The prices for these luxury goods are getting more expensive rather than cheaper, so why are these sales escalating? Population growth is one possibility as the greater the population, the greater the demand because there are more people to contribute. As well, the advertisement of these items on television and in films have played a major role in heightening sales as luxury goods companies have mined the celebrity-obsessed culture, and red-carpet events such as the Toronto Film Festival to create huge demand for products. Income is also a factor in the rising of expensive items as one can only buy these items based on their household income. If one makes a large amount of money they are more likely to spend more compared to the person makes less. This cycle is referred to as the income effect. Individuals personal tastes have grown more expensive and companies have realised that there are those who wish for a taste of the 'good life' and as a result have created lower-end or diffusion brands to appeal to the cash-strapped consumer. President and CEO of the Retail Council of Canada, Diane Brisebois, commented on this marketing invention. "They have recognized that there is this huge middle market that wants to experience that kind of luxury and sophistication, and want access at a different price point."
Demand Curve
Luxury Goods
A change in any factor affecting demand resulting in a change in quantity demanded (Q) results in a shift of the curve. If the quantity demanded is increased, the curve will shift to the RIGHT.
Other high-end companies such as Prada SpA, the Italian fashion company that built an empire out of its iconic black nylon knapsack, reported that fiscal first-half earnings rose 23 per cent. These fashionable items that Prada is producing are in such demand that at New York City's fashion week, Prada had trouble keeping its $5,500 (U.S.) black wool coats in stock. People are willing to spend the money to look and feel better about themselves, and as a result retail sales are projected to be 5 percent better this year than last. However, retail luxury brands have not been the only beneficiaries of this high market economy. Lamborghini SpA reported that its dramatic new Gallardo Spyder drop top would increase sales by 25 per cent next year. Lamborghini, which is controlled by Volkswagen AG's Audi division, is already sold out of the 700 to 800 Spyders the company expects to produce next year. This shows an excess of demand, and supply may not satisfy demand. This shortage could start an auction atmosphere, where the demand at this price is pushed up towards the equilibrium.
Supply and Demand
Luxury Goods
At the equilibrium, the quantity supplied meets the quantity demanded. A surplus means that there is an excess of supply, that is, the supply goes beyond the demand expectations. This would result in the lowering of prices to effectively sell the supply.
Although right now they are increasing at great rates, analysts agree that the very high end of the market will be the first to be hit if the economy suddenly takes a nosedive, since discretionary purchases are generally the first to go. This thought probably enters the mind of every company head each and every day, but until that day comes they will keep enjoying their continued success of the brilliant concept of supply and demand.