Luxury in Good Times and Bad

How luxury spending responds to booms and recessions, the "lipstick effect", and why the ultra-rich keep spending when others cut back.

Luxury sales rise and fall with the economy, but not evenly.

Booms

When stock markets and property prices rise, the wealth effect encourages spending on luxury goods.

Recessions

Aspirational buyers, who stretch to buy luxury, cut back first.
Ultra-rich buyers keep spending, since their wealth is large.
Brands focused on the very top often hold up better.

The lipstick effect

During downturns, people may cut big luxuries but still buy small treats, like premium lipstick or chocolates. This idea is called the lipstick effect, though evidence for it is mixed.

Recent cycle

Luxury boomed after 2020 as wealthy consumers spent savings.
In 2024, luxury sales slowed, especially in China, and several brands reported weaker results as aspirational buyers pulled back.

Why it matters

Luxury firms track wealth, stock markets and confidence closely, since these drive their sales.

The small treat

During a job-loss scare, a young professional skips a planned designer bag but buys an expensive perfume as a small indulgence.

Thinking luxury is recession-proof

Aspirational buyers cut back; only the very top is more resilient.

Key takeaways

Luxury spending rises with wealth and confidence.
Aspirational buyers cut back first in downturns.
The lipstick effect suggests small treats continue.
Luxury slowed in 2024, especially in China.