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The Crash Luxury Should Have Seen Coming

The Crash Luxury Should Have Seen Coming

I’m Umair Haque, and this is The Issue: an independent, nonpartisan, subscriber-supported publication. Our job is to give you the freshest, deepest, no-holds-barred insight about the issues that matter most.

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My lovely wife the doctor has a new hobby. After a long, grueling day of treating the ill, infirm, elderly, and a few babies, nothing helps her decompress like…she tried reading, knitting, and cooking, in that order…like reading the…financial news. It’s funny, cute, at least to me, the former corporate master of the universe, the guy who’s at home in the boardroom. And I get it. What could be more diametrically opposite to treating the ill than…the depredations of Wall St?

So there we were, relaxing in bed. And she said to me, gleefully: “Did you see this? Look at how the luxury industry’s crashed!”

Who, I asked, chuckling, could’ve possibly seen that coming? (And who knew my wife really wanted to be a hedge fund guy?!)

Forgive the sarcasm. Here’s a little bit of context.

"In an unexpected turn of events, luxury stocks took a nosedive, causing a shocking $32.3 billion (€30 billion) loss in the luxury industry. This dramatic fall has left investors questioning the future of luxury."

Now, you might not be particularly interested in luxury—who could blame you? But I highlight this as a capital-I issue because it’s a microcosm of…a lot of things. The economy. The way we think—or fail to think—about the economy. Society, even democracy, the future. What do I mean by all that? What do…luxury handbags and sunglasses and watches have to do with all that? Quite a lot, as it turns out.

Who could’ve possibly seen a Big Crash in luxury coming? Everyone paying attention. Unfortunately, that wasn’t the luxury industry itself, which is why all this came as a shock, sending shares tumbling, causing shockwaves. But none of this should have been a surprise in the least bit. Why not? Hello, people are struggling these days, and the global economy is, in the IMF’s words, “limping along”—good luck selling people drowning in debt globally more and more expensive stuff. And if you think food inflation’’s been bad, consider how much the price of, I don’t know, luxury handbags or sunglasses or jackets have risen. Does that approach make any sense? How long could this shell game have really gone on? 

"Between 2019 and 2022, luxury prices increased by as much as 25%, according to data from Edited, far outstripping the pace of inflation."

This was smack in the teeth of the biggest cost-of-living crisis in recent memory—when people’s incomes cratered. Make any sense to you? Who was thinking this through? 

Let’s think about the ways in which the world has suddenly, dramatically changed—some of the many macro trends we discuss so often.

  • The world’s going through a brutal cost of living crisis, with no real end in sight. It’s stretched people not just to but past the limit, real incomes falling for years, debt levels exploding.
  • The global economy’s set to stagnate in nominal terms into the horizon of forever, because we have no easy sources of “growth” left in the pipeline.
  • The mega-scale impacts of climate change are arriving, and with them comes a new era of much, much higher risk, which translates to higher costs and prices—think of the way that India banned rice exports, or insurers are pulling out of even rich but risky states like California.
  • Gen Z and young people…how can I put this…hate “brands.” They view them with contempt and scorn, preferring vintage stuff, anti-fashion, utilitarianism, meaning, and purpose. They don’t really just hate brands—they have a withering contempt for capitalism itself, which has left them numb and traumatized, but that’s a topic for another post.
  • Democracy’s imploding, and just 20% of the world is now democratic, and meanwhile, societies are foundering, riven, and embittered, as a new age of conflict explodes.
  • Living standards and progress have gone into reverse, after decades, if not centuries, of rises.

Given all that, would you have expected the luxury industry’s fortunes to continue to soar? The above is a portrait of a civilization in serious trouble. Economies stuck, societies pulling apart, people losing their optimism, trust, and confidence in one another and institutions and the future itself. It makes…almost no sense…right? That you’d expect people to continue to voraciously consume mega-expensive stuff they couldn’t afford to begin with in an age of sudden, dire trouble, destabilization, pessimism, gloom.

So what really happened here? Let’s zoom in a bit. The luxury industry, like so many others, and just commerce, but right down to politics, ignored macro trends. You can just think of them as the great historical forces shaping our world. Instead, it basically bet…that…the good times…would last forever.

And it made that bet in a particularly weird way. It banked its fortunes, basically, on ultra rich Asians. In particular, Chinese. Nobody much seemed to consider the possibility that China’s fortunes weren’t set to continue to rise—and yet that’s exactly what happened. China went into a tailspin, its property sector imploding—but the real story is more complex than that, and yet simpler. As China got richer, it didn’t get rich. The wealth wasn’t shared in any remotely sustainable or thoughtful way. A new class of super rich emerged, sure—but today, young Chinese call themselves the “lying flat generation,” as in, they’ve given up hope and gone numb (just like young Westerners.)

So there was the luxury industry, ignoring all this. That’s a little…crazy. At least to me. Let’s zoom back out. What are we really betting on, when we say that “this country’s getting richer, so we can sell mega-expensive stuff to it forever”—but ignore everything else? Think about it. What isn’t China? Or India, the luxury industry’s backup growth market? They’re both autocracies at this point—not democracies. So we’re basically betting on autocracy. I don’t mean that in a moral way, per se, “autocracy’s bad,” though of course, it’s not exactly wonderful. I mean it in a hard-nosed, pragmatic way. Autocracies aren’t exactly know for delivering lasting prosperity. They’re know for melting down into vicious spirals of stagnation and decline.

Bad, bad bet. That’s not my opinion, and it’s not my judgment. It’s history’s. The luxury industry paid the price in hard terms and real ones. It crashed. The model above—let’s sell mega-expensive stuff to people in autocracies, and pretend the world and the future and reality doesn’t matter very much—didn’t work out. Meanwhile, Westerners, tapped out, like Americans, deep in debt, can hardly deliver much in the way of growth. 

So what are the lessons here?

First lesson: pay attention to macro trends. Pay attention to macro trends. If you ignore them, you will get, as my wife’s new Wall St buddies say, “blown up.” That’s a guarantee. Nobody can fight history and win. And yet it’s hardly just the luxury industry that ignores macro trends. It’s a deep, worrying trend in itself, a kind of meta one. Think about, I don’t know, the Democrats and Joe Biden. They’re ignoring macro trends, too—economic stagnation, social instability, the attitudes of young people. They, too, are paying a steep price. So lesson number one, again: pay serious, close, deep attention to macro trends.

Second lesson? We’re all trapped in the pincers of a failing model of “growth.” The old model is already not working, which is why young people are rejecting it. It works like this, on a psychological level. I symbolically slay you by having more, more expensive, stuff. I rise up a ladder of status, and you’re beneath me. I gain power, esteem, respect. This might have been true in the post-war world—and in a sense, it was key to peace itself, because at least, hey, people weren’t actually killing each other—but in today’s world? Where living standards are falling? This model of me-symbolically-killing-you with more stuff isn’t going to work anymore. We see that young people are already prioritizing meaning, purpose, experience, selfhood over materiality and consumption, and that trend is going to continue, accelerating sharply, as people seek more meaning for every iota of money, attention, or sociality they spend.

That brings me to third lesson. The world really is changing, dramatically, sharply, and not for the better. And it’s up to us to find new paradigms and ways forward now, or else. What’s the luxury industry’s response to all this? Not much of one, really—because it didn’t see it coming, though it should have, its playing catch up, and there’s talk of focusing on “ultra high net worth customers.” LOL—what does that mean, selling…more…of the infamous million dollar handbag? That’s not really an industry—it’s more a cottage industry. Sure, luxury can go back to its roots, which began in Versailles, and sell a tiny number of would-be emperors baubles the price of kingdoms. There’s no shame in that, I suppose, but it’s hardly a modern industry—it’s regress. The luxury industry is going to have to figure out how to navigate this new landscape, age, world, of instability, chaos, despair, distrust, hostility, conflict—and to do that, it’s going to have to provide people not just mega-expensive stuff with Extra Big Labels, but meaning, purpose, fulfillment, grace, beauty, selfhood. 

And to do that? That’s a big, tough question. It requires taking all the above seriously. People—and the tremendous shockwave that’s echoing around the world, as well-being crashes and burns, as centuries of progress flatline and begin to reverse. Democracy, and its survival and point. Economies, and their point, beyond just making the world’s most awful people mega-rich. Societies, and their most crucial questions, of trust and bonds. The planet, and the the little issue of us killing it with overconsumption and underinvestment. See what I mean when I said this example is a microcosm of the Big Issues of this age? 

My lovely wife, when she reads the financial news, gets this look on her face. It’s scary, and funny. She starts to look like an American Psycho style Wall St guy. What’s luxury’s future, I ask her. She laughs, cruelly. And then she tells me to short the whole industry. I chuckle. There are easier ways to make a killing in the market, I remind her. But I get her point. I wouldn’t bet on anyone that’s wistfully wishing that macro trends, the future, history, and shouting let the good times roll, imagining that the party’s going on, while the house burns down. How many of us is that, though? The good times, my friends, aren’t rolling. The dice are. And in times like these—the only way to win that game is to change it.

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