↓ Skip to main content
NCW
  1. Investment/

Luxury Found the Ceiling on Veblen Goods

·1059 words·5 mins· loading · loading · ·
Status Signalling Spending Valuation
Neo W.
Author
Neo W.
Writing about things that intrigue me.
Table of Contents
For most goods, raising the price reduces demand. For luxury goods it can raise demand — that’s the Veblen effect, and brands have used it for a century. Then they found the edge of it, and the industry shed 50 million customers in two years.

The rule luxury operated under
#

Thorstein Veblen described the exception to ordinary supply and demand: for some goods, a higher price increases desirability, because the price itself signals rarity and quality. Conspicuous consumption requires the price to be visible and high.

That’s a genuinely useful property if you sell handbags. It means price increases can improve your positioning rather than damage it, which is why luxury has raised prices above inflation for decades without consequence.

The mistake was assuming the curve has no end.

What the price increases actually looked like
#

The flagship example: Chanel’s Medium 2.55 leather flap bag went from $5,800 in 2019 to $10,800 in 2025 — an 86% increase. Inflation over that period accounts for a small fraction of it.

Sector-wide, luxury prices rose about 61% in the US between 2019 and 2024, against pre-pandemic annual increases of 5–7% and general inflation near 2%. A Canada Goose parka went from $995 to $1,650, up 66%. Prada’s Galleria Saffiano rose 111%.

Crucially, nothing came with the increases. No innovation, no design leap, no improvement in materials. In several cases the opposite — quality complaints surfaced at top houses, including uneven and misaligned stitching and plastic-feeling finishes on pieces costing many thousands.

That’s the part that breaks the Veblen mechanism. The high price is supposed to signal quality. When buyers can see the quality falling while the price climbs, the signal stops working and the price becomes just a price.

The bill came due
#

Bain’s research puts the damage plainly: the luxury market lost roughly 50 million customers between 2022 and 2024, falling from around 400 million to 350 million.

Personal luxury goods — jewellery, watches, clothing, cosmetics — contracted for the first time in fifteen years, declining about 2% from a record $387 billion in 2023. Only about a third of the sector was still growing, and this happened in a world containing 58 million households earning over $1M.

The money didn’t vanish. It moved.

Where it went
#

Second-hand. The resale luxury market reached about $47 billion in 2023, up 4%, led by Gen Z. Japan’s Mercari did around $6.4B in GMV, roughly 70% from the US. Buyers who wanted the object stopped being willing to pay retail for it.

Quiet luxury. The Row — founded by Mary-Kate and Ashley Olsen in 2008 — built a following on quality, minimalism and no logos. Miu Miu, Prada’s sister brand, grew sales 105% and helped Prada Group post 18% growth in Q3 2024 while Gucci struggled.

Scarcity. Hermès earned over $12 billion in the first three quarters of 2024, up 14% year-on-year, by deliberately limiting supply. The Birkin isn’t sold to you on request; you build a purchase history first. It’s a game most people never win, and that structure is exactly why the brand outperformed while price-hikers bled.

Experiences. Private-island rentals at $50,000–$1M a night. Switzerland’s Glacier Express VIP train at $540 a ticket, consistently sold out. Bain’s own framing for 2024 was consumers prioritising experiences over products.

Luxury money behaves like matter and energy — it isn’t created or destroyed, it’s redirected. The wealthy didn’t get poorer. They stopped buying handbags.

Brand fatigue is the specific failure
#

The term was coined by Michael Kors at New York Fashion Week, and it describes what happens when a signal is over-transmitted.

Louis Vuitton’s monogram is the illustration: the same print running from the 1932 Noé bag through the Neverfull in 2007, pouches in 2013 and 2019, and an iPhone 16 Pro Max case in 2024. Ninety years of the same mark on progressively more products. Counterfeits made it worse — when the logo is everywhere including on fakes, wearing it stops communicating anything except that you might have a fake.

This is the same structural problem status symbols have always had. Purple in ancient Rome worked because most people couldn’t have it. The moment a signal is widely available, it stops signalling.

The transferable lesson
#

For a business: pricing power is real and it has a limit, and the limit sits where price stops being backed by anything a customer can verify. Raising prices without adding value works right up until enough customers check.

For a shopper: the market just demonstrated that retail luxury pricing was disconnected from what buyers thought they were paying for. Vintage, second-hand and small boutiques get you the quality; the logo was the part that got repriced 86%.

The COVID sequence is worth remembering as a warning about reading demand. Post-lockdown “revenge spending” — accumulated savings plus boredom — produced a 2021 surge. Brands read that as durable pricing power and raised prices to an unprecedented degree. It wasn’t durable. It was a backlog.

Summary — and what to do about it
#

Veblen goods have a ceiling. Luxury just mapped it.

  1. Treat a rising price with falling quality as the end of a brand’s signal, not the start of a better one.
  2. Buy second-hand for the object. A $47 billion market exists because the retail premium stopped being defensible.
  3. Look at scarcity models, not price models. Hermès grew 14% while price-hikers lost customers.
  4. Watch for brand fatigue as a business signal. A logo on a phone case is a brand monetising its own signal into the ground.
  5. Don’t mistake a demand backlog for pricing power. Revenge spending in 2021 was read as permission and it wasn’t.
  6. Notice where wealthy spending actually flows. Toward experiences and quiet brands, away from loud ones.

The industry spent a century proving the price could always go up. It took two years to find out what happens after it can’t.

Sources & further reading
#

Related

You're Not Behind — You're Using a Rigged Scorecard

·1055 words·5 mins· loading · loading
Cognitive Bias Spending Status Signalling
The feeling of being financially behind is mostly manufactured. It comes from comparing your complete finances against other people’s visible ones, on a scorecard that moves the moment you reach it. The people setting your benchmark are often financed # Looking wealthy is cheap and fast. A leased car, a designer bag on a payment plan, a holiday booked before it’s paid for — all of it is available to anyone with a decent credit limit and a tolerance for interest.

The $400 Bottle That Lasts Five Hours

·625 words·3 mins· loading · loading
Grooming Spending Status Signalling
Creed Aventus costs over $400, lasts about five hours, and projects a foot. It comes in a cardboard box with a plastic lid. It is also genuinely beautiful. All true at once, and only one of those is on the price tag. Price is not performance # The two things people assume move together are longevity and cost, and they mostly don’t. Clones sold at a tenth of Aventus money routinely last longer and project further. Not “close enough for the money” — further.

The Only Luxury Test Is Repetition

·591 words·3 mins· loading · loading
Spending Durability & Maintenance Status Signalling
The Only Luxury Test Is Repetition # The useful question about an expensive thing isn’t whether it impressed you when you bought it. It’s whether it’s still quietly improving something you do every single day, long after the excitement wore off. The frame # Our lives are mostly made of repeated moments. Getting ready. Leaving the house. Packing. Sitting down to eat.