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What makes it luxury?: Reshaping the luxury goods landscape
16-02-2019, 11:20 AM.
Post: #1
What makes it luxury?: Reshaping the luxury goods landscape
There is some discussion on luxury goods in today's news. In it, a report was cited which provides some data on the players in the luxury good market.

A recurring theme in recent discourse on luxury goods is that 'millennials are seeking experiences, and not just the product.' I take this to mean that the noveau riche demand high quality service on top of the high quality product; not only do they want to seen to be of a higher status, they also want to be given the royal treatment. This is of course, not surprising. For the prospective investor, perhaps the question to ask is whether your target company provides a high level of service.

Another recurring theme is the increase in use of e-commerce/social media as sales and marketing channel. The internet has been around for quite a long time but it is only in recent years that there is a renewed focus on online retailing. The internet did not manage to take a large share of the traditional retail pie as people's time on the internet was then limited to their time spent at home; the internet being primarily accessed through immovable personal computers. Now the internet is carried in almost everyone's pockets, and accessed perhaps every hour or so. Naturally, brands have been competing for increasing eyeballs on the internet. Which has resulted in changing expenses on traditional and new forms of advertising. While e-commerce in general has seen increasing sales volume, the majority of consumers of luxury goods -- who demand the royal treatment -- still make purchases in-store. In other words, consumers of luxury goods want to be engaged both online and offline. 

As long as there is a desire for people to differentiate themselves through wealth, the demand for luxury products should continue for a long time. Though it should be noted that an investment into any particular luxury brand probably requires deeper considerations. For one, a perennial concern is how a brand balances exclusivity and sales volume; too much of the former will mean less of the latter, and vice versa, which may then negatively impact demand for said brand.

For those with less insight into the luxury goods market, perhaps it may be easier to prospect companies along the supply chain.

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17-02-2019, 05:38 PM. (This post was last modified: 17-02-2019, 05:54 PM by Wildreamz.)
Post: #2
RE: What makes it luxury?: Reshaping the luxury goods landscape
Thanks. I like the discussion here. Here is a related video:

A few takeaways here:

1. The rich are getting richer dis-proportionally, and the clothes they wear (top 10% of brands in the world) are getting more expensive as well; while the bottom 90% price stagnate over the past decade or even fall slightly. Hence, competition and knockoffs, are NOT bringing down the price of these brands. In fact, competition and cheap-knockoffs only bring down the price of everybody else.

2. Technology (the internet etc.) and the speed of products getting copied, are NOT slowing the profits of top brands. Buying a similar knock-offs and buying the real thing at inflated price isn't the same thing to people who could afford them in the first place.

So, what makes luxury? It is closely related to what makes a brand. It's the essence of marketing. It's about the "values" that the company and it's logo represent. That's what makes a brand successful and remains so in the long run.

This is especially true among millennials; we are idealist. If the company has a long history in our culture with consistent messaging of their values, or is doing actual "good" in the world right now, or has a strong moral compass, or has an idealistic, socially progressive agenda, we will bite. Mix that in with actual tangible (software, ecosystem, quality, reliability, performance improvements etc.) difference or intangible difference: price (higher price means it is better), "hype" (a technical term in the fashion industry now), social status signalling, vanity, association with celebrities, famous successful people, ideals; it could totally capture the hearts and minds of people today. 

This is why I think Apple, Tesla, Nike, Adidas, Disney etc. some of the top brands of the world became and remain successful, despite tons of competition and knock-offs. 

This is more important than ever before today, as information is so accessible, and advertisement (dissemination of information) is so pervasive.

Experience doesn't necessary mean top-notch after market service, or being pampered at the retailer alone (although those are part of the equation as well). Experience sought by millennials IMO includes the buying experience (is it more convenient to buy with your phone, or walk all the shops to get the best deals?), how does the product makes me "feel"? Is it the same thing worn by Jay Chou on his IG (he has been wearing all sorts of "hype" sneakers lately, primarily from Off-White)? Is the same shoe Michael Jordan used to win his 6 Rings in the 90s? Is it the phone that stripped down all the unnecessary bells and whistle and give me 4 years of solid top of the line performance? Am I saving the world and money when I am driving this car? That sort of things counts as "experiences" as well.
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“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger

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