Luxury goods is a high growth sector that encompasses many high end products such as fashion and jewelry. From brands like Louis Vuitton to Gucci and Hermes. Luxury goods are an alternative asset that offers great future growth prospects. And you don’t need to be ultra-wealthy to invest in these. In this post we’ll look at the ways that you can make money investing in luxury goods.
What Are Luxury Goods?
Luxury goods are those products that are deemed to be ‘high end’, usually having a certain prestige attached to them. They are often characterized by their exclusivity, perceived high quality, high value, high desirability and high end status.
Luxury goods can include a wide variety of product types and often includes such items as;
- Fashion
- Handbags & accessories
- Jewellery
- Watches
- Fragrances & cosmetics
- Wines & spirits
It can even include cars, yachts, jets, travel and more.
Why Invest In Luxury Goods?
These types of luxury goods and brands are seen as aspirational to many. And owning them can be a mark of high status and wealth.
The luxury goods sector enjoys continued strong growth and benefits in several ways over other sectors. One of the top reasons is that the sector is affected less than others by negative trends in the wider economy.
In a severe economic downturn people generally have less to spend and cut back on non-essential spending. The luxury sector is not immune to this. However the main client trends towards high net worth individuals who overall are still likely to be less affected than the average individual. Even in recessions, the ultra rich are still going to have disposable income to a greater degree than many.
A lot of the current growth in the luxury sector is being driven by increased wealth in emerging economies, particularly China. As these economies grow rapidly, people are becoming wealthier than ever before. Lots of this wealth gets spent on luxury goods.
It’s also a lot about status and wanting to appear exclusive and above the rest. With customers willing to pay high mark ups on products if they meet their ideals of luxury, quality and exclusiveness. This supports strong financial growth in the companies that manufacture them, and often increased re-sale value of the products themselves. Providing 2 different pathways for investing in luxury goods and benefiting from this strong growth sector. These are detailed below.
How Can You Make Money From Luxury Goods?
Invest Directly By Purchasing Luxury Goods
The first way you can make money from luxury goods is by purchasing and holding the actual products as an investment. The value of rare and sought after products can increase over time, sometimes producing more significant returns than the stock market.
For example, the much coveted Hermes Birkin bag has outperformed most other investments, rising over 108% within the last decade according to Reuters.
It is not just the Birkin bag, there are similar high returns across the luxury goods sector such as Rolex Daytona watches for instance.
One of the reasons these types of products are so highly valued is their scarcity. Companies often do not publish how many of these items have been produced. Even when new items are released, it is extremely difficult to get your hands on them. It is common to have years long waiting lists with the ultra rich and famous getting first choice.
And that’s another part of their appeal – they are a status symbol for the elite. This low supply and high demand drives huge returns in the resale market.
Things To Consider Before Investing
There are a few things to consider before purchasing luxury goods as an investment. Firstly is the authenticity of the items. They should only be purchased from reputable, approved sellers to ensure replicas are avoided.
Secondly the costs of insuring them. Insurance on items costing tens of thousands of dollars or more will be high, and this can reduce overall investment returns.
Also, an item that is purchased only for investment purposes needs to remain in pristine condition in order to achieve maximum resale value. That can mean that even though you have your hands on the item, you probably can’t use it in everyday life.
For many people, purchasing these types of products outright is not a feasible option. Items with the best growth potential are often the ones that are far too hard to get hold of. Not to mention far too expensive to purchase and insure. But that’s not to worry as there is still a more accessible way to invest in luxury goods we’ll look at in the next section.
Where To Invest In Luxury Goods
If you do decide to purchase luxury goods, a good entry point can be in the second hand market. But again quality and authenticity is a key priority. You need to ensure you purchase from a trustworthy, reliable source that can verify the authenticity of the items.
One of the best ways to do this is through specialist online luxury goods platforms like The Luxury Closet. It is a leading online boutique for buying and selling new and pre-loved luxury items. They have an in-house team of experts that are highly trained to verify the authenticity and the condition of the luxury products. This ensures that only 100% authentic items are put on sale. View top authentic luxury goods at The Luxury Closet.
Pros & Cons
Pros;
- Highly desirable brands and products.
- Exclusivity and demand helps increase resale value.
- Some products enjoy better growth than shares and other assets.
- Good investment diversification.
- More resilient in market downturns due to main market being high net worth individuals.
Cons;
- Need to ensure authenticity by purchasing from approved sellers.
- May be high commission fees for selling.
- Need to consider options for secure storage and insurance costs.
- May be difficult to value accurately.
- Less liquid assets and may be smaller market demand.
Invest In Shares Of Luxury Goods Companies
Another option for investing in luxury goods is through purchasing shares in the companies that produce them. This option offers lower barriers to entry as it’s possible to purchase as little as one share (or sometimes even less known as fractional shares).
With the amount of luxury goods brands out there it may be surprising to know that many of these exclusive brands are owned by just a handful of large companies. Some of the largest among them are Kering, LVMH and Richemont.
For example, LVMH, or Moet Hennessy Louis Vuitton to give it it’s full title is the world’s most valuable luxury goods company with a market capitalization over $350 billion. This luxury conglomerate is home to over 75 brands across fashion, perfume, cosmetics, jewelry and watches, wine and spirits and more. Some of their top brands include Louis Vuitton, Christian Dior, Hublot, Bulgari, Givenchy, Dom Perignon, Tiffany & Co. and many more.
Things To Consider Before Investing
Rather than just owning one or two products your fortunes are tied to thousands of products across many of the leading brands. And you don’t have to only buy shares of one company – you can spread your money around many of them.
There are even specialist funds that directly invest in luxury goods companies including tracker funds that invest in the broad index. For example, the S&P Global Luxury Index is comprised of 80 of the largest publicly-traded luxury goods companies. Over the past 5 years it has produced an average return of 15.17% per year. That helps spread risk by diversifying across multiple companies (although it is still concentrated on one sector).
Some of the benefits of owning company shares rather than holding physical products are that they are usually easier to value, easier to sell and more secure. Physical products require a safe storage location and high cost of insurance = something that can eat into investment returns. Shares don’t have this problem.
On the other hand some luxury goods such as Hermes Birkin handbags have outperformed the returns from shares and other investments over the last 3 decades. It can also be nice to have something tangible to physically be able to hold or use it.
You can trade shares and funds of luxury goods companies commission free with apps like Public.
Pros & Cons
Pros;
- Highly desirable brands and products.
- High mark ups aid high profit margins.
- May benefit from broader growth of the company as a whole.
- May receive dividends in addition to capital growth.
- Highly liquid – can be bought and sold easily.
- More accessible than purchasing high value products.
- No ongoing costs such as storage and insurance required compared to physical products.
- Shares can benefit from compound growth.
Cons;
- Returns are dependent on the financial performance of the company rather than a product.
- Could be price volatility in the short term.
- Transaction costs to consider.
- No tangible product to have in your hands.
Investing In Luxury Goods Conclusion
Luxury goods encompasses many product categories including fashion, jewellery and drinks. To be classed as luxury a product should be exclusive, aspirational and high quality.
The luxury goods sector offers high growth thanks to it’s high net worth client base. These have more discretionary income and are less affected by negative economic events. This helps support strong balance sheets and high profit margins of luxury goods companies. Their demand also pushes up the re-sale value of the actual items themselves on the secondary market.
This provides investors with two different options. Either purchase the luxury goods themselves and let them appreciate in value by holding them for a long time. Or purchase shares in the luxury goods companies to benefit from strong capital and dividend growth.
Both options have their own pros and cons. For instance, physical products can enjoy better returns than shares. But they may be harder to value accurately and require extra costs of insurance to hold. They also have higher barriers to entry as they are more expensive and harder to source from reputable suppliers. View top authentic luxury goods at The Luxury Closet.
Shares on the other hand are more accessible to many individuals. You may benefit from additional returns through dividends. Although there may still be transaction costs to consider as well as short term price volatility. You can trade shares and funds of luxury goods companies commission free with apps like Public.
Luxury goods offer something different to an investor and can help diversify a portfolio.
Find more essential reading on our blog including the following posts;
- 10 investment ideas to build wealth.
- Invest in Scotch Whisky.
- Investing in collectibles.
- Quotes about investing you need to read.
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