Covid-19 reminded us that our time on earth is limited, fuelling a “you only live once” (YOLO) spirit among consumers. Discretionary spending has risen significantly above pre-pandemic levels: the richer the consumer, the higher the spend. The normal drivers of increased spending — essentially greater consumer “feel good” on the back of being richer — have ceased to matter, liquidity and “revenge spending” being enough to prompt higher outlays.

And today, it’s still wrong to infer luxury spending prospects from traditional drivers: stock market gyrations were not accurate predictors of American luxury spend growth last year; equally, softer macro-economic conditions won’t be useful in predicting pent up appetite for luxury goods among affluent Chinese consumers.

But consumers are sobering up from the post-pandemic euphoria and luxury spending growth will undoubtedly moderate and return to its cyclical pattern. This is already happening in the US, after a two and a half year resurgence in spending. Chinese consumers have begun to pick up the growth relay from the Americans, while other nationalities that abandoned Covid-19 restrictions later are still in “YOLO” mode: namely, the Japanese. Even Europeans seem more sanguine than Americans at present, but change is coming.

It’s not all bad news, however. The sky’s the limit for the high end of the market. Rising income and wealth inequality are boosting spending power at the top of the socio-economic pyramid. Ambitions and desires grow hand in hand with wealth. If a shorthand definition of luxury is “what one cannot afford,” there will always be something better and more exclusive up there, that people, no matter how high their census, will aspire to.

The modern luxury goods industry has become far sharper in the past 10 years in reconnecting with consumers at the top of the food chain through an array of limited editions, VIP facilities and events. The top 5 percent of clients drive more than 40 percent of sales at most brands.

At the same time, appetite for luxury goods is becoming universal. Everyone wants to be a star on social media and the way that luxury brands support our idealised images of ourselves fits the zeitgeist perfectly. As our societies increasingly emphasise the individual over the community, a broader audience wants to stand out from the rest. In response, luxury brands have developed their ranges in lower-price product categories: beauty, footwear, belts, ties, T-shirts, costume jewellery, eyewear, etcetera. The bottom 50 percent of customers now account for around 15 percent of sales at most brands.

Luxury’s top megabrands are getting better at addressing different consumer segments. As they harness product category extensions to penetrate a broader and broader middle class, category segregation allows them to maintain perceived exclusivity. Meanwhile, stretching product assortments upwards — through the higher average price points of their collections, limited editions, ad hoc collaborations and one-of-a-kind personalisation — is helping them capture top consumer segments.

Gone are the days when richer clients traded up to more nice high-end labels at the expense of the megabrands thanks to more clearly defined tiering in everything from product execution to customer service.

Luca Solca is head of luxury goods research at Bernstein.