How can growing sales of Ferrari’s at $250,000 a pop help you?
Recent messages in this series looked at how part of our future is set by the current flow of events. For example can we bet on inflation? Of this we can be pretty sure. We can also bank on the fact that part of the current flow is “expanding distances between the rich and the not so rich”.
At a time when unemployment remains high and inflation cuts deeply into the purchasing power of pensions, savings and wages… some segments of the economy are getting much richer.
A recent USA Today article “CEOs reap huge payouts in 2011, corporate filings show” by Gary Strauss outlines why. Here are excerpts: If 2010 was a banner year for CEO pay gains, 2011 could provide even bigger windfalls.
A USA TODAY analysis of corporate filings through early July shows CEOs reaping huge 2011 payouts, largely due to stock option valuations up sharply from pre-recession levels.
“Some of the gains are humongous,” says Paul Hodgson, a compensation expert for Governance Metrics, who expects more executives to reap big 2011 payouts.
Wall Street’s 2½-year bull market is fueling mega-paydays across a swath of corporate America, from aging industrial giants to young dotcom firms. Yet it also is highlighting the growing wage divide between executive suites and rank-and-file employees.
U.S. workers averaged $46,742 in 2010, up 2.6% from 2009. A June GovernanceMetrics analysis found average compensation among S&P 500 CEOs rose to $12 million in 2010, up 18% from 2009 — and that’s not counting the potential multimillion-dollar value of stock or stock options, which are granted at set prices and provide holders profits as stock values rise.
Among CEOs cashing in:
* Includes salary, bonuses and other compensation, gains from exercised stock options, vested shares and changes in pension value and deferred compensation for CEOs at Standard & Poor’s 500 companies.
Sources: Governance Metrics, Bureau of Labor Statistics
• John Hammergren, McKesson Corp. The health care services CEO pulled in $150.7 million, up 190% from 2010’s $51.8 million.
• Ralph Lauren. The CEO of fashion powerhouse Polo Ralph Lauren received compensation worth $75.2 million, up 53% from $49.3 million in 2010.
• Mark Donegan, Precision Castparts. The parts supplier CEO earned $32.3 million, including $22.4 million from stock options.
• Paul Marciano, Guess. The fashion marketer CEO had compensation worth $29.2 million for 2011, including $17 million from options — up 137% from 2010’s $12.3 million. .
Corporate governance experts say such paydays are excessive.
“It’s insane,” says the Value Alliance’s Eleanor Bloxham. “Corporate boards have bought into the idea that they have to pay up for performance. There’ll be more of the same until institutional investors decide CEOs aren’t worth what they’re being paid.”
Another July 2011 USA Today article “Compensation for corporate directors rises sharply” by Strauss says:
Compensation for corporate directors is rising sharply, a USA TODAY analysis of early 2011 proxy filings finds. Behind the gains: higher cash retainers, fees and rising values of stock and stock option grants.
Directors at the USA’s biggest 200 publicly traded companies received a median $228,000 in 2009, according to pay consultant Pearl Meyer & Partners, meaning half earned more, and half earned less. By contrast, the median income of U.S. households fell 1% in 2009 to $49,777, according to Census Bureau figures.
Board service can be far more lucrative. Apple directors averaged more than $984,000 in 2010. Occidental Petroleum directors averaged nearly $420,000 and Hewlett-Packard’s board more than $381,000.
This influx of great wealth to a few means we should not be surprised to read that luxury sales are up. A July 15, 2011 Economics newspaper article “Sales growth: The luxury goods industry is booming, particularly in China” by by Márcio Cabral de Moura says: The fine goods industry expects sales growth of eight percent and is growing twice as fast as the global economy.
Sales of the luxury industry is set after a study by management consultancy Bain & Company by eight percent to 185 billion euros. Especially in China, demand for luxury of the rich is growing rapidly.
In February and March reported the manufacturer’s own stores and department stores, luxury double-digit growth rates. Most of the summer collection is already sold. “Furthermore, the shops full orders for the upcoming autumn / winter season ordered, especially in accessories, leather goods, watches and jewelry increased their sold-out stocks,” says the projects presented by Bain and the Italian Association of luxury goods Fondazione Altagamma study. The retailers were “confident that customers will shop with the same momentum as before the economic crisis.”
The largest luxury goods market continues to be the United States with a sales increase of eight percent to 52 billion euros. In Europe this year, Bain expects a sales growth of seven percent. “Above all, the growing prosperity in China, sales will inspire and lead to opening of new stores mark” – the demand in the People’s Republic will grow by about 25 percent to 11.5 billion euros, according to the study.
This trend means that the not so rich will have even less purchasing power because this change drives a wedge into the market place… makes luxury goods cost even more, while those without super income are forced to trade down.
We might not like this trend, but since we know it… we can do something to protect our own financial position and gain from this shift as well.
For example we can profit from trading down.
We looked at the opposite effect in an article Doubling Up and Trading Down at an earlier article posted at this site. That article outlined how to invest in the trend of trading down as a growing part of the American population lose purchasing power.
Another way to gain from the trend is to invest in luxury businesses. Last year I would have recommended doing this through the Claymore, ETF ROB.
Unfortunately fund manager Guggenheim went through a housecleaning in late 2010 and one result was to shut down that ETF which had its top holdings in Hermes, BMW and Wynn Resorts. The fund had a very low correlation to big consumer sector funds because it focused only on the wealth brands, be they financials (7.5 percent of the fund), industrials (7 percent) or more traditional retail companies.
ROB’s formula was to go after only companies that offered high luxury items. This was a multi currency ETF as well. Only 23 percent of the fund was invested in the U.S.. Most of the fun was invested around the industrialized world—Japan, the U.K., France, Germany, etc.
ROB was the perfect use of the ETF structure that let investors into many markets, in one theme that is otherwise hard to capture due to the complexity. This broad foreign diversification make the 32-stock ROB portfolio a bit tricky to replicate for the average investor but watching the types of shares that were in that portfolio for opportunity may be worthwhile.
Here are a few of the shares: Mercedes owner Daimler AG (OTCBB: DDAIF) – Swatch (SWGAF.PK)), – BMW (BAMXY.PK) – Christian Dior (CHDRF.PK) – Coach (NYSE: COH) – Polo Ralph Lauren (NYSE: PL) – Saks (NYSE: SKS) – Sotheby’s (NYSE: BID) – Tiffany (NYSE: TIF) – Wynn Resorts (NYSE: WYNN).
With no retail mutual funds focusing on the luxury group, mutual fund investors can look at actively managed, broad retailing funds like Fidelity Select Retailing (FSRPX) or Rydex Retailing (RYRIX).
Another overseas option to investigate is Global X China Consumer ETF (CHIQ) that tracks the Solactive China Consumer Index which is designed to reflect the performance of the consumer sector in China. It is comprised of selected companies which have their main business operations in the consumer sector and are domiciled in China or have their main business operations in this country.
iShares Switzerland (amex: EWL ) is an exchange-traded fund heavily concentrated in luxury goods, one of the sectors that Switzerland is best-known for though this also gives exposure to pharmaceuticals and Swiss financial services.
Another was to gain from this trend is to have your own micro business that caters to the luxury sector.
This is one of several reason why we are working with John and Candace Newman of Oil Lady Aromatherapy who offer the purest essential oils. Essential oils are a luxury that brings beauty as well as good health.
Merri and I have know Candace for decades and have used her products for as many years. Each month I remind readers about essential oils.
Here is what Candace wrote this month: When living in Florida for over 33 years, mosquitos & no-see-ums (?) ruled the summers. Now that John, Muga our dog and I are in Colorado, high and dry, at 7,000 ft, one would think things would be different. Not so good. Our 6-7 week season of no-see-ums love my tender Florida skin, and Muga’s sweet little pink belly. Even John experiences the fascination of red welts. Then there’s the mosquitoes.
Since pure essential oils are too strong to apply directly on animals (not with cats at all) … the best remedy we’ve found for our chocolate lab-mix Muga is our Skin Calm Gel. She loves the aroma & waits to lick my fingers (safe & calms her down due to Chamomile & Lavender in the formula). Yes, she’ll lick her belly, but first I rub it in well and distract her with some on my hands for licking.
John and I go for the straight Tea Tree as soon as possible and dab it right on the spots. We alternate this with Skin Calm Gel. It’s a family-pack affair and we’re grateful for the non-toxic relief.
Candace sent this special offer.
Essential Oil Luxury Opportunity
The luxury market is especially connected to perfume… skin care and beauty products.
An Excerpt from a CNN.money articles entitled “$2,000 a bottle for skin cream?! Yes – and sales are up” says: When La Prairie introduced its latest skincare product — at $500 a pop — Saks had to limit purchases to six at a time. Call it a clear sign of a recovery: Sales of luxury skincare have rebounded sharply.
In 2010, sales of prestige skincare products sold in U.S. department stores reached $2.7 billion, according to the NPD Group, an 8% increase from 2009.
“That market has seen as resurgence at the end of the recession,” noted Alexis Wolfer, editor-in-chief of online magazine the Beauty Bean.
We have been working for many years with a number of businesses who have products or services that we love. These companies are headquartered in many places… Switzerland, Denmark, Ecuador, Spain, Canada as well as the USA and all of them offer global potential… business opportunity almost anywhere.
We write about many of the products of these companies often… though we are not paid.. but just because we like their products and hope you’ll enjoy them too.
We have now started a program to help our readers create their own micro business working with these businesses as referrers, dealers and distributors.
What a match… tens of thousands of readers, many wanting to earn globally… meeting some great… really unique global businesses tied together with a communication system that can bring all this: training…. communicating and networking.
Our online course International Business Made EZ is already geared to help readers learn how to do business abroad… anywhere… anytime.
We have now expanded this course into an annual service that updates readers with business ideas, leads, and tips, contacts, etc.
We have started the beta program and the good news is that we are not charging a penny more more. Our International Business Made EZ online course and our International Business Made EZ seminars remain the same price though we’ll now offer subscribers an entrance to doing business with many turnkey businesses.
The overall service can bring you the following benefits:
#1: Connect you via our our online course “International Business Made EZ” to here and now specific business opportunities.
#2: Keep you in touch with other readers in the program, share business tips, ideas, contacts and even website support in some instances.
We are starting with these five businesses first.
#1: Candace Newman Essential Oils
#2: Jyske Global Asset Management (JGAM) See more about the JGAM referrer program
#3: Bio Wash
#5: Ecuador Imbabura Export Products
Our first program is already under way with JGAM and we have set our first training session for October 10, 2012. The second program is with John and Candace and we are looking for readers who would be interested in buying at wholesale to distribute. If you have an interest please send a note to me at email@example.com.