Business Breakdowns
· Chris Davies, Matt Reustle
I mean, they've been in the sort of high 30s, low 40s. So Moncler's in pretty good company, I would say. [00:00:00] S0: Yeah, it's interesting. Another episode we did was on Gucci, where you've seen the volatility of the margins and at one point being at 40%, getting as low as into the teens. But it's interesting to see that type of durability. Specifically, before we move on too much further, I do want to touch on the Stone Island acquisition and the brand I mentioned before we recorded in one of our previous conversations. I did not appreciate that they owned Stone Island. It's a brand that I've always had some affinity for and wondered if one day it will make this revival to the masses. And I'm just curious: what went into that deal? How does it fit into the broader Moncler strategy? And anything else you think is relevant to that piece, albeit small as a percentage of the whole, but to your point, is a potential growth engine?
· Chris Davies
[00:00:00] S1: It's a much younger brand than Moncler. If you go back to 1982, that's when it's founded by a guy called Massimo Osti. He was based in Ravarino, just north of Bologna, and made a name for himself as an experimentalist. He experimented with lots of different types of dye, different fabrics, and he sells the business to an Italian businessman called Carlo Rovetti. This is in the early 1990s. Rovetti's family roots actually are very much in the textile industry in Italy. We trace back to the second half of the 19th century. He's got deep expertise, knows the industry, he knows the business. So he owned the business really since then. And to get to your question, which is how this all came about, it was actually their sons—Carlo Rovetti and Remo Ruffini's sons—who struck up a conversation and suggested that their fathers get together and start talking about the possibility of an acquisition at some point. So Ruffini had known Rovetti for 40 years or something. He'd been an admirer of Stone Island, he knew the business well. They get together and eventually agree that it would make sense for Moncler to buy Stone Island. So there's this two-stage process which begins in December of 2020. It's finished by February or March in 2021. So Moncler announces it's going to buy Sportswear Company, and this is the parent company of Stone Island, valued at 1.15 billion euros. So that's roughly just under five times sales, just under 14 times expected EBITDA for 2021. 70% is basically bought from Carlo Rovetti and his family holding company. Moncler pays 50% cash, 50% stock for that, and then the other 30% is bought from Temasek, which is Singapore's sovereign wealth fund, and they're bought out for 345 million euros in cash. So now Moncler owns the whole thing. Rovetti sticks around for a few years. He's on the board, he has since departed the company. He's no longer involved, although he did actually appear in a recent Stone Island advertising campaign. So he hasn't gone very far. To maybe put some context to Stone Island, as I mentioned earlier, it's around 400 million euros of revenue, which is a big increase from the 240 million it did in 2020. And around that sort of time, Ruffini said he was aiming to really double sales within five years. So they're getting there.
· Chris Davies
And just to revisit this point I made earlier about Stone Island being a bit of a diamond in the rough, the average selling prices are probably 30 to 35% below Moncler. It's got a big exposure to wholesale, so I think maybe 80% of the business at the time. So this is where you basically have an intermediary that's buying the stuff from you. You have to sacrifice some of your margin for that. So the retail exposure, the direct-to-consumer exposure is pretty low. And Moncler had been there, by the way. They'd been there when Ruffini took over. He went on this long journey, really tilting the business away from wholesale and towards retail, towards that direct-to-consumer channel. The other main differences with Stone Island are, first of all, its demographic is quite different, so it really skews towards the male demographic. It is also younger, slightly younger demographic. So Ruffini sees this as a way to speak to a different segment of the population, maybe a younger segment of the population, but it's also really massively exposed to Europe. So Ruffini sees this really as a huge opportunity because it under-indexes to Asia and it under-indexes to the US. So he sees opportunities there. So he's basically bought this thinking, you know what? I have turned Moncler into this incredible brand, but I can see some things in Stone Island that might actually mean I can do the same thing again.
· Matt Reustle, Chris Davies
[00:00:00] S0: Yeah. It's interesting when you see a playbook emerge for Moncler, that wholesale versus direct-consumer split, has that shifted over time? And just if you compare it to the 80% wholesale for Stone Island, what does that look like for the Moncler brand specifically? [00:00:00] S1: Yeah, so today they're almost the opposite, which is interesting. So Moncler has been on a bit of a journey here. So if you look last year, so this is 2024, at the group revenues, basically 80% of the group revenues were direct-to-consumer. But if you look at the Moncler brand itself, that's more advanced, that's 86%. Stone Island is 52%. So it's way behind where Moncler is, but it is moving in the right direction. So if you look at where it was at the end of 2021, for example, Stone Island's direct-to-consumer was only really 29%, so it's moved quite materially. The geographic exposures moved as well. So again, going back to 2021, that's the first year that they probably got their hands on this asset. You had at that point, 77% of revenues coming from EMEA. A third of that region was Italy. Asia was just 13% last year, EMEA was down to 67% and Asia was up at 26%. So he's already making these pretty serious moves in the business.
· Chris Davies, Matt Reustle
[00:00:00] S1: Yeah, so today they're almost the opposite, which is interesting. So Moncler has been on a bit of a journey here. So if you look last year, so this is 2024, at the group revenues, basically 80% of the group revenues were direct-to-consumer. But if you look at the Moncler brand itself, that's more advanced, that's 86%. Stone Island is 52%. So it's way behind where Moncler is, but it is moving in the right direction. So if you look at where it was at the end of 2021, for example, Stone Island's direct-to-consumer was only really 29%, so it's moved quite materially. The geographic exposures moved as well. So again, going back to 2021, that's the first year that they probably got their hands on this asset. You had at that point, 77% of revenues coming from EMEA. A third of that region was Italy. Asia was just 13% last year, EMEA was down to 67% and Asia was up at 26%. So he's already making these pretty serious moves in the business. [00:00:00] S0: Yeah. It's quite interesting getting back to the outerwear market, specifically as a luxury market. You mentioned some of the brands that might be considered in this category, like a Canada Goose, Arc'teryx. I would even think about people considering a Patagonia jacket for certain things. How do you define this segment? Whether it's from a size perspective, from a competitive forces perspective, just thinking about where Moncler dominates or has significant amount of competition.
· Chris Davies
[00:00:00] S1: I think both of those are actually really hard questions. I'm going to have a go at answering them because I think it is important to really try to think about what Moncler is doing and why these growth rates might actually be sustainable over the long run. So if you were to look at the market at a high level and try to really define it, let's go right up to the highest level we can, the luxury market. I've heard estimates saying that that is maybe one and a half trillion dollars. Now, that's huge. That covers everything. That's watches, it's jewelry, it's cars, it's yachts, it's spirits, it's leather goods, it's fashion, et cetera. That's useless. That tells us nothing. Even if you calculate what percentage of this market is Moncler, well, it's going to be tiny. That doesn't really tell you very much. So if you're trying to figure out what is a sensible estimate for what this market size is today, I have tried to dig around to find some reasonable estimates. And the best I've found is a company called Perfect Moment, which is a small luxury skiwear lifestyle brand founded in France in the 1980s. And I think they published some numbers saying that they think that the global luxury outerwear market is probably about $16 billion. And that was back in 2022, growing 6 or 7%. Now, I don't know if that's right. I guess if you were to look at some of the big names here, so look at Moncler brand, which is doing $3 billion of revenue last year, roughly. You've got Canada Goose, which maybe was 960 million to the financial year at the end of March last year. And you've got Arc'teryx, which its owner claimed had surpassed $2 billion in sales for the brand last year. So let's call that maybe 6 billion between the three of them. But that's not the whole market because there are a whole bunch of other players in there. You will have other luxury brands which in some way participate in this market, but maybe 16 billion as a whole for that market is not a ridiculous number. I'd make a couple of observations on this. First of all, you're trying to think about how big this market is going to be in the next five to 10 years. There's an element of these companies almost deciding the size of their own market.