Luxury stocks have long been a cornerstone of quality-focused global growth equity strategies. While the broader luxury sector navigates various macroeconomic headwinds – including a slowdown in China, slightly softer consumer confidence in the US, a slower pace of innovation and creativity and an over-reliance on price increases post-Covid – it continues to offer compelling investment opportunities.
The core thesis remains intact: luxury brands are built on intangible assets, such as heritage, exclusivity, and desirability, which are difficult to replicate and provide sustainable competitive advantages. Over the past two decades, luxury revenues have experienced a 9% average per-year growth rate – albeit with varied growth drivers.
The global luxury market is vast, with annual sales estimated between $1.5tn (£1.12tn) and $1.7tn across personal goods, experiences, cars and high-end travel. Within this, personal luxury goods – including apparel, leather goods, watches and jewellery – account for approximately $450bn and have historically grown at mid to high-single-digit rates annually.
Luxury stocks are disproportionately influential in global indices due to their high margins and capital-light business models – and there are three key reasons why luxury fits well within a quality growth investment approach:
* Resilient growth: Luxury brands have shown consistent growth over decades, often outperforming broader consumer discretionary sectors due to their affluent customer base.
* Strong brand equity: Companies such as Brunello Cuccinelli, Ferrari, Hermès and Louis Vuitton possess pricing power and margin profiles that are rare in other industries – often exceeding 60% gross margins and 30% operating margins.
* Scarcity and aspiration management: Maintaining scarcity is a central component of luxury brand strategy. Top-tier brands, such as Ferrari and Hermès, intentionally limit their supply to preserve exclusivity. Waiting lists for products like the Birkin bag or Ferrari’s ‘hypercars’ are common and part of the allure.
That said, not all brands manage this balance well – Gucci, for instance, pursued aggressive growth post-Covid, which diluted its exclusivity and hurt long-term brand equity. In contrast, brands like Brunello Cuccinelli emphasise disciplined growth to maintain their elite positioning.
US and China key
Luxury consumption is less tied to income cycles and more to wealth creation, making it a resilient sector during economic downturns. While luxury spending may represent only 2% of global GDP, its contribution to global earnings and cashflow is significantly higher due to its margin structure.
China and the US are particularly important markets – each accounting for roughly a third of global luxury spending. China’s role in luxury consumption remains structurally significant, but recent performance has been muted.
A property slump erased an estimated $1.5tn in household wealth, creating a psychological drag on spending. While the Chinese equity market has shown signs of recovery, translating that into luxury demand will take time.
“In the US, luxury brands have the pricing power to absorb tariff costs without significantly affecting demand.
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As for the US, luxury brands have the pricing power to absorb tariff costs without significantly affecting demand. Since the cost of goods sold is a small fraction of the retail price, even a 25% tariff on production costs results in just a modest price increase for consumers.
This pricing flexibility, combined with high margins and brand loyalty, allows luxury companies to navigate trade tensions more effectively than other sectors.
Generations, not quarters
Luxury investing provides a unique perspective on global consumer behaviour, economic resilience and brand strategy. Its future is likely to be defined by scarcity, not scale. The sector’s strength lies not just in its products but in its ability to manage scarcity, maintain desirability and adapt to shifting global dynamics.
Whether through fashion, automobiles or experiences, luxury remains a high-margin mainstay in the global investment universe. The best brands are also rediscovering that timelessness and restraint are competitive advantages.
When you sit across from Brunello Cucinelli and hear him say, “We build for 200 years” – or you watch Ferrari limit production even as demand explodes – you realise these companies think in generations, not quarters.
For investors, that is the essence of quality growth – assets that compound cultural and financial capital simultaneously. Whether it is Maranello’s engineering precision or Solomeo’s humanistic ethos, both reflect the same idea: scarcity, when well-managed, is the ultimate engine of long-term value creation.
Sean Koung Sun is a portfolio manager at Thornburg Investment Management
