A plummeting rupee, record-high inflation, and a tight leash on imports – all brought on by depleting foreign exchange reserves – have affected both demand and supply in Pakistan. This situation has only been worsened by incessant domestic political turmoil and inflationary pressures that stemmed from the Ukraine conflict.
In short, Pakistan is currently experiencing its worst economic crisis to date.
For perspective, inflation has surged to a decades-high level, and is tipped to increase further. This paired with the onset of Ramadan which also took food prices to higher levels.
The two sides
Despite these developments, Pakistan's urban centres continue to stock products that supposedly should have been in short supply.
This is because purchasing power within a certain income segment remains indefatigable – in fact, the only thing there seems to be a shortage of in the market, quite frankly, is US dollars and that too only in the formal open market.
Earlier this year, the Finance (Supplementary) Act, 2023 enacted further curbs on imported goods, empowering the Federal Board of Revenue (FBR) to impose an increased rate of 25 percent sales tax on the import of luxury items.
This included an assortment of 600 items, spanning water, confectionary, chocolates, cereals, coffee and more -- much of which is consumed daily especially in urban city centers.
Import of luxury items ST: FBR empowered to impose higher rate of 25pc
Commodities like Nespresso capsules and After Eight’s remain in high demand, remaining well-stocked at some supermarkets within the urban city centers, even as their prices have consistently risen.
Some are coming through official channels. Others are seeing a rise of backchannel suppliers.
If anything, the fresh set of curbs on imported luxury goods it seems has only given rise to backchannel smuggling, which was already rampant and kept the penchant for skittles and M&M’s well satiated, while restaurants continue to serve Wagyu beef and risotto.
On the other hand, there are reports of stampedes and chaos at various distribution points where officials have been handing out bags of wheat and other basic amenities, including reports of people passing away from exhaustion as they waited for a handout.
A different story emerges elsewhere.
In Pakistan’s urban centers, luxury shopping too, has not ceased.
Pakistan’s boutiques and designers are reporting robust sales all around, coming off a strong wedding season, followed by the seasonal switch to the lawn fabric and now amidst healthy pre-Eid sales.
Call it escapism, oblivion or business as usual, but this trend is not just relegated to Pakistan.
On the onslaught of the pandemic, the Swiss timepiece industry reported a sharp uptick in the sales of luxury watches. So much so that the secondary market for them thrived, pushing luxury watchmaker Rolex to begin authorising secondhand watches — a move seen as giving the Swiss company more oversight of its products and stir up the $20-billion market for secondhand luxury timepieces, as reported by Bloomberg.
Luxury watchmaker Rolex to begin certifying used watches as genuine
Hermes, the luxury French brand where a coveted Kelly bag retails for roughly 9,000 Euros, reported robust sales in China and the US, with annual recurring operating profitability reaching a record 40.5% in 2021.
Hermes beats forecasts on robust growth in China, U.S.
During the pandemic, cash-flush customers began purchasing luxury goods as a means of investment. This could possibly have also been a sign of rebelling against confinement, embracing impulse buying and jettisoning the notion of premeditated purchasing, but those investments it seems, have paid off.
Investment in Rolex, Patek watches exceeds S&P gains over five years: report
Earlier this month, Bloomberg reported that investments in luxury Swiss watches such as Patek and Rolex beat S&P gains over five years.
A study published by Kearney in 2022 titled ‘How the pandemic changed the luxury industry’ concluded: “Consumers in China and the United States spent the most on watches and jewelry, while Germans spent the most on clothing, shoes, and accessories. Perhaps surprisingly, while Chinese consumers spent the most in absolute terms, they spent the least on the experience and travel category, which ranked as the second-highest area of spending for both German and US consumers.”
This trend is likely to continue, globally.
Globally, as air travel became more expensive following the pandemic, here in Pakistan, consumers were slapped with an additional duty on airline tickets via amendments to the Finance Supplementary Bill.
This was one of the additional taxation measures as the government attempted to align itself with demands of the International Monetary Fund (IMF) in order to release much-needed funding that would help avert a default.
Till date, Pakistan is still waiting for the IMF deal and a release of funds.
How additional taxes on airline tickets will affect luxury air travel locally remains to be seen, with the onslaught of summer air travel just around the corner.
At the end of the day, for some, the chase for a high-value experience will probably not be ruffled too much.
Big taxation measures taken through money bill
The pandemic and recent import curbs have disrupted supply-chains to some extent, and also caused plant shutdowns. Job losses are becoming more common than before.
In Pakistan, however, luxury buying habits have mimicked global trends. While the industry may have felt a pinch, the individual chase for a quality product has remained intact in Pakistan.
But there’s a (higher) price to it, if one should choose to pay it.
Sell few, make more: luxury companies' strategy paying off amid economic downturn
The article does not necessarily reflect the opinion of Business Recorder or its owners
The writer is Life & Style Editor at Business Recorder
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