• Premium consumer spending remains strong despite economic uncertainty, offering potential investment stability.
• Luxury brands demonstrate historical resilience and pricing power during economic downturns.
• Companies like Capri, Ralph Lauren, and Tapestry target this affluent consumer segment.
• Investing in premium consumer stocks may provide access to stable revenue and global wealth growth.

In a Shaky Economy, Are Luxury Brands a Sensible Bet?

Every time I open a newspaper, it seems the world is ending. Inflation is rampant, interest rates are climbing, and the average person is clutching their wallet so tightly their knuckles have turned white. And yet, some people seem to have missed the memo. While most of us are debating whether we can justify turning the heating on, a certain segment of society is still happily splashing out on five-star holidays and designer handbags.

It’s a strange paradox, isn’t it? This creates a fascinating, if slightly galling, situation for investors. While the companies catering to the masses are bracing for impact, those serving the very well-off might just sail through the storm. To me, it suggests that looking at where the money is, rather than where it isn't, could be a rather pragmatic strategy.

The Two-Speed Economy

I think we’re living in a two-speed economy. There’s the slow lane, where most of us are stuck, watching the price of milk and petrol with a growing sense of dread. Then there’s the fast lane. The recent figures from American Express tell this story perfectly. They reported record revenues, driven not by you and me, but by their premium cardholders who are spending as if the last few years simply never happened.

This isn't just a fluke. The wealthy are often insulated from the economic shocks that rattle everyone else. A jump in the cost of living is an inconvenience, not a crisis, when it represents a tiny fraction of your wealth. Their spending is less about necessity and more about desire, and desire, it turns out, is remarkably resilient. This creates a potential buffer for companies that have built their entire business model around catering to this very specific, and very flush, clientele.

The Curious Case of Paying More for More

There’s a peculiar logic in the world of luxury that defies common sense. For most products, if the price goes up, demand goes down. Simple. But for what economists call "Veblen goods", the opposite can be true. A higher price tag doesn't deter buyers, it attracts them. It screams exclusivity, quality, and status. A £5,000 handbag is desirable precisely because it costs £5,000.

This gives luxury brands an incredible power. While a supermarket has to fight tooth and nail over pennies, a high-end fashion house can often raise its prices and find its customers are even more eager to buy. It’s this pricing power that can help protect their profits when the cost of materials or transport goes up. It’s a different world, with different rules. It’s this kind of thinking that underpins a collection of stocks like the Premium Consumption, which groups together companies banking on the well-heeled.

A Healthy Dose of Scepticism

Now, before you get carried away, let’s be clear. Investing in luxury is not a guaranteed ticket to riches. These are still consumer stocks, and they carry risks. A deep and prolonged recession will eventually hit everyone, even the wealthiest among us, particularly if their own investment portfolios take a battering. Fashion is also notoriously fickle. What’s desirable today can be gathering dust in an outlet store tomorrow. Brands like Ralph Lauren, Capri Holdings, and Tapestry have built strong reputations, but they must constantly work to stay relevant. There’s no room for complacency. Any investor should weigh these potential rewards against the very real possibility that things could go south.

Deep Dive

Market & Opportunity

• American Express reported record revenue driven primarily by its premium cardholders, suggesting luxury consumption remains robust.
• Affluent shoppers often maintain luxury spending habits during economic downturns.
• The global expansion of wealth, particularly in emerging markets, creates long-term growth opportunities for established luxury brands.
• Luxury goods can act as "Veblen goods," where demand increases as prices rise due to status signaling.

Key Companies

• Capri Holdings Limited (CPRI): Operates a portfolio of luxury fashion brands including Michael Kors, Versace, and Jimmy Choo, targeting consumers who view fashion as a status symbol.
• Ralph Lauren Corp. (RL): Represents classic American luxury with global appeal, building brand loyalty among affluent consumers who value timeless style and quality craftsmanship.
• Tapestry, Inc. (TPR): Owns Coach, Kate Spade, and Stuart Weitzman, focusing on leather goods and accessories and expanding into international markets with growing luxury consumption.

Primary Risk Factors

• Severe economic recessions can eventually impact the spending of wealthy consumers.
• Changing consumer preferences and the rise of sustainable consumption trends could affect demand.
• Currency fluctuations present risks for companies with significant international revenue.
• Luxury stocks are classified as consumer discretionary and can be volatile during market stress.

Growth Catalysts

• Premium brands often maintain better profit margins due to their customers being less price-sensitive.
• Companies serving affluent consumers tend to have more predictable cash flows compared to mass-market retailers.
• Many established luxury companies pay regular dividends, providing a potential income stream.

Investment Access

• The Resilient Premium Consumer basket is available on Nemo.
• The platform is regulated by ADGM.
• Offers commission-free investing.
• Fractional shares are available starting from $1.
• All investments carry risk and you may lose money.