On Monday, we looked at the rise of the global consumer.
Yesterday, we traveled to Latin America, where I shared why one of my favorite under-the-radar companies, PriceSmart (PSMT), continues to benefit from a growing middle class across the region.
Today, we’re flying across the Atlantic.
Because while millions of consumers are moving into the middle class, there’s another group of consumers that investors should never overlook.
The wealthy.
Every time the economy slows, headlines predict the same thing.
Luxury spending is finished.
Consumers are pulling back.
The good times are over.
Earlier this year Saks Global – the owner of Saks Fifth Avenue and Nieman Marcus – filed for Chapter 11 bankruptcy.
But every few years many of Europe’s luxury brands quietly prove the skeptics wrong.
Just look at what has happened over the past couple of decades.
Companies like LVMH, Hermès, Ferrari, and Richemont haven’t simply sold products.
They’ve built brands so powerful that demand often exceeds supply.
The company doesn’t try to sell as many Birkin bags as possible.
In fact, quite the opposite.
Waiting lists can stretch for years.
The scarcity isn’t an accident.
It’s part of the business model.
Ferrari (RACE) operates in much the same way.
It could manufacture significantly more vehicles than it does today.
Instead, management intentionally limits production to preserve exclusivity, pricing power, and long-term brand value.
That’s one of the greatest business lessons investors can learn.
The very best companies don’t compete on price.
They compete on desirability.
That creates something every investor should love: Pricing power.
When inflation rises, many businesses struggle because higher costs squeeze profit margins.
Luxury companies often face the opposite situation.
Their customers expect periodic price increases.
And in some cases, higher prices actually make the products even more desirable.
Think about that for a moment.
Most companies spend enormous amounts of money trying to convince consumers to buy their products.
Luxury companies spend just as much effort deciding who can’t buy them.
It’s an incredible competitive advantage.
Of course, luxury isn’t only about European consumers anymore.
That’s what many investors miss.
Walk into a Louis Vuitton (LVMUY) store in Paris, and you’ll hear conversations in dozens of different languages.
Customers arrive from China.
From the Middle East.
From the United States.
From Latin America.
From virtually every corner of the globe.
Europe may own many of the world’s most iconic luxury brands, but the customer base has become truly global.
As wealth expands around the world, luxury spending tends to expand alongside it.
That’s why companies like LVMH and Hermès have been able to compound shareholder wealth for decades.
They’re not simply selling handbags, jewelry, watches, or champagne.
They’re selling aspiration.
Status.
Craftsmanship.
History.
And experiences that consumers simply can’t replicate elsewhere.
This is another important lesson from our global consumer series.
Yesterday we looked at value.
Today we’re looking at prestige.
They’re very different business models, yet both succeed for remarkably similar reasons.
They understand their customers.
One focuses on helping families save money.
The other focuses on creating products that customers dream of owning.
Neither strategy is easy to replicate.
Both create loyal customers.
Both generate strong cash flow.
And both have rewarded long-term investors extraordinarily well.
Tomorrow, we’ll head to Asia, where I believe one of the most exciting consumer stories of the next decade is just beginning.
While Europe dominates luxury, Asia is creating hundreds of millions of new consumers entering the middle class, embracing e-commerce, traveling more, and spending at levels we’ve never seen before.
If Latin America represents today’s opportunity and Europe showcases the power of great brands, Asia may ultimately become the largest consumer growth story of them all.
Here’s to the future,
Matt McCall
Editor, Market Insights
