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 fool.co.uk

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
sportDidier Drogba returns to Chelsea on one-year deal
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
PROMOTED VIDEO
Sport
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
football
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Sport
Rhys Williams
commonwealth games
News
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
i100
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Travel
travel
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior Risk Manager - Banking - London - £650

    £600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

    The benefits of being in Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Test Analyst - UAT - Credit Risk

    £280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Day In a Page

    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform