Juggling Dynamite

Ultra-luxury goods are often regarded as recession-proof, with steady demand regardless of the state of the economy. But that’s not what is happening.

During the pandemic, when ‘free money’ policies sent demand for goods through the roof, many luxury companies seized the opportunity, raising prices by an average of 36% between 2020 and 2023, according to Bernstein analysis (chart below)—roughly double the rate of overall U.S. inflation at the time. For a while, demand proved relatively inelastic, holding up despite soaring prices.

This was good for companies, where higher prices with steady demand increased total revenue. Now, as with unaffordable homes, cars and motor homes, ‘greedflation’ is coming back to bite in the form of weaker demand.

With excess inventory building in many sectors, cheaper options are taking market share from rivals that consumers now consider overpriced. That’s a problem for those who cannot or will not reduce prices, and then there is the matter of who will pay for new tariffs. See Luxury Brands Are Paying for Over-the-Top Price Hikes:

Luxury brands also can’t cut prices without damaging their image. They spend billions of dollars a year on advertising to convince shoppers to pay steep markups on their goods. Charging less is an admission that they have misread the market and that their goods aren’t as desirable as thought.

More likely, labels will sit on their hands until inflation and income growth slowly make their goods seem more affordable. They can also design new lower-priced products to boost sales.

Brands that showed restraint during the pandemic have the best chance of shielding their profit margins from President Trump’s tariffs.

…At the end of the day everything has its price, even luxury.

Denmark raised its retirement age last week to 70 for Danes born in 1971 or later. Workers currently become eligible for the Danish equivalent of Social Security at age 67, which will go up steadily in the coming years. See: The New Retirement Age in Denmark is 70:

…There aren’t politically easy answers, and people in physically demanding professions might struggle to work additional years in those same jobs. Yet there appears to be a cross-party agreement in Copenhagen that leaving the retirement age unchanged is reckless.

…As a reminder, the U.S. system of Social Security is projected to be insolvent in 2033, at which point the checks to retirees will suddenly be 21% smaller. Nobody wants this to happen, but nobody wants to take the heat for proposing real reform, so the U.S. keeps barreling toward a cliff while pretending not to notice.

With life expectancies of 80 years or more, more of this is inevitable in other developed economies. In the United States, full government-sponsored retirement benefits are currently available at age 66, whereas in Canada, they are available at age 65. Germany, under Angela Merkel, went the wrong direction, lowering the retirement age to 63 from 67 for some workers. France raised its retirement age to 64 from 62 under a reform pushed through by President Emmanuel Macron.

During the pandemic, near-zero interest rates and government subsidies enabled excess consumption beyond sustainable means. That inflated the prices of most goods and assets while exacerbating wealth gaps between the old and young, as well as between the top ten percent and the rest. We are now in a mean reversion phase, and the downward momentum is contagious across the economy.

The RV market has been in recession over the last two years, with prices of RVs plummeting by as much as 25%. This RV market collapse is a leading indicator for the US economy and suggests an economic slowdown is underway. The last time the RV market crashed like this was before the 2008 economic crash. Sales declined and prices dropped. Today, Many RVs cost as much as $100k to $150k, and some people who bought during the pandemic can no longer afford them. Publicly traded RV companies like Winnebago are showing the slowdown in their stock price, down as much as 60% the last three years. Here is a direct video link.