Business Breakdowns
· 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.
· Matt Reustle
[00:00:00] S0: Yes, we had a very cold winter here in the New York area and I went down the rabbit hole of researching the different types of down insulation. Duck down, goose. There are rabbit holes to go down. So I would agree with you there.
· Chris Davies
[00:00:00] S1: There definitely are. I'm desperately trying to avoid going down one. But basically, with fill power, it's how many cubic inches 1 oz of down occupies after it's been compressed. So higher fill power basically means better insulation and better loft, which is basically how much space 1 oz of down occupies when it's expanded. So higher loft means better warmth-to-weight ratio. So basically more effective at trapping warm air. And you can measure fill power. 300 to 500 is generally seen as lower quality. 700 plus is higher quality. That's the down that usually comes from more mature birds. It's got excellent warmth-to-weight ratio, and that's the down that Moncler is really focused on getting into its jackets. And they will go to extreme lengths to make sure that the jackets are perfect. So avoiding clumping, trying to avoid cold spots, all this kind of stuff, which is incredible. But you've also got this product quality notion extending beyond materials—it's relevant for the animals themselves as well. So they've got very strict standards around how you treat the geese whose down you are harvesting. So there's a complete ban here on what they call live plucking that is just completely unacceptable here. So they use this protocol, they've got a third-party auditor which makes sure that they're following these standards. So that I think is really integral to thinking about the down, and again, it speaks to that technical heritage. And then on the customer experience side, which is the other really important aspect of the quality here, think of some of the other great brands out there. One example would be Panerai, which is a famous watch brand which is owned by Swiss group Richemont. If you're a top client there, you'll get invited to private factory tours in Switzerland. You'll get the chance to buy maybe limited-edition watches with engraving options. It makes you feel like you're part of the brand narrative. Or if you go to Louis Vuitton, if you happen to be a regular customer, you'll have a sales associate that remembers your birthday, that knows your past purchases, this sort of thing. So it's really feeling like you're actually quite special as a client, not a consumer. I've been to a few Moncler stores now.