Michaelís Consumer Column


Trading-Up Companies are Top TSR Performers

In 2002, while doing our research for Trading Up, we began analyzing the total shareholder return (TSR) performance of 15 companies that follow a trading-up strategy—offering premium but affordable products and services that deliver technical, functional, and emotional benefits. We've now compiled data on these companies for the period 2001-2005, and our analysis shows that the trading-up group significantly outpaced the market, achieving 22 points average TSR, compared with 7 points average for the market as a whole and 16 points for the top quartile.

The big winner is Coach, the maker of mass luxury-leather goods, which achieved a remarkable annual TSR of 56 points over the five-year period. The chart below shows all 15 companies in rank order. It also shows how we calculate TSR: by adding sales growth, annual change in earnings before interest and taxes (EBIT), annual change in the EBIT multiple, change in debt, change in shares, and dividend yield.

If you purchased Coach stock at the same time you bought your copy of Trading Up in 2003, you'd be in a position to treat yourself to more than just a very nice handbag. Over the next five years, we expect to see Western markets continue to bifurcate. The trading-up trend is not yet played out and will offer many handsome opportunities. Companies can also find success with a low-cost strategy. Winning at either end of the market requires applying consumer intelligence and consumer insight in order to create meaningful consumer choices.