Going for growth: unique brands

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In the great Trump tariff upheaval of Spring 2025, two big European exporters conspicuously kept their cool as their shares temporarily plunged.

“We don’t see any weakening of the order book,” Ferrari’s chief executive Benedetto Vigna told reporters while giving profit guidance a month after President Trump imposed a 25 per cent surcharge on European cars and components (he afterwards threatened to double it).

Analysts noted how continuing demand for ‘personalisation’, with buyers adding expensive features to supercars costing $250,000 and (far) upwards, had helped the carmaker achieve a 23 per cent year-on-year increase in operating profit.

Soon after, French fashion house Hermès International announced that it would bump up the US prices of its famously high-priced handbags by between 6 and 12 per cent to “fully offset” and “neutralise” any effect of the threatened US tariffs on EU imported goods. Nobody was predicting a slump in sales for Hermès as a result.

“We expect the group to benefit from far superior pricing power versus peers,” one luxury sector commentator said. Days after Trump’s Independence Day announcement, Hermès overtook LVMH to become the world’s most valuable luxury company.

Like recessions, trade wars tend not to dent the financial results of Ferrari, Hermès and other unique brands. Their customers are well-insulated against such shocks.

Abnormal economics

These companies, with operating margins (as of July 2025) of 29 per cent (Ferrari) and 43 per cent (Hermès), benefit from the through-the-looking-glass economics first noted by the Norwegian-American sociologist Thorstein Veblen (1857-1929). In this gilded age of “conspicuous consumption,” a phrase he coined in 1899, higher prices actually increase demand for luxury goods as they enhance perceived value and desirability.

Very few companies can crack the alchemy that allows them to benefit from ‘Veblen effects’, as they’re known. In addition to Ferrari and Hermès, the International Growth’s portfolio holds exceptional businesses such as L’Oréal, the world’s largest cosmetics company, whose Luxe division brands include Lancôme, Yves Saint Laurent, Giorgio Armani, Valentino and Prada; and Brunello Cucinelli, which produces understated but high-end menswear and womenswear, especially fine cashmere items.

There are good reasons for Europe’s status as the home of luxury. Over centuries, the continent has developed a cross-pollinating tradition of craftsmanship, design expertise and brand cachet that gives this small and highly competitive niche its ability to lock in fantastically high profit margins, engender strong consumer loyalty and spread its appeal to the rich and aspirational across continents.

Much of the growth in the sector has been due to the rising wealth of Asia, particularly China, “the engine of worldwide growth in luxury spending,” according to consultants McKinsey. The luxury market there tripled in size between 2017 and 2021, and despite the protracted Covid-related downturn that has slowed the growth of high-priced brands,  expectations are for the luxury market there to be worth $148bn by 2030, surpassing that of the US and making up 24 per cent of the global figure.

The leading brands have many advantages that allow them to weather volatility even at a China-scale. Barriers for new entrants in this sector are high – no amount of marketing spend can retrofit a credible backstory – but maintaining a position in this gilded niche requires constant innovation and enterprise. The leading brands know customer loyalty can’t be taken for granted, as the wealthy have the time and leisure to spot trends and sample other Veblen-benefitting wares. 

Leaders in luxury

Ferrari is a good example of how leveraging brand prestige and exclusivity has made it seemingly impervious to the economic cycle and able to achieve steady growth.

The Maranello-based firm effectively controls how fast it grows as demand for its cars outstrips supply, a principle set by founder Enzo Ferrari (1898-1988): “We will always sell one less car than the market demands”. Customers are grateful for being allowed to order a multi-million-dollar car with a vague delivery date years down the line.

For Hermès, surpassing LVMH reflects financial strength and investor confidence in its long-term strategy and resilience. The firm, whose mainstay is leatherwear, especially handbags, outperforms rivals in operational efficiency. It sells its products quickly, has less of its money tied up in stock, and can pay suppliers efficiently. Rigid financial discipline means it has the liquidity to support ongoing growth. The result is that Hermès earns a return of about 33 per cent on the money it invests in its business, three times higher than the norm for companies of its size.

Still controlled mainly by descendants of founder Thierry Hermès (1801-1878), the firm has continued to thrive, even in China. Its products are seen as long-term investments, and it maintains tight control over supply. Like most in this category, it never publicly discounts products, implying that to do so would be an insult to its craftsmanship.

Sustained financial outperformance, operational mastery, brand exclusivity, and a business model prioritising long-term value over short-term gains: these attributes have enabled Hermès to weather headwinds such as a slowdown in a giant market and set new benchmarks for global luxury.

Whether targeting the Gen-Z shoppers of Shanghai and Shenzhen or the ‘old money’ clientele of the boutiques of London, Paris and New York, luxury goods companies tap into traits inseparable from primordial needs and wishes: the desire to possess well-made things, look your best, and signal your high status.

Politicians, pandemics and economic downturns may bend the course of history, but unique brands that have found a way to work so thoroughly within the grain of enduring human behaviour, seem likely to grow, whatever’s in the news.

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