With subprime meltdown and credit crunch in full-swing, there is a lot concern about how consumer spending will be effected. Just yesterday, Fortune's Geoff Colvin declared the American consumer tapped out, saying that the "evidence is powerful that, as incredible as it may seem, U.S. consumers are going to start living within their means again. Brace yourself."
So what does that mean? Well for starters, companies that depend on consumers living above their means probably won't fare too well: This could include many middle-market apparel stores, furniture stores, and other non-essential moderate-luxuries. An old couch looks like a lot more comfy when you can't pay your bills.
But investors seeking solace from the weakened consumer (and remember, you should only seek solace if you think this is likely to be a long-term shift. If you think it's temporary, you may want to buy on the bad news) may want to look toward luxury goods makers.
According to BreakingViews, "If there's a financial crisis going on, nobody told the world's luxury brands. LVMH Moët Hennessy Louis Vuitton, the French luxury group, and Burberry, the United Kingdom apparel designer, say their wares are flying off the shelves. At LVMH, third-quarter revenue grew 15% -- the fastest pace in years -- driven by handbags, watches and jewelry. Appetite for Burberry's tartan creations pushed its first-half retail sales up by 25%, as the group continued its march across the American heartland."
BreakingViews goes on to speculate that continued weakening in the US economy could hurt these brands, but I tend to disagree. Luxury goods consumers are well-positioned enough that they just aren't that vulnerable to the factors hurting lower- and middle-income consumers: rising gas prices, housing woes, etc.
At the opposite extreme, I continue to think that discount stores, especially dollar stores, could do well if the middle-class decides to tighten its belt. But the little luxuries that middle class shoppers like to indulge could find themselves squeezed.
So what does that mean? Well for starters, companies that depend on consumers living above their means probably won't fare too well: This could include many middle-market apparel stores, furniture stores, and other non-essential moderate-luxuries. An old couch looks like a lot more comfy when you can't pay your bills.
But investors seeking solace from the weakened consumer (and remember, you should only seek solace if you think this is likely to be a long-term shift. If you think it's temporary, you may want to buy on the bad news) may want to look toward luxury goods makers.
According to BreakingViews, "If there's a financial crisis going on, nobody told the world's luxury brands. LVMH Moët Hennessy Louis Vuitton, the French luxury group, and Burberry, the United Kingdom apparel designer, say their wares are flying off the shelves. At LVMH, third-quarter revenue grew 15% -- the fastest pace in years -- driven by handbags, watches and jewelry. Appetite for Burberry's tartan creations pushed its first-half retail sales up by 25%, as the group continued its march across the American heartland."
BreakingViews goes on to speculate that continued weakening in the US economy could hurt these brands, but I tend to disagree. Luxury goods consumers are well-positioned enough that they just aren't that vulnerable to the factors hurting lower- and middle-income consumers: rising gas prices, housing woes, etc.
At the opposite extreme, I continue to think that discount stores, especially dollar stores, could do well if the middle-class decides to tighten its belt. But the little luxuries that middle class shoppers like to indulge could find themselves squeezed.
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