The Luxury Goods Index (LGI) is a measure of the value of luxury goods provided by manufacturers. It is calculated based on the manufacturers prices of the items on the market, their sales prices and other factors. This index was created by The Brand Equity Foundation (BBF), a non-profit group dedicated to improving the quality of the world’s consumer markets. The index attempts to provide a comprehensive analysis of the companies that produce luxury goods and to help evaluate how they fit into the various different economies across the globe. For instance, luxury goods makers in developed countries have to contend with high costs of raw materials and fuel, but those in emerging markets are subject to government price and exchange controls.
In addition to the overall economic factors that affect luxury goods markets, there are also some external factors that determine the value of the good in question. For instance, foreign currencies have a strong effect on the value of luxury goods. The current global crisis has significantly weakened the Swiss Franc against the dollar, resulting in lower export flows and a corresponding reduction in the country’s gross domestic product (GDP). While this has had a significant negative impact on Swiss firms, it is expected that Swiss exporters will rebound and resume growth in the near future, as the Swiss economy hopefully heals from the recent global financial crisis.
Another important factor that is taken into consideration when assigning a value to luxury goods is that country’s political system. As was discussed earlier, countries in Europe and the United States have experienced major political difficulties in the past few years. These problems have affected not only the European Union but also the global economy in a negative way. Economic policies and trade relations are closely linked to each other. If a country’s political standing is no longer positive, then its ability to export goods will be limited, and so its value will decrease.
The Luxury Goods Index calculates two components – market price and cost of acquisition. Market prices are expressed in terms of the foreign exchange traded by consumers for imported goods. This calculation factors in current exchange rates, and the current value of the country’s principal currency. Cost of acquisition takes into account the cost of production or development of luxury goods. Luxury goods producers take into account a wide variety of factors when calculating their costs of production, including geography, demographics, timing and expertise of the various staff, and technology.
A good indicator of the country’s economic health is the level of disposable income available to households. The Purchasing Managers Index (PMI) gives a ratio of disposable income to total income, which can indicate whether households are indeed overburdened. Conversely, an index called Purchasing Managers Index (PMI) indicates that households have enough disposable income to allow them to purchase the goods they need. Purchasing Managers Index is based on the ratios between total income and the cost of production, including reinvestment. It can also measure whether households have sufficient savings to allow them to purchase luxury goods.
Many countries with growing economies have falling levels of Purchasing Managers Index; conversely, many countries with shrinking economies are experiencing rising Purchasing Managers Index. Purchasing Managers Index is affected by different economic variables including: consumer sentiment, political stability, the quality of the local currency, inflation, the role of the foreign exchange market, international trade flows, trade balances, and political stability. Purchasing Manager Indexes tends to be negative when there are imbalances between demand and supply. For instance, when there is excess inventory, the cost of goods tend to increase because of higher demand.
Purchasing Managers Index can also measure the strength of the domestic demand in relation to the strength of the export market. This index measures the gap between the value of imported goods and the value of domestically sourced goods. In order to create a luxury-goods stock, a market analysis should be carried out to determine the relative strength of the imported goods against the domestic production.
The Luxury Goods Stock Indices is based on historical data and current economic variables. Historical data is available from the past 3 months to the last 6 months for Purchasing Managers Index, Inventory Price Index, Consumer Price Index, and Producer Price Index. Current data can be obtained from the last 7 years for the Purchasing Managers Index, Inventory Price Index, Consumer Price Index, Producer Price Index, and the Balance of Payments Index. The index is formulated to give a common price for listed items that can be bought and sold across time in the same market. It is a dynamic measure that is updated regularly to facilitate trading and prevent stock market crashes.