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- [00:00]
A
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B
Hello and welcome to Fashion People. I'm Lauren Sherman, writer of Puck's Fashion and Beauty Memo line sheet, and today with me on the show is Bernstein analyst Luca Silka to discuss Q3 earnings from LVMH and Caring to Zenya and Prada. Luca even reviews Jonathan Anderson's first Dior show. Happy Tuesday everyone. Hope you had a good weekend. This week Online sheet We're talking Vogue World. We're talking the future of McQueen. We're talking guest in residence, that little Gigi Hadid fronted cashmere line that could. It's really interesting business. Sarah Shapiro checks it out. A lot of you have reached out and asked me what I thought about Vogue World, which ended up being the subject of Monday's email. So you gotta read it to get all the little bits of reporting, et cetera. But basically the big question I keep getting before and after the show, every person is like, what is the point of Vogue World? What is the point. And so from my view, I think.
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A
It has a point.
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B
The point is to make top line revenue and show everyone involved, all the sponsors, the fashion industry, in this case Hollywood, that Vogue still matters. Like, especially advertisers. Obviously this is important to. But also to consumers who are watching it online or whatever. Did Vogue achieve that this time? I think yes and no. Everyone who went to the show had a great time. They were proud to be involved because a lot of them were. They were entertained. A very curmudgeonly guest who I said, well, what did you think? Said was kind of great, Lots of energy, really fun. The crowd was into it. Here is the thing. I think a lot of the credit here goes to, obviously everyone involved, including Marco, who is now the editor or whatever. His title is a Vanity Fair, but was still involved with Vogue World. And this was a big project of his at Vogel the last few years. But this one and the New York one were both Lisa Love, who used to be the west coast editor of that, she was heavily involved. She's a really great producer of stuff. Like, she's done a lot of cfda, Vogue Fashion Fund stuff. And anytime she does it, you can just like, tell there's a lightness to it. And so I think a lot of what people loved was like, the Lisa Love energy that was coming into it. And also, look, there's Nicole Kidman is walking on a Runway that's fun online. And everyone in New York was like, this was hokey. It's a little weird. The one person said to me, if you think the purpose was to build Vogue's credibility as a media partner, this person said they thought it accomplished the opposite. It looks silly and dated. It felt like a waste of money. Look, I'm trying to be balanced here. I think it's interesting. I do think they're a little weird, but also fun. And I think they should do stuff like this. The reality is this is a declining business. They have to manage it. I don't know what solves Vogue's big problem. Like, I don't know what Vogue should actually be. Maybe this is the future of that. I don't think this is necessarily scalable. The Wall Street Journal reported that it made close to $30 million in top line revenue. That's a lot of money. So if they do like one of these a year or three, two of these a year in a different way, that's.
- [04:56]
A
That's pretty good.
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B
And at least it really seemed like they're having fun. So I hope there's A another. I heard that maybe it's going to be New York next year. I assume Milan is in in the works, but maybe they'll wait until the Olympics in Milan or whatever. I it would be very funny if they had it in like a factory that makes luxury handbags or something, because every single Vogue world is kind of connected to the industry of the city or whatever. At least the last couple have been so or the arts in the city. So I don't know what they would do in in Milan. Maybe you guys have some ideas, but I have a feeling it might be in New York next year. The point is, I think they should keep doing it. I think it's interesting and it's something to talk about. Like I got so many messages about it, it's crazy. So anyway, let's move on.
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A
Let's get going with Luca.
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B
I know you're excited to hear his opinion on the Jonathan Anderson show. Luca, Silka, welcome back to Fashion People.
- [05:58]
C
Thank you very much indeed. Lauren, thank you for having me. It's a pleasure.
- [06:02]
B
It's so clear your connection is so good this time. Everyone's going to be thrilled.
- [06:09]
C
Yes, absolutely. I've been upgrading quite a few connections of lately, so we should be fine in the future.
- [06:16]
B
Well, thank you for being here. So I want to go through the different businesses and I have a couple questions for you on each of them. But big picture, what did you think about Q3?
- [06:28]
C
I think it was a step forward relative to what we had seen in the second quarter. Overall, the impression was that Chinese demand was incrementally improving. Not improving a lot, but a little. And that was on the background of continuing strength in American demand and very decent European demand and strong Middle Eastern demand. So all in all, this was a better backdrop. And we've seen companies improving on that front. They've all been improving, I think, except maybe those who had already been doing very well, like Hermes, that has moved from 9 to 10%, but they were never the problem and they're not the problem now.
- [07:19]
B
So what do you think of this improvement? Do you think that this is a steady sort of build to a period of growth again overall, or do you think that this is more just a stabilization?
- [07:37]
C
I think that there were two factors that had been weighing heavy on luxury demand in the past two years. On the one hand, there was a period of over consumption during the post Covid years between 21 and 23, especially in the west, people had spent a lot more. We all celebrated surviving the pandemic and for a while it was seen as appropriate to spend and rather than die rich. I think we've been sobering up from that and in the past two years we've been probably going back to the trend line. The other factor is the Chinese and how they've been reacting to the collapse in their real estate market, which has caused quite a significant amount of consumer depression. And consumer confidence has been at a low for a long while. Whether that will continue to improve or not I think is the central question here. If we could see Chinese consumer confidence rebuild, albeit according to a U shaped path, I think this would create quite significantly better environment for 2030. At the moment, I think we have contrasting signals. On the one hand, the stock market has been strong. The rich Chinese consumers have been more confident and more willing to spend money. But the bulk of the issues have yet to clear. On the real estate front, we haven't seen a material sort of rebound in real estate prices. Transaction volumes have gone up, but I think that there was just an uptick for the moment in terms of real estate prices. So consumer confidence is still muted and we'll have to continue to watch that. If there was an improvement, then I think 26 could look better and quite significantly so if indeed the Chinese started to spend some of the huge savings that have been accumulating. But at the moment we're not expecting any V shaped recovery. We're expecting rather sort of an incremental U shaped recovery which would already be better than what we've seen in the first half of this year.
- [10:15]
B
How worried are you about what's happening in the us? We did a piece last week about this psychological recession and I got a note from a friend who works adjacent to the industry, like, I think like a 2000 word note being like, I don't think this is, I think everybody fundamentally changed. And I, you know, here in la, there have been a lot of events around the high net worth customer in the, in the last couple weeks and they seem they're still seeing growth. Everyone's still seeing a lot of growth in the US if you have a decent product. But what do you think about that? Do you think, are you worried about where the US economy is moving or is it just too unpredictable, given our political situation?
- [11:03]
C
I think that there's two or three things we need to keep on our radar screen. On the one hand, there's a buoyant consumer confidence that is supported by the stock market and, and the crypto market. If those were to change, there was talk about an artificial intelligence bubble. If there was an adjustment in the stock market. This would definitely create a more difficult discretionary spanned environment and this would create a more difficult luxury environment as well. The other thing we need to watch out for is inflation and how this could potentially be affecting the aspirational consumers. We've seen an uptick in inflation 2, 3% recently, if I'm not mistaken. And cost of living would naturally go up with a weaker US dollar and with import duties sort of pushing prices up. This would be difficult, I think, for the lower end of the consumer permit to keep spending as cost of living would, would necessarily go up. How serious an issue is yet to be ascertained. But I guess this is another thing that we'll have to watch out for in 26. And then I believe the US of all places, I think that the same is happening in a lot of other regions is experiencing what I would call the key factor. You have the rich getting richer and the poor sort of poor getting poorer, which is I think also at the root cause of the most recent political and social developments we've seen. Certainly, yes, certainly in the US and in Europe as well. The right is winning because I think that a lot of people in the working class have seen the left not doing much for them and they're hoping that by voting an alternative they will get better. Whether that is going to be the case or not is a very different debate. But I think that's more or less where we are at the moment.
- [13:33]
B
Yes, voting for Trump may not afford you a Louis Vuitton wallet. Who knows? This is not a political podcast. Definitely check out the Powers that be daily, which is. Okay, so Luca, let's go through the different brands because I want to talk, or the different companies, because 100% all this is right. I think all the other thing it comes down to is there wasn't a lot of innovation. It went well. While people were spending like crazy, the brands sort of. A lot of the brands kind of became complacent. Now there are all these new designers, new innovation. Let's start with lvmh. And first off, what did you think of Dior? Because we have not discussed it. Did you like it? Did you think it would sell to Chinese people or. And Americans?
- [14:27]
C
I think that Anderson picked up Jonathan Anderson.
- [14:31]
B
Not that anyone listening to this doesn't know that, but that's who you refer to.
- [14:35]
C
Exactly. Picked up a lot of. A lot of praise. I appreciated the commerciality and I think that the footwear products and the leather goods in general looked very, very commercial. Very sort of Desirable. I don't know that when we discussed recently the feedback on the two fashion weeks in Paris and in Milan, that duo would necessarily be at the very top of the list. I think that Chanel was for sure with Blaisey meeting an unprecedent level of praise. But Dior I thought was. I loved it.
- [15:22]
B
Did you love it, Luca?
- [15:24]
C
Indeed. Everyone loved it. Absolutely. And. But I think the Dior was, you know, in the. Towards the top end of. Of the ranking. So my impression is that LVMH is doing a lot of things to improve its predicament. I believe that in a market like the one we had with fewer new consumers coming into luxury with dawn was confronting a very difficult market because it's the newly rich people that would typically flock to mega brands. And I think that management has been capable of going out to recruit with the NBA, with Formula One, with the Olympic Games sponsorships has also been able to possibly increase the profile and differentiation. It's not just a matter of differentiation, creativity in product, but also in terms of events. For a while we had the impression that Vuitton was very much committed to more of the same, except bigger. But with the Lewis they surprised everyone. And that includes the Chinese who reacted very well to this new story in the shape of a ship that has been attracting a lot of buzz. And I think that Vuitton was also very clever in coming up with limited editions to appeal to consumers who already have a Vuitton product in their wardrobes but don't have the Takashi Murakami or don't have the Codington that they just launched. So all in all, I think LVMH is in an interesting position because if we look at the stock market reaction, my impression is that investors have prioritized idiosyncratic self help stories. We've seen Kering react very positively. We've seen Burberry over the past few months also do very well. We've seen plain vanilla quality names lag like Hermes, like Cucinelli for example. And LVMH at this stage is somewhere in between. It has, it hasn't done badly recently and I think because it is sort of somewhere between a self help story and a plain vanilla play. So there's quite a bit to like when it comes to things that they've been doing in order to improve their situation.
- [18:09]
B
Well, what do you think about the French obsession with Arnault and engagement and relationship with the French people and how that's come up in the press recently? I'm sure you've seen all this news about this potential billionaire tax which will not really make a difference in the country and yet and at the same time not cost him that much. But he's freaking out about it. Do you think any of that plays into the way the market reacts to lvmh? Because it does make him seem larger than life in some ways and the company is obviously much larger than any of the other players in this space.
- [18:53]
C
I think that when investors consider lvmh, one of the concerns they have in the back of their minds is succession and how this is going to be organized. Clearly Bernard, being the sort of prominent entrepreneur that he is, is a bit like Jeff Bezos or Elon Musk is the European equivalent to those American high profile entrepreneurs is sort of looked up by many. And so I think that that is not too much of a concern as far as investors are looking at lvma. I think that the more important concern is as many of these luxury goods companies are coming to a succession. We will have to see how this succession plays out and whether it is successful. We seen Kering and Richemont take steps in this. I think that Richemont has moved for the first time to a senior management organization where they have a highly credible, highly capable CEO, Nicola Bass. This is a setup that could well, sort of bring Richemont forward 10 or 15 years for that matter. If at one point Johann Rupert wanted to retire. I believe that the appointment of Luca De Meo has been equally constructive. I think the market has reacted very well, but Luca has done extremely well with all of these initiatives and shoring up the balance sheet at streamlining the senior management organization. I think LVMH has gone through quite a significant amount of transition because there's been a few high profile executives who had reached retirement age and had to move on or wanted to move on.
- [21:20]
B
Well, many of them were to move on and have suddenly been reabsorbed into the organization, which look, you know who you know and you feel comfortable who you're comfortable with. But it's an interesting element of this, of these people who retire and then suddenly they're in the second most important role in the business again because I.
- [21:43]
C
Presume they're so good that you know you were really missing them. So yes, I think that as far as this side of the equation is considered, LVMH is possibly still a bit more in flux and not yet in a sort of succession mode. They're still going through this succession transition and I presume that this is going to last a while more.
- [22:20]
B
I agree. I don't think we're going to have any answers on that front for maybe not even a decade. I do think it's interesting, the Michael Burke insertion into the US market and kind of managing that market because he is making big changes there and it is such an important market. And as many of you know, Michael Burke was the CEO of Louis Vuitton and before that Fendi and then he ran the LVMH Fashion Group for a while and then sort of disappeared into the ether and reemerged in the US where, you know, he's half American, so it'll be interesting to see what big changes he makes there. I he just started I think about a month ago, really interviewing people and seeing seeing what's happening.
- [23:11]
A
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- [24:51]
B
One person who has sort of emerged as a new and we can this is another LVMH question I have. So as as the cfo Jean Jean Jacques. Is that the guy's name that's now the the co CEO of the fragrance group? Yeah, I mean, not the fragrance group, the alcohol. Wine and spirits. Yes. Jean Jacques.
- [25:15]
C
Sure. Jean Jacques, yes, yes.
- [25:18]
B
He moved into. He's the co CEO of Wine and spirits. He's managing that business. Luka, I don't think they're ever going to spin that business off. I'm sorry, I know you want them to. Well, but I don't. I've been told that that's never happening.
- [25:35]
C
Okay, fair enough, Fair enough.
- [25:37]
B
I told them that it's a good idea, but the people that I talked to there. But the point being that he was moved into that co CEO role. That to me was like a step towards retirement. He'll do this and then he may retire. They moved up this person named Cecile Cabanas who is now the cfo. And I have to say I really enjoy her on the earnings calls. I think she does a good job. She's very clear and, and she is engaging. And I have enjoyed listening to her explain away their problems and also their situations they don't want to talk about. She's very good at it. But I'm curious on that front that she's been asked many times on the earnings calls about these, the M and A stuff like, are they going to buy Armani? Are they going to get rid of things? I had a report last week, which I assume they're going to announce in the coming week. I don't know if it's actually like the. The. It has actually closed, but it's a done deal that Marc Jacobs is going to be acquired by this brand management group. Abg, I'm curious on your end. Let's talk Armani. Let's talk just what is in their portfolio? What would you suggest that they do other than spin off the wine and alcohol division?
- [27:02]
C
I think that they are probably in cleanup mode. And the potential divestiture of Marc Jacobs, which has been reported by media, makes sense. I think that more divestitures could also make sense. Businesses that have produced significant losses without having so much of a promise. I'm thinking DFS as well, which had also been reported by media. I do think that when it comes to acquisitions, they will likely be very active, especially on the fashion and leather goods side. You mentioned Armani. In my view, the most likely bidders for the brand would be the companies engaged with the brand today who have a big license. L' Oreal and Slo Luxottica, who have respectively the beauty and eyewear license. Consider that L' Oreal has the Armani license up to 2050 so another 25 years of business with the brand, it's clear that their interest and the interest of the owners of the brand are aligned. We could see something similar to what Estee Lauder has done with Tom Ford. They bought the brand and then licensed out the portions of the business that they're not specialized in to Zegna in particular, when it comes to Tom Ford for 30 years. I wonder if this could potentially be an option with a licensee for the apparel and leather goods business that could be, I don't know, one of the American companies that know how to run a business like that like Ralph Lauren or Tapestry or even Kering. I think Kering has just entered a major deal with, with L' Oreal with 50 year licenses for beauty for Gucci and the other brands in their portfolio. They have worked for decades very effectively with l' Oreal on Saint Laurent. So I think that this overall scenario that I described, not just the engagement of Kering but the overall scenario where l' Oreal and Ester Lord and as Hillel Luxontic are the prime movers on Armani is a far more likely scenario than a scenario where you have LV mage on the front foot. But I don't think the Armani business dovetails with what LVMH is specialized in doing. High end direct retail, full price. Armani, you could argue is a lot more similar to Ralph Lauren with a significant exposure to the aspirational middle class consumers with a significant exposure to wholesale to some extent factory outlets. So I think that there's big differences there that are very difficult to bridge.
- [30:34]
B
Totally. I 100% agree and the conversations I've had within the LVMH universe is like look, yeah, we hired, I mean they don't. There was a report that they hired a bank, they hired Rothschild to look into it. They have a 70 person M& a team. They're going to look into every deal. This was obviously they had a relationship with Mr. Armani. They're not gonna not evaluate it. But I think it was really overblown and from what I know from very top tier situations over there is that look, most people don't think this is a good idea and it probably isn't gonna happen. But we have to do our jobs and look into it. I think I also talked to someone this week who is in the Armani diaspora and they were like, look, in the late years Armani's and I mean I didn't talk to Mr. Armani about this. So I don't know. But he Thought it would be l' Oreal probably because it just is the natural thing. I think Esselor Exotica that you make a really good point. And they have also, you know, they acquired Supreme. They've gotten a little more into fashion. I think the caring bit and let's talk about caring next is an interesting idea because you're right that this is not. People think this is like a high end and yes they have couture and they have a high end line, but this is mostly Armani Exchange that sold it like licensed companies in random places, not even owned stores. So I wrote a couple days ago, if I were LVMH and I was going to buy a brand like this, I buy Ralph Lauren, like it's just so well managed. Armani is going to have to be like completely overhauled. And I was talking to another executive this weekend about Armani and they said look like it would be so easy to clean that up and there's probably so many layers that you could just go in and cut costs very quickly. But like the operating margin is not big. And so that's the question for me on caring is like I understand why it would be interesting to them but given the way they're operating right now, which seems to be like let's get rid of anything that's not gonna be super profitable fast. I wonder if that is a possibility. And so that goes into caring. And I am just curious, like as you said, the market has reacted extremely favorably to Luca De Meo who has been really public in the press. Someone sent me. He's like doing TV in Italy. He's been open like he talked to all of us at the shows. He was. He's very kind of relaxed and comfortable with being public facing. And he's also made several decisions already. He put Francesca Bellatini in the Gucci role or they did as a board. He did this strategic deal to sell off the beauty unit which they just started building out. What do you think of his performance so far and what do you think he's going to do in the next year?
- [33:49]
C
I think Luke has been brilliant postponing the deal with Decatharis on Valentino. Then this u turn on beauty which is very appropriate on both cash generation viewpoint short term and business development long term. I think that developing a beauty in house was over ambitious. I also think that it did very well to eliminate the role of brand co CEO brand coordinator because that was creating a number of potential confusions on who was in charge and who was calling the shots. Belletini at the helm of Gucci is also step forward relative to the situation before. So I think that Luca has been hitting the ground running now in a way the difficult part comes which is reigniting consumer interest for the brands which will have to be carried out in conjunction with the brand CEOs and with the creative directors and chief merchandising office officers. So very fast paced beginning and now I think it, you know, in the absence of any other major development, this phase is going to take a little bit more time than the stock market seems to expect. I also agree by the way, that but given the amount of fish to fry that Kering has at the moment, Gucci has to be reignited. St. Laurent has to be reignited. The Balenciaga has to be reignited. Down the road, Valentino will need to be reignited as well. Being involved with Armani would be a very low probability scenario relative to an American company. In fact being at the forefront of that. In my view, if there was a long term license to be assigned, this would be more likely scenario and probably a more likely pattern, more likely partner for the likes of l'. Oreal.
- [36:29]
B
Got it. So on carrying one other thing and I did a little item on this for Monday, a lot of people on Friday there was a, there was a report about McQueen in women's wear Daily having a strategic review and they're gonna cut 20% of the staff in London, blah blah blah. McQueen came up on the earnings call in July and the then co CEO who is co deputy CEO who's now I think the coo, Jean Marc Dupleay. Is that how you say it? Duplex. He said that, you know, we're not selling anything because someone said are you going to sell McQueen? And he said we're not selling anything. But obviously that was pre Luca and a lot of people have reached out to me and said they're doing this strategic business review of this company. Are they going to sell it and look like. I think that there are a lot of potential buyers for McQueen. It's a good brand that seems relatively able to scale. There's some like brand codes, the skull, all that stuff that could be scaled and you could do like I could see. I mean I know Richemont is not acquisitive but like Richemont has had success in recent years with brands of that sort of range with Chloe and Alaia in particular or an OTB which, which is very acquisitive and has, is trying to buy more brands that sell clothing and accessories and aren't just selling really high end handbags, that sort of thing. So I'm just curious, do you think you could see them? Especially because it seems like they do want to move forward with Valentino, that they would sell off McQueen and focus on the three main ones and then start to build back up as, as the years go on. They also obviously own the Brioni, the suiting brand. They own Boucheron, which is doing really, really well. Like they do have other businesses. But it's just an interesting couple. People reached out to me about it on Friday in particular and then I remembered that Duplex mentioned it in the earnings call or someone asked him about it in the earnings call back in July.
- [38:56]
C
I think they have in fashion and leather goods, they have four core brands. Gucci, Saint Laurent, Bottega, Veneto and Balenciaga. Those I believe are at the core of what Kering is. Brioni and Alexander McQueen I think could be up for debate. If I was a new CEO, I would like to dig deeper and understand where the business case could be on those and what the internal investor capital profile could be, what are the challenges and so on. Valentino, I believe, is also going to be part of the core. We heard and read a lot of different things. I don't believe that contrary to beauty, Jewry is a problem. I don't think jewelry is a problem. I think that Boucher is doing well. I think that Pomellato could potentially be doing well. So I don't see any urgency in considering a divestiture for the jewelry business. I think the jewelry business is fine. We've seen the jewelry category do very well and attract consumer interest. Kering has built a beachhead, which is not putting them in the top three or, you know, in the highest league, but has a very solid base and a very solid platform. And maybe as jury has become a duopoly, maybe they are in the top three because with Richemont and LVMH occupying the first two seats, Kering could potentially be a contender for the third spot, at least from a high end jewelry viewpoint. So I think that if there was any debate at the moment on potential divestitures, I would expect it to be concentrating on Alexander McQueen that you bring up. But also on Brioni, frankly, which has been a lag or a drag for them for quite a while.
- [41:13]
B
Interesting. Okay. And look, even pre Luca there was a lot. They were always willing to part ways with stuff that they felt like it wasn't gonna work. The business transformed so many times over the last 20 years of what they owned and what they were. So it's no surprise. Well, we'll see what happens with that.
- [41:37]
A
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- [42:44]
B
Okay, let's go through the other businesses really quickly because they do matter. Zhenya, what do you think? It feels like Zegna, Prada, Hermes, Brunello. Everything is okay, I would say so.
- [42:59]
C
Zegna has been producing an incredible turnaround from being a suit company to being a high end lifestyle brand. They're being very successful, the market is going their way because they're very credible, they have unique materials and they can price up. And the high end consumer is very buoyant in the past few years and is expected to continue to be buoyant. We accept this idea that income and wealth inequality will continue to be stretched, especially with the impact of artificial intelligence applications down the road. So Xenia, in my view is doing very well and is very well positioned for the future.
- [43:54]
B
What do you think about the appointment of Grace Wales Bonner at Hermes for Men's and can you from your perspective? I had Jacob Gallagher on Friday to talk about the fashion element of Hermes Menswear from your perspective. Like is there a huge opportunity for Hermes there or are they sort of saturated in the menswear market as much as they can be? What do you think?
- [44:22]
C
I thought it was a welcome piece of news. Hermes was at risk of being a little a bit in the background given the amount of churn and the amount of newness that competitors would bring to the market and the amount of storylines that they could potentially provide with this appointment, they grabbed back a piece of the scene. And I think that this appointment is potentially very interesting. Hermes has done very well in Ready to Wear and I think that they attract consumers to Ready to Wear in their own right. Why not expand more into menswear and have an even stronger creative proposition? The feedback that we received on this appointment is positive.
- [45:26]
B
Yeah, it's really interesting because I heard probably a year and a half or two years ago that they were starting to look for someone, which makes sense. Veronique's been there for 37 years. Like, it's not anything crazy. And then I didn't hear. And then honestly, the day it happened, someone said Grace. The day that Veronique announced her retirement, someone said Grace. And no other name came up. But the fact that they were able to manage it the way they did and no one was messaging me, people weren't speculating about it constantly. You know, Grace has a business in London that she, you know, she's a very reserved. She's not a, you know, she seems like she has a good head on her shoulders. But the fact that they were able to manage this, I'm sure they've been talking to her for a long time so carefully, and then for it to come out and get such a warm response, and now it's not for another year anyway. So whether or not it's going to like deeply impact that business, we won't know. But I thought it was just interesting. It said a lot about Hermes and the way they manage things on the Brunello front. What's gonna happen, do you think? I mean, there was so much drama during Milan. It felt so heightened because that weird report came and this investigation into their dealings in Russia, they slapped back and said they're above board and they're getting support from the Italian government and all that stuff. But it kind of reflects something that's happening in. We were talking about politics earlier and what's happening in Italy with all this manufacturing and suddenly the government cares about the manufacturing conditions, cares about all this stuff. It all seems of a piece and I'm just cur. Like, what do you think the Brunello business, what do you think about it? What do you think the market thinks about it? Was that just a sort of blip and issue they had, or is this going to be a longer term problem that they have to manage and could be a real issue.
- [47:45]
C
But I think that we're talking Russia, but we should be talking about wholesale exposure, because my understanding is that, that you find products in Russia because of the gray market and because of the parallel trading activity that some of the wholesale players engage in. And in some cases, very significantly, if you sell to a wholesale client in Italy, say, and these people then send the merchandise to Hong Kong or to China mainland, then from there it can legally go anywhere, including Moscow. With Brunello Cuccinelli being exposed to the tune of almost 50% of sales to wholesale and having direct control of its distribution for a bit more than half of the business, then this risk is definitely present that they could potentially end up in a situation like this. But that is a very different thing to saying that they engage with business in Russia directly. It's a completely different kettle of fish in my book. So we did our own due diligence talking to companies that are doing business legally in Russia. There was nothing indicating that Brunello Cucinelli was on the wrong side of the sanctions and on the wrong side of the regulations that the European Union has been applying when it comes to trading with Russia. So I think that nothing is going to come out of this. And. But so far the replies and the pushback from Cucinelli to the allegations brought up by Morpheus seem to be very punctual and very precise. So I didn't get a sense that there was any open flank at this stage. Having said that, it's clear that, that the upstream portion of the value chain when we. And that is a different question, clearly, because it doesn't relate to Cinelli, but it relates to the broader industry. We've seen high profile situations involving, for example, Armani Odor in the recent past and more recently other brands as well. That's quite a significant amount of subcontracting activity, to say the least, when it comes to the upstream portion of manufacturing. In my view, the best way to try and avoid the reputational risk involved in how this subcontracting activity is carried out is to invest upstream and to integrate upstream and consolidate the upstream portion of the value chain. Will it cost more? Yes, it will cost a little more. But I think that with the margins we have, this industry can afford it. And I think that running a reputational risk in order to save a few pennies here and there is not really a good idea. And in this respect, I think what the government in Italy has been promoting, which is sort of a universal code of conduct that would be required for in the value chain to respect, is appropriate. I think that luxury Goods brands cannot, in the same sentence, extol their craftsmanship and their skill and the skill of their workers. And when they turn their head, then deal with manufacturing with three or four layers of subcontracting and then end up in sweatshops where the working hours are not respected, where immigration law is not respected, where, you know, where people are cutting corners just in order to provide a lower cost, which is definitely not appropriate.
- [52:27]
B
Yeah, I mean, look, I think for a long time, nobody paid attention to this stuff, and so no one bothered to upgrade. And I don't know if they should be. Be fully punished for that, but they needed to be publicly slapped on the wrist so that they got their. Their shit together, essentially, is what it is. Like, look, no one is ma. I mean, I'm not judging them, but. But it's too. It's too much now. Like, they just need to get their shit together. So, yeah.
- [52:55]
C
We wrote in 2008 a piece which was called Opportunity for Responsible made in Italy 2008, 17 years ago.
- [53:03]
B
So Luca told you guys this 17.
- [53:05]
C
Years ago, where we spoke about Made in Italy by the CH and demonstrated that as a flourishing industry in Tuscany. I still think that we're more or less where we were on that front.
- [53:18]
B
Yeah. Yes. Okay. So really, really quickly, and then I'll let you go. Prada, what did you think?
- [53:26]
C
Prada, I think, is everyone is sitting on the edge of their seats because there's a lot to come with the Versace acquisition being completed. So this was bit of a transition. Mu is sort of, from a second derivative viewpoint, is fading while it is still growing quite significantly. But I think that the jury is out on Prada, and I think that the relatively low multiple reflects quite a significant amount of uncertainty on what could happen with first the cool business, which has been in negative territory for the Prada brand, and then how big an effort and how big an opportunity for Versace could be.
- [54:24]
B
Do you think the Prada brand. It's interesting when I think about Prada and Miu Miu, they're really the final. And Prada in particular. Miu Miu is trendier, but Prada is the last like of the mega luxury brands that people is in the industry still shop and it's expensive. I feel like the prices, they've been managing them a little bit better the last year. But I feel like when I go to Europe and we go shopping and my friends go to stores and they're like, everybody still goes to Prada and buys one thing or at least tries. Do you think that it's just, just it is as big as it's going to be. Do you think what, what do you think they could do to move it forward the. The Prada brand itself? Because Miu Miu feels like that's going to be a management thing where they open more stores but they, you know, rely less on the trendy product. Prada, do you think it's just there? What would be the unlock there for it to get bigger?
- [55:32]
C
It's a good question. I think that when you talk to the company, you get the impression that they think Prada should be a lot bigger. And to some extent, I think that dovetails with what you say. Prada is a very clear identity as a commanding position within the industry. It has been managed flawlessly from a brand equity viewpoint and it has become a lot better with lower exposure to gray market, lower exposure to wholesale. They always had a tradition of high profile stores. I wonder. I think that maybe, and I'm sort of speaking my mind aloud as you get me to think about this issue, maybe Prada is more consistent than other brands, other mega brands that have been able to be a bit of everything to everyone and being able to segment their offer a bit more. And Prada, in fact, is more monolithic in a way. And I wonder if that is both, let's say equality and potentially a drawback when it comes to attracting a bigger audience.
- [57:00]
B
Yeah. Yeah. Okay. Finally, Ferragamo had a good, pretty good quarter. What do you think about that and what do you think they might end up doing? Well, I think Ferragamo, they're never going to sell. Right.
- [57:14]
C
Ferragamo joins the club of the sell tell stories being well received by the market market starting with Burberry, Kering and why not Ferragamo? They've been improving in relative terms. I think they need to work more on the product and on the brand. I think that my impression was that so far they've been working to sort of of perfect the current setup, which is probably not enough. Compare and contrast Zegna and Ferragamo. Compare and contrast Cucinelli and Ferragamo. There's a lot more in this brand history and heritage that could potentially be leveraged. There's a lot more that you could do to make it relevant to today's consumers. They need, I think, for their own advantage to tackle this opportunity. And so far, I think what has been tried was either too short an effort or falling short of the target of repositioning Ferragamo and pushing it forward. Into the future.
- [58:36]
B
Got it. That makes sense. Luca, there was something I was going to say, but it is 7am here and I can't remember, so this was super fun. Oh, I'm very sad that Richemont's earnings aren't until November, so we can't discuss Richemont. Rude of them not to be on our timeline. Usually they're. I thought they were before everyone else. This feels very late.
- [59:00]
C
I think they report because of the end of March year end, they report the full results. So they're a little bit. They take a little bit longer to come up with them.
- [59:10]
B
Got it. Well, I'll definitely be looking for your note on that Final, final question. Are you pumped for 2026 or are you cautiously optimistic?
- [59:24]
C
I would say I'm cautiously optimistic. At the moment, we're expecting the market to grow at 3 to 4%, which is a significant improvement to what we had in the past couple of years, but which is a far cry from what we had. So it would be a step in the good direction. And it involves a number of elements falling into place, including the U shaped recovery in China to continue and no major drama on the Western front.
- [59:59]
B
No major drama on the Western front. Luca, thank you for being here. This was so fun.
- [60:04]
C
Thank you very much for having me. Have a great day alone.
- [60:08]
B
You're the best.
- [60:08]
C
Bye Bye.
- [60:10]
B
Fashion People is a presentation of Odyssey in partnership with Puck. This show was produced and edited by Molly Nugent. Special thanks to our executive producers, Puck co founder John Kelly, executive editor Ben Landy and director of editorial operations, Gabby Grossman. An additional thanks to the team at Odyssey, JD Crowley, Jenna Weiss Berman and Bob Tabador.