What Is a Luxury Item?

Luxury Items Explained

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A luxury item is a good or service that is considered elite in a particular society. Luxury items can be goods like designer handbags or watches, or services like a chauffeur or golf club membership. Consumers tend to purchase more luxury items as their wealth increases. 

Demand for luxury items differs from that of normal or inferior goods. Unlike items that fulfill practical needs, the purchase of luxury items is considered an example of conspicuous consumption, or a means to gain social standing and prestige.

What’s considered a luxury item to one consumer may be a necessity to another. Defining luxury varies by time period, culture, and income. Learn what drives demand for luxury items, how they differ from normal and inferior goods, and how the concept of luxury has evolved over time.

Definition and Examples of Luxury Items

Luxury items are nonessentials that are typically high-quality and serve as status symbols. Luxury items are not universally defined and vary by time period, culture, and individual. An item deemed luxurious in one country may be commonplace in another. For example, a meal in one country may be eaten as part of a daily or weekly diet, while in another country it is seen as a delicacy. Similarly, a car could be considered a necessity to one person and a luxury to another depending on income level.

  • Alternate name: Luxury goods, superior goods

Quality and craftsmanship are also important. Artisanal items, like a handmade leather wallet, may be considered luxurious along with items bearing the logo of a designer whose items are not sold everywhere.

Over time, many products that were seen as luxury goods have become more accessible. In the early 20th century, running water was considered a luxury. So luxury goods do not remain constant and can change status as income, technology, and other factors change and progress.

Despite the ambiguity, it’s generally agreed upon that luxury items are high-quality, rare or not widely accessible, and require more resources to produce than non-luxury items.

Types of Luxury Items

Luxury items come in all shapes and sizes. Some people may consider a laptop a luxury item. Here are other goods and services that may be deemed as luxury items:

  • Accessories like watches and fine jewelry
  • Designer clothing and shoes
  • High-end cars
  • Yachts
  • Private jets
  • Country club memberships
  • Landscaping services
  • Expensive real estate
  • Spa services

In the 1990s, there was a federal excise tax on luxury items such as jewelry, fur, yachts, and planes. The tax rate was 10% of the price that exceeded a specific threshold. After just a few years, the tax was repealed.

How Luxury Items Work

Demand for luxury items tends to rise in tandem with a person’s wealth or income, meaning income elasticity is positive. Normal goods are elastic as well—as income rises, people spend more on necessities. However, the demand for luxury goods with respect to income is greater than the demand for normal goods.

As income rises, luxury goods are often more in demand, such as high-end appliances for your home. But in an economic recession, people tend to limit their spending, driving down demand for luxury items. Prices on luxury goods only tend to trend upward—markdowns on luxury items are often rare, even in times of economic crisis.

Among even the richest people purchasing luxury items, demand has been shown to increase along with price. The more expensive a product is, the more desirable it may become. Heightened demand for luxury items has been seen in societies where income inequality is highest.

Wealthy consumers are not the only ones to buy luxury items. A study by financial firm Deutsche Bank found that even low-income Americans spent around 40% of their income on luxury goods between 1984 and 2014. The other 60% was devoted to necessities.

Luxury Items vs. Inferior and Normal Goods

Inferior goods are the opposite of luxury goods. An inferior good is a good that consumers buy less of as their income increases. Demand for both luxury and normal goods increases as consumers gain wealth. But demand for inferior goods—like a less expensive brand of processed food—drops as a person acquires more wealth because they can afford better options. Because of this, inferior goods are said to have negative income elasticity.

Normal goods include necessities like food, clothing, and housing. Demand generally increases as income increases, but not to the extent of luxury goods.

Inferior and luxury goods are relative to income levels. For example, after a significant increase in income, a consumer may purchase a high-end car in lieu of the economy car they previously drove, turning the economy car into an inferior good.

Although what differentiates a luxury item from an inferior good is relative to a consumer’s income level, luxury items are generally thought of as higher quality.

Old vs. New Luxury

Luxury items can be categorized as old or new based on what consumers value. Old luxury is associated with long-standing brands that have a reputation for exclusivity, while new luxury may be associated with experiences over material goods and brands that speak to consumer identities. New luxury may also be regarded as a response to a shift from physical to digital products and reflects consumer desires for a more personalized experience.

For example, fur was traditionally a luxury good. But many consumers—particularly millennials and Gen Z—prioritize sustainability and seek cruelty-free, ethically produced goods. Luxury designers like Alexander McQueen and Balenciaga have even adapted fur-free policies because of this shift toward sustainability.

Veblen Goods

A Veblen good is a luxury item for which demand grows as price increases. Veblen goods go against the law of demand, which states consumers demand less of a good as its price increases. Rather, a Veblen good is desirable because it is expensive.

 Veblen goods relate to conspicuous consumption or the idea that luxury goods exceed their practical purpose to convey social status. To some consumers, price indicates prestige, and possessions like high-end cars and designer clothes serve as signifiers of wealth. The market for counterfeit luxury goods also stems from conspicuous consumption and the desire to project wealth.

Key Takeaways

  • Luxury items are goods or services that are considered elite in society. Consumers tend to purchase more luxury items as their wealth increases.
  • Luxury items vary by culture and income level.
  • Conspicuous consumption refers to a person’s motivation for purchasing luxury items.
  • Luxury items tend to become more desirable as the wealth gap widens.