“There is an opening in the luxury sector growing gap between brands that are doing very well and those that are going through a difficult phase”. He writes it Flavio Cereda, Co-Investment Manager Luxury Brands of GAM explaining that “it is the polarization effect: the stronger brands gain significant market shares at the expense of the weaker ones. For an investor it is important to make the right choice and invest in itthe best brands. If you have the right brand and the right momentum, people are willing to pay the price.”
Luxury, which stocks to invest in?
However – the expert further explains in his analysis – “if a large part of a brand's revenue comes from weaker consumers, there is likely to be much more volatility. For this reason we try to stay away from brands that are disproportionately exposed to vulnerable consumers. The polarization effect is not just limited to personal luxury goods; two of the companies at the top of the luxury pyramid focus on yachts and cars.”
The Italian Sea Group
The Italian Sea Group focuses on the segment of super yachts. Why is this so important? “Super yachts – continues Cereda – are aimed at ultra-rich. These are people who aren't scared by the thought (or cost) of an 80 meter yacht, but simply add it to their collection. In the super yacht scene, the Italian company continues to steal the show from its Dutch and German counterparts. Its production capacity is already at capacity, so it has a clear pipeline and is gaining market share with high margins”.
The Ferrari “case”.
Even today, after all the surges in stock price and revenue growth, some investors struggle to fully understand the peculiarities of Ferrari which is more than just a car company.
Recently – continues the expert – “we spent a day in Italy meeting the management, visiting the headquarters and everything else. Ferrari is venturing into the electric vehicle market and has built a large new manufacturing plant that will open in June. Interestingly, to satisfy enthusiasts it is integrating vehicles with increased engine noise. We believe that the essence of Ferrari resides in full package. It's about the driving experience, the interior with attention to detail, the impeccable service and the iconic design. These elements define the true meaning of owning a Ferrari. Ferrari experiences a situation of low volatility in terms of business or pipeline: it is one of those rare companies that can more or less identify its customers. This exclusivity contributes to its charm,”
Although clothing, shoes and other accessory products contribute only a small part to overall sales (3%),” have a significant impact on the perception of the Ferrari brand. Customers associate Ferrari with excellence and any deviation from this standard could compromise the brand. The Ferrari brand extends well beyond the context of racing, and to manage it effectively will require continuous and meticulous attention to detail.”
Well isolated from global trends
Companies like the two mentioned, which cater to super richi, “are examples of those who are most likely not to be influenced by inflation, geopolitical conflicts or other external factors. For those investing in luxury brands, these companies at the top of the luxury pyramid are a good starting point in composing the overall portfolio“, concludes the expert.
