Understanding the luxury industry | Deep dive series
Weekly new episodes on the most important topics of investing. This time, a luxury industry deep dive.
Secrets of luxury
Have you ever wondered why a handbag can cost more than a car? And why do people buy luxury items at all? The world of luxury is a fascinating blend of artistry, heritage, and surprising psychology. These luxury brands know exactly how to tap into people’s emotions and desires.
The Dutch Investors Podcast peels back the curtain on this strange and interesting industry. We’ve got a new episode coming out every Thursday! From interesting company deep dives, to fascinating stories and lessons we can all learn from.
In this article, we’re sharing a snapshot of what we’ve uncovered so far about the luxury industry, but we encourage you to immerse yourself in the full episodes available on The Dutch Investors Podcast.
Episode 3: The psychology of luxury
What’s the episode about?
This episode takes a deep dive into the emotional side of luxury. Why do people pay thousands, sometimes millions, for items that go far beyond basic functionality? I mean, you can carry your groceries in a $1 plastic bag, instead of a $25.000 Louis Vuitton bag. The answer lies in the complex human desires luxury taps into: identity, status, appreciation for craftsmanship and the need to feel special.
We also unpack some of the paradoxes that define luxury:
The imperfect beauty of handmade craftsmanship, where flaws become proof of authenticity.
The Veblen Effect, where higher prices create higher demand, a phenomenon almost unique to the luxury world.
How brands walk the fine line between being exclusive and remaining accessible enough to stay relevant.
We also talk about how a true luxury item transcends its practical use. These items become status symbols, markers of success, and often, surprisingly sound investments. For some buyers, a Birkin bag isn’t a high-end piece of arm candy, but a worthy investment. In fact, the value of a Birkin bag has often outperformed gold!
Episode 4: The luxury pyramid
What’s the episode about?
Building on the psychological underpinnings of luxury, this episode introduces the Luxury pyramid, which breaks the market into distinct tiers, from accessible luxury to ultra-luxury. The pyramid helps explain how brands like Louis Vuitton and Hermès thrive in their niches by cultivating heritage, exclusivity, and desirability. But you’ll also understand why placing a company/brand in the wrong tier, could be disastrous.
Did you know that despite the rise of e-commerce, 85% of luxury purchases still happen in physical stores? The tactile, sensory experience is something digital shopping can’t replicate, reinforcing the importance of retail locations. Luxury brands grow differently from mainstream businesses. Hermès, for example, has mastered the art of steady, deliberate (slower) growth, focusing on maintaining quality over chasing rapid expansion. This approach not only preserves their exclusivity but ensures long-term value.
Want to know more? Listen to the full episode on all streaming platforms.
Episode 5: Laws of luxury
What’s the episode about?
Forget everything you know about traditional marketing. Luxury brands play by an entirely different set of rules. In this episode, we break down the “anti-laws” that govern how the most prestigious brands market themselves. We give you over 20 anti-marketing laws of luxury and explain why. A few examples:
Luxury is never comparative. These brands don’t compete with each other, they set the standard for others.
Scarcity is key to desirability, as seen in Ferrari’s strategy of always producing fewer cars than the market demands.
Timelessness beats trends. Unlike fast fashion, luxury thrives on heritage, with brands like Chanel and Hermès leaning into their legacies.
No discounts. Ever. Sales cheapen the perception of exclusivity, and in luxury, perception is everything. Discounts in true luxury, means death for a luxury brand.
Luxury doesn’t innovate just to be new, it innovates to preserve tradition and quality. This timeless approach is why brands like Hermès, Ferrari and Rolex remain industry leaders. They’re not just selling products; they’re selling aspirations and dreams.
Curious? Listen to the entire episode here!
Why it matters?
Understanding the luxury industry goes beyond admiring its beauty or prestige, it’s about recognizing its unique mechanics. For investors, luxury offers a rare combination of steady growth, enduring appeal, and strong brand equity. Whether it’s Hermès’ carefully controlled production strategy or Richemont’s masterful brand storytelling, the lessons from this market are invaluable and essential if you’re looking to invest in companies like: Ferrari, Hermès, LVMH, Kering, Richemont and many more!
If you’re curious about what makes luxury tick, or if you’re looking to spot your next great investment opportunity, this series is for you.
Until next time, stay curious, keep learning, and happy investing.