I was discussing with a customer in the luxury market what makes luxury "luxury." It's a discussion I always find fascinating as there is no hard definition for this huge economic sector.

If you don't mind me going down this rabbit hole, this is where it led us:

From afar, churning a mumbo-jumbo of keywords like refined opulence, exquisite quality, exclusive experiences, timeless elegance, or superior craftsmanship is easy. But this won't help you sort products or companies deciding when it's "real" luxury or not. It will tell you, at best, that product X seems more luxurious than Y.

One key factor, though, is exclusivity or scarcity, as luxury products tend to be challenging to obtain. The problem is that scarcity might not have anything to do with the time a company has to sink in manufacturing an exquisite product; it can be gamed and created artificially. Companies like Rolex, which mostly have premium products, push them into the luxury zone by severely limiting production and pumping demand.

If luxury involves scarcity, scarcity doesn't make luxury ever. And that's mostly where everyone I know in this market eventually gets.

But as we pushed more on this, I remembered a nugget of wisdom from ten years ago when I started to work with my first renowned customer in this market. One of the department bosses explained to me how their business differed from non-luxury ones for a simple reason: the more their customers got educated about their craft, the more they were ready to pay, up to practically no limit if the craft was demonstrably that exceptional. But without proper understanding, the risk was that the relation to the price was inverted, and customers would conflate high price with "luxury" (a terrible outcome as it would remove the competitive advantage of having honed many rare skills for a century or more for these prestigious companies).

All this ended up clicking back in my mind.

Premium is about benchmarkable technical excellence, while luxury is the cultural appreciation of a unique craft. Technical excellence can be subcontracted or bought, but craft excellence can only be grown.

And this last part is key as "growing" craft excellence depends on a cultural context, a "terroir." That's why French luxury is appropriately hyped as the country developed high-end crafts of so many types for centuries and then reinvented them again and again and again.

This finally points out two troubles for French luxury as I see it:

  1. The reinvention mode has stalled. It's still somehow there but not at the scale and what was still going on in the seventies or eighties with the momentum of a Pierre Cardin, Karl Lagerfeld, or Yves Saint-Laurent anymore (I keep it safe with non-negotiable fashion rockstars, but this is mostly true for other luxury verticals).
  2. China has become a fertile terroir. We can discuss how early it is to no end, but the momentum is certainly quite visible.

If these 1. and 2. look like a death loop for the Western luxury industry, it might get worse with a third point:

  1. The Chinese luxury market is grown in a strictly digital native market. When prominent Chinese luxury designers fully emerge, whether they are dealing with fashion, automotive, beauty products, or hospitality, they will have been embedded from day one in a market where talking, marketing, selling, and educating customers is mostly achieved online.

The global luxury market is estimated at US$354.80bn in 2023 with a projected steady annual growth ranging from 3 to 5% for the next five years. This year only, 14% of total revenue was already generated online.

This is shaping a clash for the ages.

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