Business Breakdowns
· 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.
· Chris Davies
And that's a dynamic which is quite rare and quite unique to luxury businesses because you have this really perverse setup whereby when you've established this brand with great heritage and credentials, you can put prices up, and that almost helps you grow the business, regardless of what you're doing with volumes. Luxury, I guess, is also just much more visible than it used to be. And that's not necessarily a bad thing, I mean, if you control the scarcity of your products really well. But it's arguably much easier than ever to create that gap between demand—I think back to that Shanghai event, all the hype you can generate through social media—and supply, exploiting that gap is really what you're doing when you're putting up prices, I think, at a high level as well. You've basically got more consumers around the world who can afford luxury than they used to be. I know that's a really simplistic argument, but if you had bet on people liking nicer things as they get wealthier over the last 30 years, you'd probably have done all right. Whether you invested in this brand or that brand that did a good job, you'd have made quite a lot of money. So I actually think that the growth rate and the size of the market is in Moncler's hands here. This is not something where we're going out into the world and basically trying to take share away from another player. This is something new. It's a new phenomenon. And I think that's really underscored by the fact that they say, I think it's 60% or something, of their customers are new customers. So they're still very much in this early phase of growth.
· Matt Reustle
[00:00:00] S0: And there's a foundation of quality in the product. What does that mean for outerwear, specifically Moncler? If I think about some of the other brands, there is both materials and process, sometimes weighted towards more materials or more process, depending on what the brand is. How would you define that and just what makes up the quality of a Moncler jacket?