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Hey all, well I am currently reading this book called "Richistan," and it is all about the explosion of wealth in the world, and America in particular, these days. The author calls the new world they've created "Richistan," and he divided them up into three levels: Lower Richistanis (net worth $1 million to $10 million), Middle Richistanis (net worth $10 million to $100 million), and upper Richistanis (net worth $100 million to multibillions). There are now more wealthy people in the world then ever before, thanks to the river of money, venture capital, new technologies, and free market-friendly governments, and it has just caused an explosion in wealth. The book talks about like, for example, how the butler industry has been completely reborn, only they aren't called butlers now, they're called "House Management Professionals," or something like that, etc...ANYWAYS, because of this huge explosion in wealth, the wealthy are actually no longer a small class anymore. They have grown, for two reasons:
1) the number of "affluent" people (upper-income middle-class people) has also grown a lot, and these people love to seem wealthy, and the luxury industry has caught onto this, thus creating many very inexpensive versions of their luxury brands. There is a book about this too, called "Deluxe: How Luxury Lost It's Luster," which is about the "cheapening" of much luxury, but that is a different topic (it has also created new super-luxury products so that the truly rich can still have things the lower folks can't). But anyways, the point is that all these luxury brands are marketing to the mass medium of affluent people now, and this has been a phenomenal success. For example, things like Gucci sunglasses, which aren't too expensive for affluent people, but still have the luxury logo on them, luxury lipsticks, etc...to make affluent people feel nice. Also re-packaging of chocolate, for example, if you go into the market you can find luxury milk chocolate. Now to me that is a true insult to people's intelligence, I mean the whole reason that milk chocolate was created in the first place was as a way to let the masses enjoy something very similar in many ways to real chocolate but was much cheaper. But, that's capitalism folks, if you can take milk chocolate and re-package it as a luxury product and yank up the price accordingly and people will buy it, more power to you IMO.
Anyhow though, the point is there is now a huge market for luxury products, as many products that were formerly solely the area of the wealthy have become available to the affluent and the masses.
We have also seen this to some extent with the automotive industry, as I'm sure LamboPower readers have seen people talk about how cars like Mercedes, Lexus, BMW, etc...used to be true symbols of luxury, but have now become almost commonplace in certain areas, thus making Bentleys, Aston-Martins, Lamborghinis, Ferraris, etc...the new standard, and some now even complain those are becoming too commonplace! This ups the standard even higher to the Rolls-Royce and the Maybach and the Bugatti Veyron, etc...
As such, new super-luxury products have also began coming about, for example $300,000 mechanical watches, 300 and 400 foot yachts, etc...an interesting and rather funny thing about these yachts, especially the 400+ footer ones owned by multibillionaires like Larry Ellison and Paul Allen, is the point of them is to park them next to all the other yachts as a "Na na Mine's bigger!" type of thing, only the problem is, these yachts are sooo HUGE that they are too big to dock at conventional yacht ports, so they have to be docked next to oil tankers and so forth, which defeats the whole purpose
Okay I'm rambling again, point is marketing "luxury" to the masses is now an industry. Luxury, as a market, is no longer the sole avenue of the truly wealthy.
Two very interesting things I have learned from reading this book and the "Deluxe" book are: much of what is passed off as "luxury" these days is not "true" luxury anymore. Many luxury brands that claim their handbags are "Made in Italy," for example, actually have them made in China, or 3rd world countries, with cheaper materials, and the "Made in China" (or wherever) badge is put onto the handbag. What they then do is ship the handbag to Italy and have that badge covered over, so that the "Made in China" part of the "Made in Italy" handbag is inside the stitching, where you can't see it. They then have, say, the handle, attached in Italy and the "Made in Italy" thing attached, and then they ship off the lower-quality bags to luxury retailers and people buy them. This, combined with the new marketing to the masses, has given luxury companies HUGE profits and great returns to their shareholders.
I personally see absolutely nothing wrong with more and more luxury products becoming available to the masses, I mean that is what happens as time goes on and things become cheaper, for example inground pools and home theaters used to be the sole area of the wealthy, but now these things are much cheaper and more available. Cell phones and TVs in your car too.
But I do not like it when these companies lie about where the product is made and the product's quality, to the people. This is a whole different topic thuough, but figured I'd throw it out there, READ THE BOOK!
The other VERY interesting thing I've learned is that, this marketing to the wealthy makes a sort of "rat-race" with each level trying to make itself look richer than it really is. I'm sure you've all heard of the upper-income middle-class people who buy luxury vehicles and luxury homes, but take on huge debt to "look" rich. Well it turns out this doesn't just apply to the affluent---it applies also to the actual wealthy, all the way up to the billionaires. Yes, there are even billionaires living beyond their means, taking on debt it turns out. WHY people would do this at that level of wealth when you could lose it all is beyond me (and one guy did lose it all), but people are doing it. The affluent want to look like the lower Richistanis, many lower Richistanis want to look like the Middle Richistanis, and the Middle want to look like the upper Richistanis, and those who live in Billionaireville I guess try to look like their wealth is unlimited.
Here is a quote from the book:
"Businesses that have succeeded in Richistan are already outpacing the broader market. As part of his stock research, Kapur created an index from shares of companies that cater to the rich, including Julius Baer, the private banker; Bulgari; Richemont, which oversees Cartier, Dunhill and other brands; Kuoni, the upscale travel agency; and Toll Brothers, the luxury home builder. Since 1985 the Plutonomy Index has increased 17.8 percent a year, well outperforming broader global indexes.
One way to get rich, in other words, is to invest in companies that serve the rich. With the population of rich people expanding so rapidly, wealthy consumers have gone from being a niche market to a broad consumer base. The old economic adage of "Sell to the classes, live with the masses" no longer holds quite as true, as those who sell to the "classes" are making "classes" money themselves."
It also has created a trickle-down affect, for example in the book, the author tells about how he was a at a luxury car dealership talking to the head guy and a salesman came over and said he had a buyer for a Ferrari. The head asked what the potential buy did career-wise, and the salesman said, "Well....he's a stone mason." The author then went and asked the mason guy how he got wealthy enough to buy a Ferrari, to which the mason responded, "Well, all these new large homes are made of stone, they need walls, they need patios, etc..." very interesting read.
So marketing to the wealthy, or marketing luxury products, or products packaged as luxury, seems to be a profitable thing now and a way to make some serious $$$.
1) the number of "affluent" people (upper-income middle-class people) has also grown a lot, and these people love to seem wealthy, and the luxury industry has caught onto this, thus creating many very inexpensive versions of their luxury brands. There is a book about this too, called "Deluxe: How Luxury Lost It's Luster," which is about the "cheapening" of much luxury, but that is a different topic (it has also created new super-luxury products so that the truly rich can still have things the lower folks can't). But anyways, the point is that all these luxury brands are marketing to the mass medium of affluent people now, and this has been a phenomenal success. For example, things like Gucci sunglasses, which aren't too expensive for affluent people, but still have the luxury logo on them, luxury lipsticks, etc...to make affluent people feel nice. Also re-packaging of chocolate, for example, if you go into the market you can find luxury milk chocolate. Now to me that is a true insult to people's intelligence, I mean the whole reason that milk chocolate was created in the first place was as a way to let the masses enjoy something very similar in many ways to real chocolate but was much cheaper. But, that's capitalism folks, if you can take milk chocolate and re-package it as a luxury product and yank up the price accordingly and people will buy it, more power to you IMO.
Anyhow though, the point is there is now a huge market for luxury products, as many products that were formerly solely the area of the wealthy have become available to the affluent and the masses.
We have also seen this to some extent with the automotive industry, as I'm sure LamboPower readers have seen people talk about how cars like Mercedes, Lexus, BMW, etc...used to be true symbols of luxury, but have now become almost commonplace in certain areas, thus making Bentleys, Aston-Martins, Lamborghinis, Ferraris, etc...the new standard, and some now even complain those are becoming too commonplace! This ups the standard even higher to the Rolls-Royce and the Maybach and the Bugatti Veyron, etc...
As such, new super-luxury products have also began coming about, for example $300,000 mechanical watches, 300 and 400 foot yachts, etc...an interesting and rather funny thing about these yachts, especially the 400+ footer ones owned by multibillionaires like Larry Ellison and Paul Allen, is the point of them is to park them next to all the other yachts as a "Na na Mine's bigger!" type of thing, only the problem is, these yachts are sooo HUGE that they are too big to dock at conventional yacht ports, so they have to be docked next to oil tankers and so forth, which defeats the whole purpose
Okay I'm rambling again, point is marketing "luxury" to the masses is now an industry. Luxury, as a market, is no longer the sole avenue of the truly wealthy.
Two very interesting things I have learned from reading this book and the "Deluxe" book are: much of what is passed off as "luxury" these days is not "true" luxury anymore. Many luxury brands that claim their handbags are "Made in Italy," for example, actually have them made in China, or 3rd world countries, with cheaper materials, and the "Made in China" (or wherever) badge is put onto the handbag. What they then do is ship the handbag to Italy and have that badge covered over, so that the "Made in China" part of the "Made in Italy" handbag is inside the stitching, where you can't see it. They then have, say, the handle, attached in Italy and the "Made in Italy" thing attached, and then they ship off the lower-quality bags to luxury retailers and people buy them. This, combined with the new marketing to the masses, has given luxury companies HUGE profits and great returns to their shareholders.
I personally see absolutely nothing wrong with more and more luxury products becoming available to the masses, I mean that is what happens as time goes on and things become cheaper, for example inground pools and home theaters used to be the sole area of the wealthy, but now these things are much cheaper and more available. Cell phones and TVs in your car too.
But I do not like it when these companies lie about where the product is made and the product's quality, to the people. This is a whole different topic thuough, but figured I'd throw it out there, READ THE BOOK!
The other VERY interesting thing I've learned is that, this marketing to the wealthy makes a sort of "rat-race" with each level trying to make itself look richer than it really is. I'm sure you've all heard of the upper-income middle-class people who buy luxury vehicles and luxury homes, but take on huge debt to "look" rich. Well it turns out this doesn't just apply to the affluent---it applies also to the actual wealthy, all the way up to the billionaires. Yes, there are even billionaires living beyond their means, taking on debt it turns out. WHY people would do this at that level of wealth when you could lose it all is beyond me (and one guy did lose it all), but people are doing it. The affluent want to look like the lower Richistanis, many lower Richistanis want to look like the Middle Richistanis, and the Middle want to look like the upper Richistanis, and those who live in Billionaireville I guess try to look like their wealth is unlimited.
Here is a quote from the book:
"Businesses that have succeeded in Richistan are already outpacing the broader market. As part of his stock research, Kapur created an index from shares of companies that cater to the rich, including Julius Baer, the private banker; Bulgari; Richemont, which oversees Cartier, Dunhill and other brands; Kuoni, the upscale travel agency; and Toll Brothers, the luxury home builder. Since 1985 the Plutonomy Index has increased 17.8 percent a year, well outperforming broader global indexes.
One way to get rich, in other words, is to invest in companies that serve the rich. With the population of rich people expanding so rapidly, wealthy consumers have gone from being a niche market to a broad consumer base. The old economic adage of "Sell to the classes, live with the masses" no longer holds quite as true, as those who sell to the "classes" are making "classes" money themselves."
It also has created a trickle-down affect, for example in the book, the author tells about how he was a at a luxury car dealership talking to the head guy and a salesman came over and said he had a buyer for a Ferrari. The head asked what the potential buy did career-wise, and the salesman said, "Well....he's a stone mason." The author then went and asked the mason guy how he got wealthy enough to buy a Ferrari, to which the mason responded, "Well, all these new large homes are made of stone, they need walls, they need patios, etc..." very interesting read.
So marketing to the wealthy, or marketing luxury products, or products packaged as luxury, seems to be a profitable thing now and a way to make some serious $$$.
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