Consumer durable goods are often considered discretionary purchases, meaning they are not always necessities and are more likely to be bought when consumers feel prosperous. During times of economic expansion, when consumers have more disposable income and are optimistic, demand for these goods can surge.
This can lead to significant share price appreciation for publicly traded companies that make and sell these goods. Consumer durable stocks can also be more volatile than other sectors, particularly during economic downturns.
Overview
What are consumer durables?
Consumer durables are products that are not consumed quickly and are designed to last for an extended period, typically three years or more.
A primary characteristic of durable goods is their longevity, meaning they are designed to be used for a relatively long time before needing replacement.
Due to their durability and higher price, consumers tend to purchase durable goods less frequently than non-durable goods. Consumer durables often involve a significant financial investment, making them a more substantial purchase that has a greater impact on the financial health of a household.
Types of consumer durables
What are the different types of consumer durables?
There are many different categories of consumer durable goods that people around the world rely on each day. Common examples include:
- Appliances: Large household items used for cooking, cleaning, and maintaining a comfortable living environment. Examples include refrigerators, washing machines, dryers, dishwashers, ovens and ranges, air conditioners, and microwaves.
- Electronics: All manner of devices used for entertainment, communication, and information processing, such as television, computers and laptops, smartphones, audio equipment (stereos, speakers), and gaming consoles.
- Furniture: Items used to furnish homes and offices, including sofas, tables, chairs, desks, beds, and dressers.
- Vehicles: This includes a wide range of modes of transportation such as cars, trucks, motorcycles, and bicycles.
These are just some of the examples of consumer durables. Others range from power tools, jewelry, and watches, to fine art, and sports equipment.
Importance to investors
Why do consumer durables matter to investors?
Consumer durable stocks can offer investors a wide variety of benefits from exposure to a growing addressable market. As economies grow and incomes rise, consumers tend to spend more on durable goods. This can lead to increased sales and revenue for companies in the consumer durables sector, potentially leading to consistent share price appreciation.
Investing in a basket of consumer durable stocks can offer diversification benefits and potentially reduce your overall portfolio risk in the event of a downturn. While some consumer durable goods are discretionary, many are also essential for daily living (e.g., refrigerators).
This means that even during economic downturns, demand for certain segments of the consumer durables space can remain relatively stable. Many established companies in the consumer durables sector pay regular dividends to their shareholders, providing a steady stream of income in addition to potential capital gains from stock price increases.
The consumer durables sector is constantly evolving, with companies introducing new and innovative products. Technological innovation can drive consumer interest and lead to increased sales, a tide that lifts all boats, including those of shareholders.
Related investing topics
Investing in consumer durables
Consumer durables and investing in the stock market
Investors can gain exposure to the consumer durables space in a few ways, including by directly investing in stocks of individual consumer durable companies. Alternatively, you can invest in a basket of these stocks held in an exchange-traded fund (ETF).
Some well-known examples of publicly-traded consumer durables stocks include Apple (AAPL 3.95%), Toyota Motor Corp (TM 1.33%), and Tesla (TSLA 1.82%). The Consumer Discretionary Select Sector SPDR Fund (XLY 0.79%) is an ETF that tracks the S&P 500 Consumer Discretionary Index, which includes companies involved in various consumer-oriented sectors, including some consumer durable manufacturers.
