Champagne: the good life
Champagne:
the good life
Summary: Luxury becomes more luxurious
As the summer season warms up with Ascot, Henley and the Challenge Cup Rugby League Final ahead, our attention was drawn to a headline in the Guardian newspaper: ‘Drinking Champagne could reduce risk of sudden cardiac arrest, study suggests’. Sadly, the story didn’t quite live up to the headline. Champagne drinking, alongside eating more fruit, staying slim and having a positive attitude could reduce the risk of sudden cardiac arrest. Apart from the champagne, this is hardly earth-shattering stuff. Living well improves the chances of living longer than living badly does.
But living well has become more expensive, and living really well has become very expensive. The Forbes US Cost of Living Extremely Well Index (which measures the cost of living like a billionaire) rose by 4.7% in 2024 compared to the 2.7% increase in Consumer Price Index, which measures the inflation rate for the wider economy. The spending gap is widening at the highest end of the luxury market.
The commentary below mentions companies in reference to their different historical performance; we are not making an investment case for or against any of the companies mentioned.
Luxury is a concept that means different things to different people. For most people, it generally implies stuff that is expensive and made with some kind of flair. Ferrari and Porsche for most consumers would both fall into the ‘luxury’ car bracket, (for full disclosure our European equity portfolio owns Ferrari based on its capital discipline, but we are not commenting on its investment worthiness in this note).
To those with no interest in cars (such as myself), these carmakers make cars that share sporty shapes and loud engines (at least for the non-electric versions). Yet these companies appear to be in different lanes. Ferrari holds an exclusivity that yields a high level of attraction (and price). Only 14,000 new Ferraris were sold in 2024. Half of new Ferraris are sold to people who already own one. In economic terms, Ferraris may well be so-called Veblen goods, for which a higher price tag actually spurs demand as it increases exclusivity.
Porsche cars, meanwhile, may command premium price tags, and for most of the population they are a luxury good, but it differs from Ferrari. Porsche casts its net much wider, selling well over 300,000 vehicles last year. In Ferrari terms, Porsche appears to be almost mass market.
Despite selling significantly more cars than Ferrari, the investment returns have differed sharply over the past two years. The Porsche share price has more than halved since March 2023 while Ferrari has risen by 50%.
The share price reflects the profits of both companies, with Ferrari’s profits steadily climbing over the period whilst Porsche appears to be in reverse.
Ferrari and Porsche share price performance comparison since September 2022: driving in different directions
Source: Bloomberg; Artorius
Ferrari and Porsche earnings per share performance comparison since September 2022: Ferrari’s profits have climbed 20% whilst Porsche’s have fallen by 60%
Source: Bloomberg; Artorius
Hermes and LVMH share price used to track each other, but in recent years the share prices diverged as ‘aspirational’ wealth spending appears to have faltered
Source: Bloomberg; Artorius
Even in the sphere of style and fashion (another area of mystery to the author), the contrast between Hermes and LVMH shows the difference between the resilient wealthy and the aspirational wealthy in recent years.
In a similar way to Ferrari, France’s Hermès, which caters to the tastes of the resiliently wealthy, has held up. It had a revenue of €15bn in 2024 which showed steady progress on 2023. In contrast, LVMH sales have stagnated in recent years. Between 2012 and 2022 the share price of Hermes and LVMH traced a similar path (upwards). Global spending on ‘luxury’ benefitted both companies. But in 2022 their paths diverged. Whether it was the crackdown in China on ostentatious spending by the ‘nouveau riche’ or the impact of higher interest rates on the spending power of the aspirational wealthy, spending on the merely luxurious appears to have stalled, and in some cases fallen.
This pattern is seen across other areas of the global economy. Spending on the highest end of the luxury market continues to reflect the gains in wealth over the past few years, whereas the aspirational wealth spending appears to be more exposed to economic and even political cycles.
Regular living
Away from the luxury (or not-so luxury) companies, recent updates from consumer-facing companies are mixed. Perhaps reflecting a particularly British phenomena, the likes of Marks & Spencer are showing robust growth whilst the likes of B&M are struggling to grow revenues. Even away from the luxury sector the spending of the economically stretched consumer is being felt by companies serving households from across different income brackets.
The good news is that interest rates in the UK are expected to fall to 3.5% by the end of the year, from the current 4.25%. This should improve the spending power of consumers, whether aspirational wealth seeking to acquire a Porsche or merely day-to-day essentials at B&M. If interest rates stimulate a stronger economy, maybe we should all raise a glass of champagne, if only for the health benefits.
Gerard Lane
Chief Investment Officer
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Important Information
All expressions of opinion reflect the judgment of Artorius at 9th May 2025 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
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