Riding on the appetites of the wealthy by investing in luxury carries risks

RICH people are getting richer. Think of rising asset prices – be it equities, real estate or gold – driving increases in the net worth of the wealthy. Meanwhile, across many fields, top talent enjoy burgeoning pay packages.

While many middle-class Americans struggle financially, some US chief executives are raking in astronomical sums. Many leading entertainment and sports personalities are being paid handsomely too.

With the growing use of artificial intelligence (AI), financial rewards might skew even further towards a select few who are at the apex of their fields.

As the rich grow richer and the middle class gets squeezed, should investors flock to businesses providing luxury goods and services?

Raffles Hotel Sentosa, which opened in 2025 and comprises villas with room rates of typically well over S$1,000 per night, exemplifies the type of hospitality product that makes sense in a world where the rich are thriving.

Or think of luxury condos such as freehold 21 Anderson, located near Orchard Road, where generously sized four-bedroom units of 4,489 square feet each sell for over S$20 million a unit, or in the ballpark of S$5,000 per square foot (psf). 

Indeed, should property developers launch more premium condo projects in prime districts that can command S$5,000 psf or higher, instead of around S$3,000 psf that many new prime district projects fetch? 

Certainly, profit margins and profitability of businesses serving high-end customers may be stronger as such customers could be less price sensitive.

Nonetheless, investing in businesses that target the well-heeled could be fraught with risks.

For instance, luxury products giant LVMH’s revenue dipped over 4 per cent year on year to 58.1 billion euros (S$88.1 billion) in the first nine months of 2025. Revenue from fashion and leather goods declined by nearly 8 per cent over this period.

Looking ahead, investors banking on the outperformance of luxury goods and services as the ranks of the rich grow should be mindful of several key risks.

Changing tastes

One, consumer tastes can change very quickly. Products and services could lose their luxury cache suddenly. When that occurs, sales plummet and providers of such goods and services lose pricing power. Think of high-end fashion brands that lost their appeal among the wealthy possibly because brands were over-extended in an attempt to grow the customer base.

Or a brand may be insufficiently innovative over time. Also, customers might shun a brand because of a scandal involving its brand ambassador.

Lifestyles are changing too.

More rich people today may focus on health and splurge on fitness and wellness regimes instead of collecting wine or buying high-end fashion products.

Might ostentatious products be unappealing to environmentally conscious wealthy consumers or be seen as distasteful in a world grappling with growing inequality?

Could AI, which is revolutionising many fields, potentially drive huge and unpredictable changes in what people perceive to be luxury goods and services? 

Nationalism and ideology

Two, high-end brands operate in an increasingly complex environment.

Amid rising nationalist sentiments in many countries as well as hot culture wars, marketing campaigns need to be carefully managed for fear of offending certain customer segments. Any offensive behaviour can be quickly amplified online.

However, premium brands need to be authentic and to differentiate as well.

On the one hand, staying safe by being inoffensive might not cut it, while on the other hand, a brand needs to avoid being caught up in nationalistic and ideological spats.

With the big power US-China rivalry, the elite in each of the countries might boycott premier goods and services from the rival country for fear of political backlash.

Perhaps, luxury brands will need to be increasingly selective on which geographic markets to target, considering politics and not just the spending power of target consumers.

Competitive forces

Three, competition could intensify in luxury goods and services. As the ranks of the rich grow in populous countries such as China and India, expect businesses from these countries to compete more fiercely with established European and American powerhouses in the luxury theme.

Add to that, businesses which target individual consumers are busy grappling with how best to reach them in a digital-led world. 

Indeed, the competitive landscape could see many players and few winners.

With abundant choices available, possibly only a handful of products and services will stand out sufficiently to win the hearts and a significant share of the wallets of the rich.

Politics and taxes

Four, squeezing the rich may hold growing political appeal in countries facing slow economic growth, weak job markets, crumbling public services and rising fiscal deficits.

Going forward, the rich might be lumbered with rising tax burdens that eat into disposable incomes and affect consumption.

After all, taxing the rich more to fill fiscal holes could have growing support from the general public.

The recent autumn Budget in the UK introduced what has been dubbed a mansion tax on homes valued at more than £2 million (S$3.5 million). 

Should the world shift from celebrating the successes of capitalism to vilifying those who thrive in a capitalist world, wealthy folk might react by altering their consumption habits and moving away from collecting art, wine, real estate and jewellery, among others.

Could hostility of the masses directed at owners of expensive watches, fancy cars and yachts affect sales of such products?

Still, many people yearn for luxury products and Christmas is a key season for many businesses in the luxury market.

Receiving a pricey well-crafted product from a leading luxury brand as a Christmas gift can be thrilling. 

The aspirational nature of luxury goods and services are powerful sales drivers for the purveyors of high-end items. 

Nonetheless, investors banking on businesses which provide luxury offerings on the back of the megatrend of rising wealth should proceed with caution.

The road ahead is likely fraught with many hazards.