Luxury goods companies fall under the consumer discretionary sector because their products are non-essential items purchased mainly when consumers have extra disposable income. Unlike necessities such as food or utilities, luxury items, designer clothing, high-end watches, luxury cars, or premium accessories are considered indulgences that people buy for status, style, or personal pleasure rather than survival.

Consumer discretionary spending is highly sensitive to economic cycles. In times of economic growth, employment rises, and incomes increase, prompting consumers to spend more on luxury brands. Conversely, during recessions or financial uncertainty, spending on such items tends to decline sharply as people prioritise essential goods over premium products. This cyclical nature aligns luxury goods companies with other consumer discretionary businesses like travel, entertainment, and high-end restaurants.

These companies also rely heavily on consumer confidence, global wealth distribution, and lifestyle trends. Demand often grows in emerging markets as middle and upper classes expand, increasing the appeal of luxury goods. Additionally, many luxury brands use exclusivity, craftsmanship, and brand prestige to command higher prices, making them more dependent on affluent customer segments.

Because luxury goods are tied to economic prosperity rather than necessity, they naturally fit within the consumer discretionary category of the market.