like cattle into spending a fortune on clothes that look as if they were made for jogging rather than high society.

QE and the financialisation of the fashion market have turbocharged this trend. Now consumers will buy expensive luxury goods not simply based on the brand, but also on the future expected resale value. This has led to a cynicism setting into the market in line with what stock investors call the “greater fool theory”. “Sure, the products may be junk,” the cynical buyer might say. “But since everyone thinks they’re great, they will appreciate in the coming years.” This leads to an “emperor’s new clothes” dynamic where even the smarter players have an interest in maintaining the fiction.

What suffers, of course, is quality and aesthetics. People who are interested in nice, well-made clothes look on in horror as the latest monstrosity is barfed out by the big brands. These companies are supposed to be purveyors of style and taste, but have been turned into conveyor belts for silly-looking sneakers of questionable quality. Perhaps the bursting of the luxury brands bubble will force these companies to re-evaluate their business models. Then, we can return to nice clothes that actually look nice.


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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Ian Barton
Ian Barton
3 months ago

That’s a great sentiment, but I’m afraid the parasites of the fashion industry will always have a sufficient supply of customers to at least keep them afloat. They may run out of “greater fools” but the availability of “gullible fools” is endless.

Jim Hurley
Jim Hurley
3 months ago
Reply to  Ian Barton

Which makes them “wise”.

Champagne Socialist
Champagne Socialist
3 months ago
Reply to  Ian Barton

Trump worshippers thinking other people are gullible – that’s fantastic!!!

David Morley
David Morley
3 months ago

Hit him with your handbag.

Peter B
Peter B
3 months ago

The article could also usefully note the huge amounts of price fixing and anti-competitive practices of many luxury goods brands.
This morning I read of a case where two Americans are suing Chanel because they had operate a non-transparent assignment policy of high end handbags. Essentially, in order to get one of these things, you either need to have a track record of spending a certain [huge] amount on other less desirable items or be a celeb/influencer. The whole aim here is to create artificial shortages and manipulate prices so that the highest end stuff can be flipped at a large immediate profit.
Porsche in the UK have been doing exactly the same thing. And there is no guarantee that when you’ve spent the requisite [huge] amount on less desirable Porsches that you actually get allocated the GT3 that everyone’s clamouring for (apart from most of us, who don’t care at all).
It’s hard to believe such practices don’t break basic retail and competition laws in many countries.
I utterly despise these companies.

Richard Spira
Richard Spira
3 months ago
Reply to  Peter B

They are despicable. I understand Rolex operate a similar system with lesser models having to be purchased if you aspire to a Submariner or Daytona. Would-be purchasers try to curry favour with boutique staff by bringing them little gifts. Customers have been transformed into supplicants.

Jim Veenbaas
Jim Veenbaas
3 months ago
Reply to  Richard Spira

I don’t condone the actions of the retailer, but I have zero sympathy for the customer. If they want to indulge in a vanity project, let them pay through the nose

David Morley
David Morley
3 months ago
Reply to  Jim Veenbaas

I’d agree – if we could slap some sort of dumb luxury tax on these items and direct the money to something useful. Veblen goods make a great target for taxing – the more they cost as a result, the higher status they will have and the more they will be sought after.

Francisco Menezes
Francisco Menezes
3 months ago
Reply to  Jim Veenbaas

Obama had an 8 dollar Casio watch. Besides that, do you need a watch if you have an i-Phone? Men can sometimes behave even sillier than women.

David Morley
David Morley
3 months ago

Bill Gates wears a Casio Duro. Great watch btw but cheap. Lots of Casios now have cult status. And of course Obama and Gates have higher brand recognition than any watch.

Aidan Twomey
Aidan Twomey
3 months ago
Reply to  Peter B

2024, when I don’t know if GT3 is a car or an algorithm.

Peter Imeson
Peter Imeson
3 months ago
Reply to  Peter B

I don’t see how this breaks competition law. It is not price fixing as that involves firms agreeing prices between them which doesn’t seem to be the case. There is plenty of competition in these markets and new brands do enter. Can’t say I really care what price they charge and there is no real moral argument against them – we’re not talking about a valuable commodity or a life-saving necessity. The customers know what they’re getting and if they want to pay thousands of pounds for a shoddily made handbag, let them.

Peter B
Peter B
3 months ago
Reply to  Peter Imeson

It amounts to what is known in industry as “kitting” – we’ll only sell you this if you also buy these other things. That’s illegal under competition law in some countries.
They are putting goods up for public sale and then refusing to take the perfectly good money of some customers.
Yes, I have zero sympathy with the people who buy this stuff. But it doesn’t make the actions of the suppliers right.
The funny thing is almost all these things can be easily pirated and sold much mopre cheaply for essentially the same quality. Once again, we are up against abuse of intellectual property laws to protect de facto monopolies as infinitum. Intellectual property laws were originally introduced to encourage innovation. Not market manipulation.

David Morley
David Morley
3 months ago
Reply to  Peter B

Not half as much as I despise the people who are rich enough and stupid enough and status obsessed enough to be taken in.

Cathy Carron
Cathy Carron
3 months ago
Reply to  Peter B

Why anyone would want to buy a Chanel bag is beyond me – everyone seemingly has one – they just aren’t that special anymore. What seems to matter in fashion now more than anything is how you can style and present yourself regardless of the product. So few people can do it well which is evident just walking down the street.

Ian_S
Ian_S
3 months ago

Buying Gucci etc seems like a pretty dodgy investment in any case, not just at times interest rates are high. As the writer points out, it’s overpriced tacky pret-a-porter fashion for, as he says, the vulgar.

Cathy Carron
Cathy Carron
3 months ago
Reply to  Ian_S

With one exception – Gucci loafers are very comfy : )

tintin lechien
tintin lechien
3 months ago

Gucci, LV, even traditional tailoring brands are aiming for the street wear market, to their detriment. Most youths today can’t afford luxury brands because of their high prices, but these brands think (or badly advised) that the future lays in the youths! How many Zuckerberg (slouchy ugly ill fitting clothes) can they find who can afford a logo infested hoodie at $1000? So you end up with floods of counterfeits worn by people who are not your muses or models or targets. The whole exercise cheapens the brands and hurts sales. Let them wear dustbin liners!

Allison Barrows
Allison Barrows
3 months ago

I saw a Bentley EV the other day. It looked like a hearse for dwarves. Then I saw the driver and passenger. He looked like a mob boss and she looked like a pole dancer from the Bada Bing. Strikes me that status brands don’t confer the sort of image the buyers are seeking to convey.

David Morley
David Morley
3 months ago

We’ve all watched too many Edwardian dramas: refined, stylish, well dressed, good looking people in classic cars. Now when we see those gormless, brutal, peasant faces staring at us though an expensive windscreen it comes as a bit of a shock.

Cathy Carron
Cathy Carron
3 months ago

Just take a look at Jeff Bezos girlfriend. Ya can’t buy style or class, but then again I am guessing he couldn’t care less about what she’s wearing, as long as she isn’t wearing much.

Nick Wade
Nick Wade
3 months ago

I’ve always had a hankering for a particular Rolex, but the last few years have seen it go from something that I could aspire to treat myself to one day, to virtually unobtainable.

In order to buy a Rolex, you have to become a “preferred customer” by buying lesser Rolexes or other brands (Tudor) from the dealer. Having forged your relationship by reaching a certain “spend” the dealer will deign to put you on the waiting list for your watch.

The whole system is ludicrous, and has completely put me off the brand. Inevitably, it attracts the opposite of what you want to see with a great product. Sharks making a quick buck, and people with more money than taste, who don’t know what they’re buying, as questionable “ambassadors”.

No thanks, Rolex. Your watches aren’t that great.

David Morley
David Morley
3 months ago
Reply to  Nick Wade

I’ve always refused to buy fake Rolexes on the basis that someone might mistake them for the real thing! Far cheaper to just have tw-t tattooed on your wrist.

Nick Wade
Nick Wade
3 months ago
Reply to  David Morley

You highlight the problem with Rolexes. You’re judged for owning one. They’re actually fine pieces of craftsmanship and engineering, plus originally a British company. Nothing wrong with wanting that, except the brand has been taken over by the wrong crowd.

David Morley
David Morley
3 months ago
Reply to  Nick Wade

To be honest Rolex have made some nice watches in their time. The level of engineering isn’t that relevant to most people and is usually outperformed by a good quartz watch. And most men now gravitate towards the big divers watches simply because of high visibility and recognition.

The judgement about Rolex buyers is based on a kind of folk sociology or psychology, not on the quality of the watch. Rolex wearers come across as dopey show offs with no subtlety, originality or taste. It’s all hey look at me, I’m so flash. Sadly even brands like Patek P seem to be succumbing to this mentality. When morons have lots to spend then that’s the market that gets catered to.

Meantime there is a thriving budget watch culture based on cult, coolness, aesthetics, being in the know, and the love of a bargain.

Kasandra H
Kasandra H
3 months ago
Reply to  Nick Wade

@ Nick – Hmm my dad had a Rolex but don’t think he could take it to his grave when he passed away. The Rolex didn’t add anything to our family life too! He was too thin to wear the Rolex after his chemo treatment too. So Nick, you didn’t miss anything by not owning a Rolex. Being so working class, I only recognised the name- Rolex coz my dad wore one. Think Rolex wasn’t so hard to get in the past. Guess guys put a lot of emphasis on such things. Haha. Cheers. X

David Morley
David Morley
3 months ago

Thanks to the Quantitative Easing (QE) programmes initiated by various central banks since the 2008 crisis, luxury goods markets have taken off like a rocket.

Printing money so people who already have too much can spend it on tacky handbags for their lippy or vulgar overpriced divers watches. Surely there must have been an alternative. Good god.

David Morley
David Morley
3 months ago

People who are interested in nice, well-made clothes look on in horror

There are plenty of sources of nice things, good quality and not wildly expensive. The problem for a lot of people is that they can’t tell quality if they see it, so they use price and brand name as a substitute.

And as the people they are trying to impress are equally stupid they need a big fat brand logo on it as proof they wasted lots of dosh buying it.

Most of them then look like a complete dogs dinner in it. But that’s ok because the people they are trying to impress really can’t tell.

William Brand
William Brand
3 months ago

It’s the same thing as what happened to Boeing. The companies went for high profits and forgot that the reason that people pay high prices for the best is to get the best. They ruined their reputation for quality by going for the fools with more money than an eye for quality. These people want others to think them to be high status not to actually buy quality. Short term thinking leads to long term destruction. Companies forgot that their permanent customers were the ones that were paying for real quality.

William Brand
William Brand
3 months ago

Cheap counterfeit goods flooded the market. People who wanted to be seen chose counterfeits to increase their social status. Makers of the real thing lost those customers and reduced quality to match the counterfeits in price. They forgot that the reason their permanent customers paid high prices for real goods is a desire for quality not appearance. Note that collectible items are faddish and if the fad goes out a rare stamp is only a old piece of scrap paper. A $1000 Rolex watch does not keep time as well as a $10 battery watch. Show off items loose value as fads change.

David Morley
David Morley
3 months ago
Reply to  William Brand

They forgot that the reason their permanent customers paid high prices for real goods is a desire for quality not appearance.

It’s a desire for differentiation rather than quality. Secretaries may want to look like billionaires wives; but billionaires wives don’t want to look like secretaries.

And if items lack intrinsic quality, or their price is out of proportion to their intrinsic quality, fakes can be made which are as good as, even better than, the originals.

Kasandra H
Kasandra H
3 months ago

Don’t think most ordinary people buy Gucci but perhaps the spending’s good for the economy?? Not sure abt the last point though. X

Dylan Blackhurst
Dylan Blackhurst
3 months ago

I’ve wondered for a while when the realisation will hit people that a lot of things are massively overvalued.
Luxury fashion/streetwear is the most obvious example.
The collab scam is the funniest of all. Converse and Commes de Garçon is a good example.
It’s a pair of converse, for chrissake! You know, rubber and canvas and you want how much?!
It’s not just fashion.