As the world’s economy rights itself in fits and starts there is one group of products that will likely outperform the rest. Veblen goods are luxury items which sell better the higher they are priced. The Veblen goods effect is named for the economist, Thorstein Veblen, who talked about how conspicuous consumption and status seeking seem to fly in the face of normal economics. This Chivas Regal effect has the tendency to demonstrate itself with every economic recovery as first successful few buy Veblen goods to show off. Investment in the makers of luxury goods, Veblen goods, can be an excellent long term investment.
There is still a lot of concern about how fast the recession will end and, in some quarters, if it will. However, for long term investment it is always time to look to money makers that will last. Over the long term investing in the Chivas Regal effect can be very successful. A common comment of the wealthy is that if you don’t enjoy your wealth what is the point of having it? Thus the wealthy, especially the newly wealthy, will pay ten times as much for a bottle of wine that is perhaps twice as good as what they drank before they struck it rich.
Conspicuous consumption touches on exotic cars, tropical islands and consumer items such as a bottle Louis Roederer champagne that sells for nearly $400 a bottle because it comes in a clear bottle. (A 19th century Russian Czar was afraid of receiving a bomb hidden in his green champagne bottle.) Today rock stars and other newly rich love to engage in conspicuous consumption by drinking their champagne from a distinctive, clear, bottle. The Veblen effect is alive and well in France’s champagne district.
The Chivas Regal effect is another name for conspicuous consumption. The Strathisla Single Malt Scotch Whisky Distillery in Scotland, the makers of Chivas Regal, has been doing well since the 18th century, proof that catering to conspicuous consumption pays.
It should be noted that many of the companies that cater to the rich make very nice products. However, the fact of the matter is that the Veblen effect has to do with women wanting their friends, and the competition, to see the Gucci label more than wanting to have a beautiful, serviceable purse.
Gucci, Chanel, Ferrari, Chateau Latour Gran Reserve (for $1,000 a restaurant bottle), Mac instead of a PC, or a Blackberry when you don’t really need one fit the conspicuous consumption mode. In fact, one dones not need to look only at the super rich to see the Veblen effect. At ever level of wealth people tend to want to show off their success and, implied, importance.
As the economy mends itself in fits and starts look at luxury goods where selling to a select group at higher prices will let you make money on the Chivas Regal effect. Well managed companies with a great eye for style and fashion often benefit from the Veblen effect as people not only want a good product but want the world to see that they have “arrived.” Conspicuous consumption has been with us since the beginning and will continue to make money for the long term investor who invests in folks catering to conspicuous consumption instead of engaging in conspicuous consumption.