Radhu Chadha and Paul Husband’s book The Cult of the Luxury Brand: Inside Asia s Love Affair With Luxury describes the rise of the luxury industry in Asia.
In the past 40 years, Asia has become the world’s largest market for personal luxury goods such as clothing and jewelry. According to Bain & Company s Fall-Winter 2016 Luxury Goods Worldwide Market Study, Asians bought more than half of all luxury goods in 2016:
Source: Bain & Company Fall-Winter 2016 Luxury Goods Worldwide Market Study
Chadha and Husband’s book examines the cultural and economic reasons for Western luxury brands’s popularity in Asia. For example, they argue that the conspicuous wearing of luxury clothing has become a way for Asians to define their position in society. This trend, they say, has been influenced by the significant social changes in Asia in the past half-century.
Moreover, they argue that Asian countries, particularly East Asian countries such as Japan, South Korea, and China, have collectivist cultures, as opposed to individualistic cultures such as those in the West. In their words, “collectivism believes that conforming to the norms set by your groups is the proper way to behave.” Chadha and Husband attribute luxury goods companies’ success in Asia to their ability to create the norm that everyone who aspires to values such as “class” and “sophistication” buys their products.
It is beyond the scope of this article to decide if such broad cultural analyses are correct. However, if they are, there are interesting implications for investment analysis. Chadha and Husband’s key model, based on their cultural analysis, is the “Spread of Luxury” model. According to the model, luxury good consumption in Asian nations passes through five stages based on the nations’ levels of development. If this is true, it opens up a way to project the growth of the luxury industry in Asia.
The “Spread of Luxury” Model
In their book, Chadha and Husband place Asian nations at various points on the…