Luxury sub-sectors 

The luxury industry is composed of multiple sub-sectors, including fashion, cars, food, wines and spirits, private jets, watches, jewellery, yachts and hotels, as a minimum.

No private jet manufacturers have been identified that can provide pure-play exposure to that niche of the market. While there are luxury hotel groups that are listed on a stock exchange, they won’t be considered in this research as they represent a very different business (there is no manufacturing and limited intellectual property).

Competitive Position

The competitive position should be analysed for each sub-sector, as each product category has different market structures. In the 5-forces analysis below, a differentiation among sub-sectors is made where deemed relevant.

New entrants

In fashion and jewellery, barriers to entry are significant and include access to supply chains as well as distribution capabilities. While even small players can design and manufacture accessories and clothes, it is very expensive to distribute them globally and it is complex to source sufficient raw materials and inputs efficiently.

Luxury cars and watches additionally require technology that is not easily accessible to new entrants and is hard to replicate.

For wines, the quality of the land and wines is a major barrier to entry. For spirits, barriers are lower but maintaining quality when scaling up requires non-trivial supply chain and distribution networks.

Substitutes

Luxury goods are theoretically easy to substitute with cheaper alternatives, but in practice they can only be substituted with other luxury goods – that’s the point. Substitution threat is therefore very limited and comes down to industry rivalry (see below).

Client power

Clients actually want to pay a lot for luxury products. This makes client power virtually irrelevant.

supplier power

Suppliers to luxury manufacturers can be concentrated, which theoretically should provide them with bargaining power. However, because also large luxury manufacturers are also highly concentrated, there is a balance of power.

Industry rivalry

The great thing with luxury is that brands don’t compete on price, so there is no race to the bottom, it is rather a competition to increase prices and margins, and industry rivalry is reflected in the somewhat cyclical successes of a brand vs. another, due to a change in designer or changing perception of a design or style. Mutatis mutandis, similar reasoning applies to wines and spirits where the quality and exclusivity of a wine becomes the key factor rather than price.

Industry rivalry can also manifest itself in terms of distribution, with competition for top locations (shops), vineyards, designers, etc.