Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Luxury Goods Market
Transcript
- Luna: Lucas, I was looking at the latest luxury goods data, and it struck me how much of the growth is coming from countries with the lowest birth rates. Lucas: That's not a coincidence. Bain & Company's latest report on personal luxury goods showed the market hit roughly 400 billion euros in 2025. And the compound annual growth rate since 2019 has been about 6 percent. That's well above GDP growth in most developed economies. Luna: So while populations age and birth rates fall, luxury spending is booming. What's the link? Lucas: The simplest explanation is a reallocation of discretionary income. When households have fewer children, they have more money per adult to spend on themselves. And in affluent households, that often means trading up on personal goods — watches, handbags, fine jewelry. It's not just about having more disposable income; it's about the absence of child-related expenses. Luna: Right. No school fees, no piano lessons, no college savings funds. That frees up a lot of cash. Lucas: Exactly. And the effect is most pronounced in countries like Japan, South Korea, and Italy — all of which have total fertility rates well below 1.5. In Japan, the luxury market grew by about 8 percent in 2025, even as the overall economy barely expanded. South Korea's luxury market has been on a tear for years, driven by what economists call 'the childless affluence effect.' Luna: I remember reading that South Korea's luxury spending per capita now exceeds that of France. That's remarkable for a country with one of the lowest birth rates in the world. Lucas: It's a direct trade-off. Fewer children means more spending on status goods, travel, and experiences. And luxury brands are acutely aware of this. LVMH, for instance, has been expanding its presence in Seoul and Tokyo, opening flagship stores that cater to this demographic. Hermès reported record sales in Asia last year, excluding China. Luna: Let's talk about China specifically. Its birth rate has fallen sharply, but the luxury market there has been volatile recently. How does that fit? Lucas: China is a more complicated story because the luxury market there is still heavily influenced by government policy and consumer sentiment. But the long-term demographic trend points in the same direction. China's fertility rate is now around 1.2, and the number of children under 15 is shrinking. Over time, that should boost per capita luxury spending among the urban affluent. Luna: But isn't there a risk that an aging population eventually reduces overall consumption? Older people spend less on fashion and more on healthcare. Lucas: That's a valid concern, but luxury goods have a specific demographic sweet spot. The core luxury consumer is typically between 35 and 55, with high disposable income. In aging societies, that age group is actually growing as a share of the population in many countries. Plus, older affluent consumers tend to have higher spending power and are less price-sensitive. They're trading up, not trading down. Luna: So the luxury industry is effectively benefiting from the same demographic trends that are hurting mass-market consumer goods. Fewer babies, more handbags. Lucas: That's one way to put it. And the data backs it up. Look at the children's apparel market in Japan, which has been declining for over a decade. Meanwhile, luxury footwear and accessories have seen consistent growth. The same pattern holds in Italy. The disconnect is stark. Luna: Are luxury brands themselves adjusting their strategies based on birth rates? Lucas: Absolutely. Some are explicitly targeting the 'childless affluent' segment. For example, certain watchmakers have shifted their marketing from family-oriented imagery to solo travel and personal achievement. And there's a growing focus on 'experiential luxury' — things like high-end tours, private dining, and luxury cruises — which appeal to childless couples and singles. Luna: That makes sense. If you don't have kids, you have more freedom to travel and indulge. Lucas: And the data from the luxury travel sector supports that. Luxury travel spending has been growing at nearly double the rate of mass-market travel in countries with low birth rates. The typical luxury traveler is older, wealthier, and less likely to have children at home. Companies like Four Seasons and Aman Resorts are capitalizing on this. Luna: But what about the broader economic implications? If more spending is concentrated on luxury goods, does that exacerbate inequality? Lucas: It can. The benefits of the 'childless affluence' effect are largely concentrated among higher-income households. Lower-income households still face financial pressure, and they're more likely to have larger families. So you get a divergence: wealthy, childless households driving luxury consumption, while lower-income households with children struggle with rising costs. That's a theme we've touched on in previous episodes. Luna: It feels like a self-reinforcing cycle. Lower birth rates among the affluent lead to more luxury spending, which further widens the gap. Lucas: Potentially, yes. And it's not just about income. It's also about wealth. Older, wealthier households without children are more likely to invest in assets that appreciate — art, collectibles, real estate. That further concentrates wealth. Luna: So the luxury goods market becomes a kind of bellwether for demographic change. When you see luxury sales rising in a country, you might infer that birth rates are falling. Lucas: It's not a perfect proxy, but there's a correlation. And it's one that investors are starting to pay attention to. Some hedge funds now incorporate demographic data into their consumer stock picks. They know that a shrinking child population is bad for diaper makers but good for luxury conglomerates. Luna: Speaking of investors, we should note that this isn't just a short-term trend. The demographic shifts are baked in for decades. Lucas: Exactly. The UN projects that Japan's population will decline by another 20 million by 2050. Even if birth rates stabilize, the number of children will keep falling. That means the luxury tailwind could persist for a long time. But there's a limit — if the population shrinks too much, even luxury demand could eventually plateau. Luna: Which countries are most exposed to that risk? Lucas: Japan and South Korea are at the front of the line. Their populations are aging rapidly, and the working-age population is shrinking. Luxury brands there will eventually face a smaller customer base, even if spending per customer rises. That's why many are diversifying into emerging markets where birth rates are still higher, like India and parts of Southeast Asia. Luna: But in those markets, the luxury consumer is still a small elite. The mass market isn't there yet. Lucas: True, but the growth rates are impressive. India's luxury market grew by about 15 percent in 2025, albeit from a low base. And its birth rate is still above replacement level in some regions. So you have a dual strategy: milk the aging markets for high per-capita spending, and invest in the young markets for volume growth. Luna: It's fascinating how demographics drive such different strategies even within the same industry. Lucas: And it's not just luxury goods. We've seen similar dynamics in the automotive industry, where luxury car sales have held up better than mass-market models in countries with falling birth rates. The same goes for high-end real estate. Luna: So the overarching theme is that falling birth rates reshape consumption patterns from necessities to indulgences. Lucas: Right. And that has implications for everything from retail to investment. If you're an investor, you might want to think about which sectors benefit from 'childless affluence' and which are hurt by it. Luna: One thing I've been thinking about: we've talked a lot about the economics of this, but there's also a cultural dimension. In countries like South Korea, there's almost a social pressure to spend on luxury goods as a marker of success, especially if you don't have kids to show off. Lucas: That's a good point. Luxury consumption can become a substitute for traditional markers of adulthood, like marriage and parenthood. In a society where fewer people are having children, luxury goods become a way to signal status and achievement. It's part of a broader cultural shift. Luna: And brands definitely play into that. The marketing often emphasizes self-fulfillment, personal success, and independence rather than family. Lucas: Exactly. The narrative has shifted from 'buy this for your family' to 'buy this for yourself.' And that aligns perfectly with the demographic reality. Luna: Before we wrap up, I want to touch on something that's been on my mind. We do these episodes ad-free, and I think that's part of why we can explore nuanced angles like this without having to cater to sponsors. Lucas: Absolutely. We deliberately don't run ads on these shows. It means we can follow the data wherever it leads, without worrying about upsetting a toothpaste or diaper company. Luna: If you find value in that approach and want to support it, there's a simple way. You can go to buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. It helps us keep doing what we do. Lucas: And now, back to the demographics. We've talked about the luxury market, but there's another sector that's quietly being reshaped by falling birth rates: the pet industry. Luna: Oh, that's a good one. We did an episode on pet food a while back, but I think there's more to say about how pets are becoming 'furry children' for childless households. Lucas: Exactly. And that's a topic for another episode. But to close today, let's leave with a question: If luxury goods are thriving on falling birth rates, what happens when the childless generation itself ages out of luxury consumption? That's a demographic cliff we haven't fully grappled with. Luna: Something to explore next time. Thanks, Lucas. Lucas: Thanks, Luna.