South Koreans are the world's biggest spenders on luxury goods

Handbags displayed in a Chanel SA store window at the Avenuel department store, operated by Lotte Shopping Co Ltd., in Seoul, South Korea, on Tuesday, Dec. 14, 2021.

Whether it's calf-leather Italian Prada bags or classic, checkered British Burberry trench coats, South Koreans are the world's biggest spenders on personal luxury goods per capita, Morgan Stanley said.

The investment bank estimated South Korean total spending on personal luxury goods grew 24% in 2022 to $16.8 billion, or about $325 per capita. That's far more than the $55 and $280 per capita spent by Chinese and American nationals, respectively, according to Morgan Stanley estimates.

While Prada said China lockdowns contributed to a 7% decline in 2022 retail performance, the fashion house said the drop was "mitigated by the strong performance in Korea and South East Asia."

Morgan Stanley analysts explained the demand for luxury goods among South Korean buyers is driven both by an increase in purchasing power as well as a desire to outwardly exhibit social standing.

"Appearance and financial success can resonate more with consumers in South Korea than in most other countries," analysts wrote in the report.

People attending a Gucci 'pop-up store' event in the Gangnam area of Seoul in September 4, 2015

Displays of wealth are also more socially acceptable in Korean society. A McKinsey survey found that only 22% of Korean respondents consider showing off luxury goods to be in bad taste, compared with 45% of Japanese and 38% of Chinese.

The investment bank also noted luxury houses have tapped Korean icons to further catalyze demand.

"Nearly all of the major Korean celebrities are brand ambassadors of the leading luxury houses," the report noted, like Fendi and actor Lee Min-Ho or Chanel and rapper G-Dragon.

Tiffany & Co. made Blackpink singer Rose the face of its HardWear collection, which was very well-received and doubled sales for the line.

However, Bain & Company cautioned against the use of per capita metrics for luxury good consumption.

"Luxury by definition is not a mass market product," Bain & Co partner Weiwei Xing told CNBC.

"I would suggest to prorate the total luxury spending by number of population that's middle class and above, which would be a more meaningful measure to reflect attitude and consumption towards luxury," Xing said, adding that would narrow the gap.

A customer carries a Chanel SA shopping bag in Seoul, South Korea, on Tuesday, Dec. 14, 2021.

Still, Morgan Stanley said the thriving Korean luxury market is a "good preview" of what the Chinese luxury market could become, which it said remains "underpenetrated." The analysts said the two countries share similarities in disposition toward luxury items as status markers.

Presently, South Korean annual per capita spend on luxury goods remains more than six times higher than that of Chinese spenders.

Globally, McKinsey projected the luxury market to grow between 5% and 10% in 2023, buoyed by demand from the U.S. and China.

"We expect growth to resume after China recovers from the current Covid waves, which should happen by the first quarter," Xing said.