Business Breakdowns
· 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?
· Chris Davies
[00:00:00] S1: Yeah, so I tend to think of the quality for most luxury brands in two ways, really. So one is actually the quality of the product itself. And there are many different strands to that. There's the history, the heritage, there's the actual craft that's gone into it. The touch, the feel, the smell, if you're dealing with fragrances. And then there's the experience. And that, I think, is a really crucial part of any luxury brand. You need people to feel that they're experiencing something—this is something that's really special and unique. Now, on the product quality side, Moncler has this really high standard when it comes to thinking about the down that goes into its jacket. So this is white goose down that Moncler uses and these standards are really, really strict. So it has this special down integrity system and traceability protocol, which sounds very complicated and very scientific and in some ways it actually is. For example, they actually do have a third-party auditor that's basically testing the DNA of some of the down to make sure that the species is right, but to go maybe a level deeper on the quality of the down itself. So you've got various standards around fill power. So if you think about the way in which the down is clumped together, the way it's put into a jacket, there's various high standards around ensuring that you've got the right amount of down occupying a cubic inch after it's been compressed. There's actually a lot of detail about this online.