Investment Insider: Why the most expensive brands thrive in tough times


Why are brands, in particular exclusive or luxury brands, largely resilient to economic downturns? Because wealthy consumers generally do not stop spending even in the teeth of a recession.

Truth is, brand-conscious shoppers are buying a sense of superiority that has been cultivated through clever marketing. Note how Mulberry has achieved this sense of supremacy by ensuring that its handbags are closely identified with celebrities such as Kate Moss and Alexa Chung.

That is not to say luxury brands won't be knocked back every now and again. In the case of Mulberry, its shares fell sharply after it confessed that retail sales were behind expectations. However, that is the nature of the "luxury" beast; they tend to be highly rated, and any hint of failing to match market expectations can have an impact on the share price.

brands have an air of exclusivity that will always find buyers who are willing to part with their cash. Consequently, brands should see sustained growth as millions of new consumers from emerging markets develop a taste for the finer things in life, despite the global recession.

In other words, while the mass affluent of the west were the main buyers of luxury items after the war, the next crop of mass-affluent buyers should come from the emerging markets. Right now, the growth markets are in Shanghai, Mumbai and Dubai.

Consider Burberry, which has made a conscious effort to target the growing wealth of developing market consumers. Asia Pacific now accounts for over a third of group sales. However, gunning for high-growth markets is not without its perils, given that expectations have a tendency to race ahead of results. In the case of Burberry, when sales growth slowed from the high twenties to the low teens, the market took fright and the shares plunged.

However, Burberry has recovered from setbacks before. During 2008/9, reported profits fell from £200m to £175m and the shares collapsed from 566p to 160p, but then went on to expand tenfold within three years as the business recovered strongly.

Superdry, which is owned by SuperGroup, is a brand that is regularly linked with celebrities such as David Beckham and Leonardo DiCaprio. By ensuring that celebrities are associated with their expensive products, luxury goods makers are emitting a signal that their goods are not for everyone. However, a brand on its own is never enough to sustain a business over the long term – capable management is essential too. SuperGroup may have grown too much, too quickly, which resulted in unwanted growing pains.

Other strong brands in the UK market include the jewellery maker Theo Fennell, and clothing companies Ted Baker and French Connection. The soft furnishing company Laura Ashley, which was rescued from receivers in 1998, is another quoted company with a strong brand. It has demonstrated that the brand, established some 60 years ago, has stood the test of time.

As investors, we should bear in mind that luxury brands possess a unique quality that makes them stand out in good times and bad: namely, pricing power. But we should also know that while a strong brand name can work wonders, it does not always guarantee corporate prosperity.

David Kuo is a director at

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own