Wharton’s Pinar Yildirim deciphers the changing consumer signals in the luxury market, the evolution of trends like “quiet luxury” and “conspicuous consumption,” and what it means for high-end brands. This episode is part of a series on “Holiday Retail.”


Why Consumers Keep Spending on Luxury Goods

Dan Loney: While retail overall is hitting some headwinds with an up-and-down economy, luxury retail is not. Sales appear to be strong, and companies are even doubling down on brick-and-mortar stores. What do you think is driving this want around luxury retail at the moment?

Pinar Yildirim: In my opinion, there’s no better way to understand individual psychology or consumer psychology than luxury goods. Luxury goods might seem like a superfluous way of spending your money, or money-burning, but it really gets to how we want to see ourselves and how we want others to see us. It’s really about signaling certain qualities or characteristics about ourselves to ourselves. At the same time, it’s signaling to others. It’s trying to consume goods in a way that makes us feel like we belong to a class, have some kind of status, and at the same time make it clear to others that we belong to a certain class. So, it’s a really meaningful way of trying to understand individuals and society through the consumption lens.

Loney: You and I have talked in the past of there being an aspirational element to luxury retail as well.

Yildirim: Absolutely. This is nothing new. For centuries, we wanted to signal certain things about ourselves or the desire to belong to a certain class. Whether this is an elite class, whether this is an aristocratic class, people always wanted to signal certain things about themselves. In the past, this was achieved mostly through materialistic consumption, because that’s what the elite had. They had the resources. They had the money. It has been observed that the elite actually do spend their money and their resources, in terms of time, in a very leisurely way to be able to signal certain things about themselves. And they do it in a way that is very hard for others to replicate or very costly for others to replicate.

Now, that used to be the way of living. But with the changes in society and the changes in economics, we see now that consumers are no longer relying on very highly materialistic ways of trying to signal their qualities. They are moving on to other dimensions.

Loney: How does e-commerce play into the future of luxury retail?

Yildirim: I would say that e-commerce has not been as significant in the luxury markets compared to some of the other goods. The experience, feeling good, feeling part of a certain class, and signaling that to yourself is a very important part of luxury. The experience when you walk into a luxury store has always been a part of luxury consumption, perhaps a bigger part than when you go into a grocery store or when you’re shopping for, let’s say, books.

In that sense, e-commerce has been a less important part of luxury consumption. But we are now starting to see more and more luxury brands try to integrate at least some elements of sales, some elements of experiences, into e-commerce and even into some of the new technologies, some of the new environments, including the metaverse.

Counterfeit Goods and the Evolution of “Conspicuous Consumption”

Loney: How do counterfeit goods impact the luxury retail industry?

Yildirim: The consumption of luxury goods has to be created in a way that it’s hard to replicate by others. By the very definition, if I want to show that I have the wealth or the status to be able to obtain certain goods, it must be hard for others to be able to buy that. Counterfeits have been a growing problem in the sense that today’s counterfeits are much better, much higher quality, almost identical to the real thing. The triple-A fakes are very much comparable to the real product. As a result, it becomes much harder for people to signal the status of their ownership of certain brands when there are really high-quality counterfeits in a market. So, it puts pressure on brands. It makes it harder for individuals to be able to consume the goods in a way that are meaningful to them.

What does that imply? That means that people are now going to look for different ways to try to signal their status. They will look for different ways of consuming goods. And one of the ways, perhaps surprisingly, is moving away from consumption or trying to reduce the amount of consumption compared to what we might have observed in the older days. In the past, again, the idea of signaling conspicuous consumption is all about money-burning. This is all about buying items that are very hard for others to buy and lavishly consuming those items. This is a maximalist-type consumption.

What we have been seeing more and more, in especially Western societies, is a move away from that very lavish consumption. People still do buy luxury goods, but they are trying to reduce the number of items in a meaningful way, and still a conspicuous way. It’s not that they are not trying to show that they are buying luxury. It’s still very conspicuous. It’s still very much a signal of belonging to a certain class. But it’s a very opposite, very different trend than what we used to see. It’s much fewer items. Sometimes that goes along with buying even higher qualities or more expensive items. And with this idea of refraining from or reducing consumption, you are very much doing the same thing that you were trying to do before — show that you belong to a certain class and have certain standards.

Loney: For the retailer, by limiting the number of items they may have on a particular run of a product, they obviously add to the value of it.

Yildirim: Yes. For the retailers, for luxury managers, these new trends will have implications. They might want to focus more on reducing assortment. At the same time, they may change the price of the products in a way that facilitates status signaling for people.

We expect to see changes in prices as well as the assortment. But that being said, this trend also gives a few different ideas for luxury goods producers. In a sense, counterfeits and their damage has mostly been focused on how we should stop counterfeit users from using counterfeits. And on how we should, just like playing a game, chase every single counterfeiter.

Now, what we see based on our research is that the damage of counterfeiters goes beyond just those individuals who switch to counterfeit use. The behaviors, the habits, the consumption patterns of consumers who purely consume luxury goods is also changing. If that’s the case, a luxury manager has to think even beyond the consumers who consume a counterfeit. They need to think about how those who never consume counterfeits are changing their behaviors, and their signaling, and their consumption patterns as well.

Loney: How much do luxury retailers also have to be wary of the brand itself? Because the brand has an innate value. Counterfeits can have a negative impact on the brand as well, correct?

Yildirim: Absolutely, yes. When there’s a counterfeiter in the market, and when that counterfeiter is simply replicating your product to a very, very high-quality degree and produces an identical product, it potentially reduces the value of your brand because it reduces the ability of people who buy the real thing to show that they belong to a certain class or have certain status.

Minimalism and Quiet Luxury Are Growing Trends

Loney: What areas should luxury retail focus on as we move forward?

Yildirim: I think minimalism is a big growing trend. It seems like this becomes a more meaningful consumption, from the lens of consumers. They seem to want to consume perhaps fewer items in a more meaningful way, more conscious way. This also goes along with the trends of sustainability or becoming anti-consumerism. That’s one of the trends. And we see brands paying attention to these new trends.

We have, as a society, moved away from trying to signal values, or trying to attain social status and social mobility, through materialism. We have moved away from becoming this very production, manufacturing-oriented culture to a much more services economy-oriented society. With that came different values of signaling, different status groups, different signals. For instance, having education, having a better job, being able to live a different life. Because material goods are now much more accessible to a broader set of people.

So, people are paying attention to signaling their cultural capital. They are paying attention to showing that they know certain things. They are much more knowledgeable about the quality of goods. That sometimes turns into what’s referred to as “quiet luxury.” That means that a brand with a big logo is perhaps less preferable to those consumers, because I want to signal that I know something. And I may want to speak to the few individuals who know the same thing.

The logos are smaller and the brand names are much less visible. That’s another trend. An industry executive told me that this is a very important way that people tend to signal to themselves the quality and their own values. For example, this person mentioned that women who are going through their careers and achieve that first big job typically will buy a handbag that has the big, visible logo. But as they move further in their career and they become more and more successful, at some point when they get to that milestone achievement, they will go and buy a follow-up handbag that is much more of a quiet luxury, that will be much less visible. Because the type of people that they may want to signal that they’ve achieved something is a different group than when they started out. Or they have a desire to signal certain achievements to themselves. So, this idea of quiet luxury and how consumers move, how they change their patterns of consumption throughout their consumer life cycle, is also very interesting and an important pattern for managers to understand.

Loney: It also changes the marketing.

Yildirim: Absolutely. If you think of this as segmentation, you may want to focus on different consumer segments. The consumer who’s looking for quiet luxury or the consumer who’s after minimalism is going to be a different consumer in terms of their luxury consumption life cycle. They will be at a different place compared to someone who’s looking for the big logo item or the more easily visible, conspicuous items.

One other important trend is, again, the move away from materialism or consumption of material goods. We are seeking experiences. People are thinking that experiences are scarce, and they are more valuable in terms of consumption value. With that, we also see many luxury brands turn to experiences. Some luxury brands are opening restaurants. Some luxury brands are focusing on curating holidays or experiences for individuals. That is also in line with what people are looking for, or how they are looking to perhaps signal their social status or social mobility. That’s another big trend that we are observing in luxury markets.

Loney: It seems like the growth around luxury retail, especially in the last few years, is going to be with us for a while.

Yildirim: Absolutely. As I mentioned earlier, I don’t think that there are that many products that speak to human psychology, consumer psychology, or the psychology of an entire society as luxury goods. Luxury goods really tell us something about how we try to separate ourselves from others, get ahead in life, try to increase our social mobility. It’s really about trying to create opportunities for ourselves, in terms of economic benefits or social status benefits. In that sense, I don’t expect much to change.

The way that we try to signal our status, or signal how we are different from others, may change over time. We may be focusing more on material goods, in some cases. In another case, experiences. In another case, perhaps we focus more on signaling our cultural capital. We want to show that we know something that others do not know.

We may change the channel or the format through which we show things about ourselves. But these are all speaking to the same psychology of, again, trying to signal status. And there will be price tags attached to it. So, there is going to be an industry and there is going to be an industrial reaction. Luxury goods are not going away. As we have bigger, growing middle class in developing countries, the need for luxury goods will continue to grow. And we’ll continue to see signaling, in one way or another.

Loney: We talk a lot about this in the scope of the United States. But you just opened the door to the larger discussion of how this aspirational mindset plays out in other countries. Is it similar to what we see here in the United States?

Yildirim: There are some parallels and some differences. We have seen a number of countries, especially in Asia, grow dramatically in luxury consumption. This, again, has something to do with the growing middle class, where people want to show that they are different than others or show that they belong to a certain class. I think these elements — this human psychology or the potential benefits of why you might want to engage in luxury consumption — are similar. But I think some of the new markets or growing markets are still going through this phase of maximalism, as opposed to minimalism. They will probably move towards minimalism as these countries continue to move away from manufacturing to services or some of the other hard-to-achieve qualities that may relate to education and having certain careers. So, we will probably see these changes in these countries, in these markets, as well.