Someone once told me that economic factors occur at the margin and rarely if ever have a lasting effect. I have found that to be true, other than the events associated with global catastrophes, such as the Global Financial Crisis of 2008 and the Covid-19 pandemic of 2020/21.
In those events one didn’t have to look hard to find economic and financial destruction; it was there for all to see. But the current downturn (if indeed it can even be described as such) is very much centred on a few countries such as the UK, and even there, because of Britain’s well-developed welfare state, identifying genuine economic and financial stress among consumers is not that easy. And if you are fortunate enough to have squirrelled away sufficient cash over the years, higher interest rates are a boon. The latest Brand Finance Luxury and Premium Goods ranking seems to endorse that view, with high-end luxury goods sales booming.
Luxury goods and premium-branded products are the ultimate discretionary purchase. They are entirely nonessential and they constitute the cream on top of the cake. Top-end luxury goods are, with the exception of cars, not really available on credit. If you have to ask the price of these goods, you cannot afford them.
Luxury goods are the preserve of the genuinely wealthy, the nouveaux riches and in many countries, the international money launderers, crooked politicians and gangsters who find it easy to legitimise their ill-gotten gains by buying (and selling) luxury goods.
Genuinely wealthy people, whose families have enjoyed wealthy lifestyles for generations, tend to go for the more understated luxury goods, such as old Patek Phillipe timepieces, John Lobb shoes, Morty Sills apparel and Hermes ties. The nouveaux riches prefer much flashier goods, such as Porsche or Bentley cars, TAG Heuer watches and Armani clothing, preferably with the label sticking out ostentatiously. And the crooks couldn’t care less as long as the money is laundered.
Destroyed watches
There is a good market in second-hand luxury goods as well. For example a second-hand Birkin bag by Hermes will easily set you back more than $30,000 (R537,000).
Second-hand watches are in big demand worldwide. And in a well-publicised move five years ago, Cartier and Montblanc owner Richemont deliberately destroyed more than $500m worth of watches to stop them ending up in discount stores.
Buying luxury goods imparts a good feeling in people by endorsing feelings of self-worth. It is all highly illusory of course but the illusion has become real and the more real it becomes, the more desperately people want it.
A case in point is Apple. Because of their high price tags, Apple products are often classified as luxury goods, even though they are no better technically than their highly commoditised peers from Samsung and Chinese manufacturers. Apple has managed to maintain an aura of superiority through clever marketing over the years that is not justified on the fundamentals.
In 2023, according to Brand Finance, Porsche was the clear leader, with a brand value of $36.7bn, followed in a distant second place by Louis Vuitton Moet Hennessy (LVMH) on $26.3bn. Chanel came in third on $19.4bn with the usual suspects of Gucci, Hermes, Dior, Cartier, Rolex, Tiffany and Ferrari completing the top ten.
Geographically, the old world of Europe still dominates luxury goods manufacturing, with almost 40% of the brand value emanating from France (including Chanel, LVMH, Dior, Hermes, Cartier and many others), 22% from Italy (including Gucci, Armani, Ferrari, Lamborghini, Maserati et al) and almost 14% from Germany (predominantly Porsche). The US comes in at number four on 8.6% of global brand value, with brands such as Tiffany, Coach, Estée Lauder, Tom Ford and La Mer. Switzerland, in fifth, comprises Rolex, Omega, TAG Heuer, Tissot & Longines.
And though intuitively one thinks of fragrances and fast cars as being the big areas of brand value in luxury goods, surprisingly it is apparel that accounts for more than 70% of brand value, with 21% in vehicles and only 8% in cosmetics and fragrances.
• Gilmour is an investment analyst.
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