Alfred E. Neuman, the legendary cover boy of the humor magazine “Mad”, famously asked the question “What, me, worry?”.
Yes, the character didn’t actually exist, but one could argue that his question has some real-world implications.
Economic indicators are pointing to tough times, yet some consumers are still shelling out serious coins for ultra-expensive items.
On October 17, luxury automaker Rolls Royce unveiled the Spectre, its first all-electric car.
The Specter, due for delivery towards the end of 2023, is the first step in the automaker’s plan to make its entire product portfolio all-electric by 2030.
“This is the beginning of a bold new chapter for our brand, our exceptional customers and the luxury industry,” Torsten Müller-Ötvös, CEO of Rolls Royce, said in a statement.
You may recall that Müller-Otvös caused a stir in January when he suggested that deaths related to Covid-19 had helped boost sales of the luxury vehicle.
“The most perfect product”
But he has since put that little controversy behind him and now touts the Specter as “the most perfect product Rolls-Royce has ever produced”.
Perfection doesn’t come cheap, of course, as the Specter will cost around $400,000.
That might sound a bit steep, but Muller-Otvos told CNBC that more than 300 US buyers had already made a deposit before Rolls-Royce’s first electric vehicle was unveiled.
If that’s a little too rich for your blue blood, maybe we can interest you in the 2024 Cadillac Celestiq, a handcrafted luxury electric car that will start at just over $300,000.
The Celestiq will only be available upon request and customers will need to make a “significant deposit” to begin the process.
“Consumers are quite satisfied with their current cars,” said Jean-Noël Kapferer, professor of marketing at HEC Paris. “For the immediate future, they want the same cars but powered differently. They want a real Cadillac with batteries instead. The same goes for Rolls Royce. The price should be the same then.”
As for the manufacturers, Kapferer said: “The status as a luxury brand in the automotive market requires prices that are disproportionate to the production costs, but to the willingness of consumers to pay.”
These big vehicles are hitting the road at a pretty challenging time.
‘Close the hatches’
The economy contracted 1.6% in the first quarter and 0.6% in the second. Consumer prices rose 8.2% in the 12 months to September and the Fed has hiked interest rates by 3 percentage points since March.
Just about every economist you can shake a pie chart at says a recession is coming.
JPMorgan Chase (JPM) Chief Executive Jamie Dimon warned that inflation, rising interest rates and the war in Ukraine are likely to plunge the US and Amazon “into some kind of recession.” (AMZN) Jeff Bezos, the second richest man in the world, is urging people to ‘shut the hatches’.
So what’s up?
“The global wealth gap has widened in recent years as the pandemic has had a disproportionately negative impact on low-income consumers,” said Jenna Drenten, associate professor of marketing at Loyola University Chicago’s Quinlan School of Business.
“The launch of new luxury vehicles that sell for hundreds of thousands of dollars is evidence of the growing wealth gap,” she added.
Drenten said these cars “also give wealthy consumers a little reason to justify such spending.”
“A wealthy consumer can drive around in an electric vehicle worth over $400,000 and take pride in doing good for the environment while largely ignoring potential recession and economic inequality,” she said.
And people don’t just spend the top dollar on cars.
As Manhattan’s rental market cools, Bloomberg reported that prices for the most expensive apartments are still rising.
U.S. private jet travel rose to 2.76 million aircraft departures in the first eight months of 2022, or 12.3% from pre-pandemic departures in 2019, according to the Robb report.
According to a study by Bain & Co, the personal luxury goods market is enjoying a V-shaped recovery from its worst slump in history.
“Despite significant macroeconomic challenges, including hyperinflation, slowing GDP growth and the Russia-Ukraine conflict, the personal luxury goods market has once again shown resilience,” Claudia D’Arpizio, lead author of the study, said in the study.
“Luxury brands have started this year with particularly strong growth while playing a leading role in the world’s ongoing sustainable and digital transformation,” she added.
In addition to growth from traditional luxury products, according to the Bain report, digital assets and the virtual world – the metaverse, social media and games – will play an increasingly relevant role in luxury brand value propositions.
By the end of 2030, digital assets and the metaverse will account for 5-10% of the luxury market
“What you’re seeing suggests to me that conspicuous consumption among the very wealthy is continuing, even as the economy poses challenges for ordinary people,” said Bruce G. Carruthers, professor of sociology at Northwestern University.
Decades of increasing economic inequality, he added, “mean there are some extremely comfortable people who can continue to enjoy the perks of wealth – fancy cars, luxury homes, etc. – through the economic cycle of booms and busts.”
Or as Alfred E. Neuman would say, “What, I, worry?”