Understanding emerging trends in a sector can give investors an edge when choosing which companies to invest in. Over the last few years the spending habits of luxury consumers have started to evolve.
For the affluent customer, it's no longer about fancy cars and high-end jewelry. The recession left even well-heeled shoppers more budget-conscious. Now these individuals are looking for more practical luxury -- like expensive gym memberships or organic produce. Here are five companies poised to profit from this trend.
1. Whole Foods Markets (NYSE: WFM )
Whole Foods is a longtime recommendation here at the Fool, and this eco-friendly grocer is still going strong. The company purposefully places its stores in areas with a more educated and affluent population, and this strategy serves them well.
These populations are usually found in certain urban areas, so the recent boom in city dwellers is good news for Whole Foods. The U.S. Census' recent estimates for 2011 showed that cities are growing faster than suburbs for the first time in a century. That was likely a driving factor in Whole Foods' 2011 growth -- the stock rose 37% during that time and is up 35% more so far in 2012.
2. lululemon athletica (Nasdaq: LULU )
According to a recent study by IBISWorld, gym memberships have been on the rise because of the practical luxury consumer. This is not only because of the pricey cost of a gym membership, but also because "consumers must ... have time to spend on fitness, and free time can also be a symbol of affluence. As a result, fitness is a luxury people are willing to splurge on."
Investing in gyms themselves can be tricky, though. Instead, focusing on a powerful brand like Lululemon is most investors' best bet. This company has been able to successfully market high-priced workout clothing that's perfect for this new type of affluent customer. It has provided consistent market-beating results for its investors (725% over the last five years alone!) and is projected to continue growing as it expands internationally.
New investors should be aware, though, that the growth going forward will probably not be quite as astronomical as in Lululemon's recent history. The company's projected double-digit growth for each of the next five years is still impressive, though, and likely to continue beating the market.
3. Toyota (NYSE: TM )
Fellow Fool Morgan Housel recently wrote about the huge increase in auto sales this year. Pent-up demand from the recessions has opened the flood gates, leading auto sales to contribute more than 30% to GDP growth in the last two quarters.
Leading the pack is Toyota, with cars known for dependability and innovation, like the iconic Prius, which is now the third-best-selling car in the world. The hybrid car offers exactly what many luxury shoppers are looking for: a dependable vehicle that's eco-friendly. If that doesn't sound like it appeals to the luxury palate, consider that the average income for a Prius owner tips into six figures and is about twice that of the average American family, despite a vehicle price tag that's decidedly middle-of-the-road. General Motors' (NYSE: GM ) Chevy Volt does the Prius one better, with a reported average buyer income of $170,000, though the vehicle's price tag is decidedly more expensive as well.
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