When people talk about the term luxury, it’s most often about brands that have stood the test of time, brands with almost a cult following around them, and with untapped pricing power. And in most cases, these high-end brands have a customer base that is not as affected by recessions, or sometimes not at all, which makes this niche quite interesting right now as we are experiencing high inflation and heading for a recession.
Warren Buffett’s 1981 Berkshire Hathaway letter to shareholders highlighted two business traits that investors should look for in companies during times of high inflation:
The power to increase prices easily
The ability to take on more business without having to spend excessively.
Engaging with the sense of inaccessibility
These traits fit very well with high-end luxury companies, as these companies can literally produce fewer items (spend less) and still earn even more money (by raising prices). The scarcity effect makes each item even more attractive to the deep-pocketed customer.