B (3:17)

Well, thank you for having me, Drew.

A (3:20)

And just to kick things off, of course, today we're going to be talking about the luxury industry. I wrote a research report on lvmh. So that is going to be a little bit of the focus. But there's a lot of other luxury players that people are curious about. And so generally speaking, when people talk about luxury, they're usually thinking, you know, Hermes is up here, then you have Chanel, then you have lvmh, and then Gucci kind of way down there, which is owned by Kering. And so just to kick us off, I was wondering if you could kind of give us just an overview of the luxury sector and some of the big players, how you would kind of place them.

B (3:53)

Well, the luxury sector has changed enormously since I started researching the sector, which was about 25 to 30 years ago. It's very much dominated by the big players. So it's been very much become very polarized over the last 20 years. I would say like the strong have got stronger, the weak have got weaker. And so now I think it's fair to put the power brands. I mean, if we're talking quoted companies, I'd put the power brands as definitely lvmh, Caring, Elmers. But then if you're including non quoted companies, I'd put companies like Chanel in there. And then, you know, further down you have brands which are strong and very well known, but I wouldn't call them power brands. For example, brands like Armani or Valentino or Versace. So I'd say like 20 years ago there wasn't such a distinction between the really, you know, power brands that there is today.

A (5:04)

Would you draw a distinction between luxury and fashion? And who would you put more in kind of the luxury realm versus fashion,

B (5:17)

The emphasis on, well, two things really. Firstly, how much of the business is apparel versus leather goods and secondly, how classic the brand is versus, you know, high Fashion, I think that with the power brands that we've been talking about, that is the Louis Vuitton, the Chanels, the Diors and the all that group, they are, you know, leather goods is really the bread and butter of their business. And you know, a lot of the leather goods is carryover. So I would really put those into the luxury goods category. Whereas if we're going back to companies I talked about earlier, like Armani and Valentino and Versace, that they're more sort of ready wear focused. And as I'm sure everyone on the call knows, it's leather goods which command the incredibly high margins. So it's a much more desirable business model to be in leather goods, firstly because there's a lot more carryover, but also because you don't have to worry about sizing and fit, you don't have to worry about weather and seasons. And so for those reasons, the leather goods category has the highest margin pretty much in that universe.

A (6:37)

Right. And when you are looking at those leather goods, they could carry 40 to 50% plus margins, depending on the exact product. If you do look at someone like Louis Vuitton, though, it seems like they do have a lot more collaborations, more iterations, if you will, on their sort of classic bags where they do add this design element to it. And it's for that reason, would you consider them kind of a mix between luxury and fashion versus maybe Chanel or Hermes, who seems to do that a little bit less.

B (7:05)

I mean, just to go back to the margins, the margin, the gross margins in the leather goods business are closer to 80%. So that compares to about, you know, on average, say 65% for clothing. So that, that's the margin differential in terms of, you know, fashion versus luxury. Every luxury company needs to have a fashion element just to keep it interesting and to keep it innovative. So one of the reasons all these companies do, you know, catwalk shows and we've just had the spring summer collections in September and October, they do those in order to, for the PR value. I mean, the, the media value earned from these shows is enormous because, you know, they have influencers there, they have the media there, etc. So really they're to keep the brand interesting and innovative, whereas actually what they really want to be selling is leather goods, you know, because of the margin point.

A (8:10)

So would it be wrong to think of this fashion element a little bit about kind of being their top of mind awareness advertising, but ultimately what they still want to sell customers on is their timeless bags and the classic bags and a True luxury company is getting most of their revenues derived from that. With the fashion element kind of just being a little bit of marketing.

B (8:29)

Correct. And I think the marketing is extremely important. So I don't want to underplay the importance of the catwalk shows and the, you know, clothing, but where the bulk of these companies make their money is through the leather goods.

A (8:44)

Understood. And so as we are kind of thinking of these different fashion players, and really, we want to get at the kind of grip, this understanding of which is the best kind of business here. Because you see companies like Gucci, which some people may not really know the industry in and out, may consider it kind of casually as a luxury company. But then when people are actually researching the luxury industry, they always put Gucci way down. Whereas, in contrast, they really elevate Hermes in part because it seems like they're the most stable in terms of revenue and pricing power. And so what kind of makes a great luxury brand that has this kind of enduring pricing power?

B (9:23)

I mean, just to go back to your point, I think, you know, Gucci has been going through a bad couple of years, but I still very much consider that Gucci to be, you know, sort of the highest luxury. Maybe not as high as, you know, Chanel or. Or Hermes, but it's certainly up there with the power brands. It's had a difficult time since Alessandro Michele, the creative director, you know, left in 2023. But, you know, the brand is 100% a luxury brand. Sorry, could you just repeat the question you were asking?

A (10:03)

Yes, yes, maybe let's dive into the kind of what you're saying on Gucci first, because it's kind of one of the first times I've really heard someone kind of defend their position as a l. Luxury player. And so what, I guess, kind of makes them a luxury business?

B (10:20)

Well, firstly, you know, that they have the heritage and they have the history behind, you know, the brand and they have the craftsmanship and the. The fact that, you know, that the brand has had an incredible history, which, you know, obviously needed to be revived by Tom Ford in the early 90s. But, like, prior to that, the company did have, you know, a very, very glamorous and, you know, interesting history. And I'm sure anyone who's watched the film about the Gucci story will have seen that, that the brand, you know, certainly has its roots in being an elegant, glamorous, you know, Italian brand. So I really just want to emphasize the fact that you can't sort of say just because the company's had a bad two years that it's not a luxury brand,

A (11:15)

is it?

B (11:16)

I've never actually heard people arguing about this, so I'm actually quite surprised about it.

A (11:22)

Oh, that is interesting because among investors it is a conversation and this is why it's important to get an industry's insider's perspective on this. Because Gucci is one of the four luxury brands that has a large leather goods business that has been able to reach over 20 billion euros in sales. However, it was very short lived. I would say they've had more than a negative couple years. I believe it was somewhere around Covid that they had, you know, kind of that peak. But even before then they weren't growing the same way they were before. And at least part of the reasons I've seen attributed to that is, you know, after and during kind of Alessandro Michel who is there, who I just mispronounced that he had a very kind of loud esthetic, he would put the Gucci brand name on a lot of it. And I think there's some sense that that kind of to eroded some brand equity value in the name Gucci. And at the same time they got very big in China. They kind of grew their store distribution network very quickly. They added a lot of stores in tier 2, tier 3, sort of areas which may not be sort of the best brand association. And in addition to that, they're one of the only large luxury brands that has their own outlet network.

B (12:36)

I mean just to get to the facts, under Alessandro Michele the business grew from 5 billion euros to 10 billion euros. So to double sales over his tenure, which was from 2016 I believe till 2022. I think that's an incredible achievement. I think what went wrong was the fact that people tired of his aesthetic. Firstly, it's important to understand that fact that there's a big difference between bringing in high profile creative directors, which is what Karen has tended to do at Gucci, as opposed to our mayors who number one, does not have a single, does not have one overriding creative director. They have different heads of creative for each of their different metiers. So it's a completely different approach. You know, I bet you if we ask the question to the audience now, who is the creative head of Hermes Leather Goods? Not one person would know their name. So it's a completely different approach to basically say we're not going to make our creative director a star, you know, we're going to make, we're just focusing on beautifully elegantly made products which are all made in France, etc. Which is the Almeise you know, method. And as a result of that, you know, Hermes rarely grows by more than about 8% per year. Gucci, on the other hand, Kering has brought in these very high profile creative designers where it almost becomes about them rather than about the brand. I think that that is the fundamental reason why Gucci has had such up and down sales, because Kering almost gives too much power to their creative director. And that is great during a period of doubling sales. But, you know, when people tire of the brand, which is what happened in sort of 2022, then, you know, things start. And then secondly, they make the wrong appointment for his successor with Sabato Dosano, then things start to fall apart. So it's kind of, you know, you will have these ups and downs if you put your sort of, if you base your strategy on having these incredibly, you know, high profile designers where, you know, they just almost take over the brand, it becomes about them rather than about Gucci.

A (15:11)

Yeah, and I think that's a really interesting answer because it hits on a couple things. And so we kind of opened this discussion talking about fashion. And the reason why I was kind of bringing up fashion is that when a luxury brand does have this fashion element, and you could say that usually does come hand in hand with being more dependent on a single creative director and his sort of design aesthetic, it does tend to have more of this volatility in the business. And I think the criticism that people would lay at Alessandro is that while, yes, he grew revenues a lot during his time at Gucci, it was also to some extent, because you have this great brand and you want to nurture it. This is what Bernardo Noe talks about a lot. And he talks about how he could take more pricing up at Louis Vuitton, but he purposefully wants to build desirability and focuses on that rather than revenue growth, with revenue growth being an output. And I guess I'm wondering if you have any sense that when Alexandria was at Gucci, if his kind of decisions to have a very loud esthetic kind of traded off a little bit of that sort of steady progression of revenue growth over time in favor of a lot of growth up front, because there's a lot of people that were able to get, you know, something emboldened with Gucci on them and maybe even get some of the cheaper items they sold with a logo on it. And that could have cost their ability to kind of have this more steady, longer term revenue stream that investors do kind of value more.

B (16:39)

I mean, I think the only thing which was fundamentally wrong with the strategy is that it was so, it was so out there. It was so sort of cheap geek. It was just like I think he was a creator or is a creative genius. But I just think if you go for such extremities that they did then it's not surprising that people will get bored with the style because is completely the opposite of what Hermes is doing where they just have these timeless classics which because they have a waiting list they can always grow sales and the company is not interested in reporting more than about 8% sales growth per year. So it's just a very different strategy. And during the growth years of Gucci, no one was complaining. It's just the fact that it, it was very extreme. And when you have any sort of extreme look, people just get bored with it.

A (17:40)

Do you think a luxury business has to resist sometimes the desire to grow more?

B (17:48)

Yeah, I think it's always a balance. You know, I think one of the things I admire about Bernardo is that he is such a long termist and I think like that has really made LVMH great the long term strategy. And you know, even in, you know, 2025 when you know we all know China's been suffering, you know, over the past two years, they open, they spend $14 million to open the Louis the ship shaped store in Shanghai. Like they absolutely think incredibly long term and I think like that really, really pays off. So yeah, I can't remember exactly now what question I'm answering but I do think that sort of you have to be really, really long term in any industry to win.

A (18:43)

Do you think Gucci was. And I'm just keep hitting on Gucci because it's the only really like example we have of a luxury business that is kind of at the extreme of kind of suffering. So that's why it's a counterfactual in this case. But my question is if you felt like Gucci was acting during the period of Alessandro and also you know, the store expansions that came alongside and they also, you know, have their own outlet network as well.

B (19:07)

I mean they've made mistakes and it's undeniable that the brand image in China has definitely been harmed over the past, you know, over the recent past. So they've obviously made mistakes. I don't really put the mistake, I'm not close enough to the company to say who's at fault but I think think that, that there have definitely been, you know, a mixture of mistakes. But I think like it's not true. That's the only one. Because, I mean, Balenciaga have had their crisis with the, you know, with. With the using children in a sexualized fashion in. In their advertising campaign a few years ago. And, you know, that's. That. That's another caring brand which has suffered. So I don't think Gucci really is the only one. I mean, you know, I'm sure you don't want to talk about Burberry, but Burberry has also had a lot of problems. So I don't think we can say, like, Gucci is the only company who sort of suffered in this way. Everything Drew boils down to not understanding your DNA, that that is the crux of any. Well, I think that the. The number one problem when companies, luxury companies go off the rail is failing to sort of failing to appreciate and capture their DNA and just going off in. In a sort of direction which doesn't embrace the DNA. And that's what I think sort of Hermes and Louis Vuitton have been very, very good at that. They're, you know, everything they do, every marketing campaign, every, you know, everything really revolves, in the case of mayors, around their equestrian roots. Everything with Louis Vuitton revolves around the spirit of travel. And I think, like, before Josh Shulman went back to Burberry, you know, the company had totally lost the plot in terms of, you know, what its DNA was. And what Josh Shulman's brought back is, you know, Burberry is about protecting people from the elements. And therefore he's focused on outerwear, you know, rain, max scarves, etc. But if you forget your DNA and you start trying to be someone you're not, people, people, like, it's. It's like a relationship with a person. If you're not authentically yourself, if you're trying to be someone you're not, everyone picks up on it and you're not appealing. So it's like, you know, consumers are just the same. They sense if a brand is not authentic to itself, and that's very, very, like, unattractive, just as it is in a person. If a person tries to be someone

A (21:50)

they're not, and that kind of answers my next question, which is how do you ruin a luxury brand? And you're talking about, you know, this not really aligning with the DNA of the business, what does that mean in actual terms, though? Does that mean the products that they're putting out there, the design just kind of doesn't fit people's expectations? Does it mean that they're expanding too much? How do you ruin Your DNA or how do you not act in its interest?

B (22:16)

Well, the first thing is to understand what your DNA is and to then, you know, cherish it. And actually, everything you need, you do needs to revolve around whatever you've defined as your DNA. So it affects everything. It affects the products you produce, it affects the quality of the products. It affects, you know, your advertising and marketing campaigns, it affects your influencers. It's just everything is. Ties in really to the fact that, you know, just going back to Burberry, you know, the, the campaign they did about, it's, it's. It's all, you know, revolving around British weather and the fact that it's always raining in this country, really, like, just totally embraced the fact that Burberry is about protecting people from the elements. The prior CEO and management team were just on a completely, you know, completely different track. They wanted to, like, elevate Burberry and, you know, make it more like a sort of Chanel or Dior, which it never has been. You can't turn into something which you are not.

A (23:23)

And how important is owning your own distribution network and your own production as, you know, in order to make sure your product is consistent? Because one thing that surprised me when I was looking at Hermes was they had all of these concessionaries which are basically franchises. And because it's very commonly believed, or at least by investors, that one of the reasons why Hermes was such a strong brand, is such a strong brand, is because they control their distribution network. But it seems like maybe that's not exactly a big factor if they have all these franchisees.

B (23:57)

I mean, all the power brands pretty much control their own distribution network. And the reason that that's so important is it all revolves around having pricing power. If you don't control your distribution network, you don't have pricing power. And that basically means that your product can be discounted. And that's one of the reasons why all the luxury companies about 20 years ago decided that they were going to gradually move away from wholesale and they were gradually going to take control of their own network. And one of the reasons why you can never buy an Hermes bag on sale or a Louis Vuitton bag on sale, they literally, it is impossible to ever buy them on sale, is because the company controls their own network and they never go on discount. That's their strategy. So, you know, going back to Hermes with the franchises, I mean, with franchises, they're still going to tell the franchises what prices they put on the products and that they can't discount them. So it still is effectively control, even if it's not direct control.

A (25:05)

Can you say a little bit more about Hermes and how they kind of control their growth? Because, you know, we all hear about how they will limit their Birkins, you know, a lot of their other very popular bags and try to push customers through these hoops in order to get those. And so can you say a little bit more about how they have been able to achieve such steady growth over such a long period?

B (25:27)

I mean, I think it's, it's, it's really a strategy which they have had since I got to know the company, which is, you know, number one, they make their bags internally and they are constrained by the fact that they make them in workshops in France and every year they open a couple more of these workshops and the training to make an Elmes bag is, you know, long and arduous and it's just not something, you know, they can't just churn them out quickly, etc. There is a reason why, you know, these, these bat, why there's a waiting list. I'm not saying it wouldn't be, I'm not saying it would be impossible for them to increase capacity, but I just don't think the company has any desire to grow more than high single digits every year, which I think is, you know, it's a sort of, you know, it's a long term strategy which just means you don't suffer the same highs or the same lows and you're, you know, you're, you're much more constant.

A (26:32)

And how would you, I guess, compare that to someone like Louis Vuitton who does still talk about desirability very often, but you can more or less get any bag you want from Louis Vuitton without the, the same sort of wait list.

B (26:46)

Yeah, I mean, I think that Louis Vuitton is really interested. I think over the last five years they've really, really focused on trying to be, trying to become like a cultural tastemaker. And their appointment of Farrell Williams as their men's creative director is a very interesting choice because as we know, he doesn't have an actual design background. He's a musician and a prod and you know, he's done a lot of collabs with different luxury brands. And I think it just really, really reinforces sort of Bernard's vision for lvmh, but particularly for Louis Vuitton where, you know, it's not just about selling products, it's about influence and culture. And I think it's, it's it's very sort of forward looking strategy because I think like Gen Zers are interested in experiences and you know, it's clear that sort of materialism is not as important for Gen Zers as it was for like my baby boomer generation or subsequent generations. And so I think, you know, that they're very, very long termist and they're really thinking about how they can actually play a role through art, through music, through all sorts of different culture. And I think it's interesting that, you know, some of the most exciting Louis Vuitton stores have got, you know, cafes and restaurants and you know, collabs with artists, etc. So yeah, I think it's, it's a different strategy to Elnez.

A (28:30)

And since you did mention Gen Z, have you seen any sort of changes in consumption patterns or relationships with status? I know that there's also been a little bit of this, this kind of quiet luxury trend going on. And so is there any sort of big shift with Gen Z or do you think just as they get older and wealthier they're going to kind of conform to the same patterns as their parents?

B (28:53)

I don't think they will conform to the same patterns as their parents. I'm really convinced that they won't. I think like their attitude to ownership is completely different. I think like social media has just, you know, plays such a massive part in, you know, what influences them. I think one of the most interesting things actually about what's gone on in the luxury world is the fact that even though these luxury brands have become huge and might have sales of between 10 and 20 billion or even more than 20 billion euros, in a way the power, in a way they're less powerful than they were. Because I just think that, you know, in previous generations consumers like myself were dictated to. You know, we, we were spoken to through advertising, through traditional advertising, either print advertising or film advertising. But like Gen Zers are not dictated to and they, you know, they create that, they influence the dialogue with the brand. And you could really see that with going back to the Balenciaga scandal and the use of children in a sexualized fashion. I mean, without social media, Balenciaga wouldn't have fallen out of favor nearly as quickly as it did. You know, it's just, it really gives the voice, social media gives the voice to consumers. And you know, they have been able, for example, over the last year there's been so much talk on social media about sort of of unethical manufacturing practices at luxury companies and all the sort of things being uncovered about how these sort of Chinese operated factories in the outskirts of Milan are making luxury products at a fraction of what they retail out. And the point I'm really trying to make is I just don't think that Gen Z can behave the way previous generations did just because they are, are so, so influenced by, you know, what they see on their phone and they play a part in it.

A (31:08)

I guess at the core though of all of these luxury brands is this idea of status and that people are going to continue to care about the logo because you can get, you know, a high quality leather bag for much cheaper than going for the Chanel bag. And I guess the question is, do you see that element of Gen Z changing where they will still care about the status that it is a Chanel bag versus just it is a high quality, you know, humanely sourced leather goods bag.

B (31:36)

I mean, I think, you know, that things go in cycles. So we might be going through a quiet luxury phase or we might have gone through a quiet luxury phase over the past, you know, two or three years. But like things don't remain constant. Things are always evolving. I definitely think though that, that while status is bound to remain important, especially for Asian consumers, I definitely think that consumers are much more sort of, what should I say, they don't want to be fooled into paying more than what they think is a reasonable price. And I think that that's really, that whole way of thinking is very, very different. You know, Gen Z has tried to research like what a product could have cost to make and there's a lot, you know, I would say so in answer to your question, I think status will always remain important, but I just don't think consumers will allow themselves to be legged over or will pay more than they think is reasonable for a brand regardless of the status. And I think that that's, you know, I think one of the reasons you've seen, you know, such strong growth for brands, you know, which are sort of lower price tier, whether they're up and coming brands like, you know, Polene or d' Amelier or whether they're like Coach and Ralph Lauren. I think one of the reasons you've had strong growth from those sorts of companies is because Gen zers are just saying enough is enough with price and they're either buying dupes and showing off that they bought a dupe group or they're actually, you know, downgrading to a slightly less luxurious product.

A (33:30)

So you know, fake, fake mimics of the real thing have always been kind of common. Is there Any difference though with Gen Z's behavior there as being a little more proud that it's a fake?

B (33:40)

Yeah, massive, massive difference. Like definitely previous generations would be, you know, embarrassed to admit something was a fake. Now it really is something which people are quite proud of and that is just such a different mindset. And I don't really think that that's going to change. I think the dupe culture, I think just people want to feel like they're smart and they're not going to be sort of dictated to by companies.

A (34:10)

And so do you think that that hurts them long term because now you just have less demand for the real genuine good basically?

B (34:19)

No. I mean, provided companies take on board the fact that they can't increase pricing without there being a commensurate, you know, increasing quality, I think that, you know, it's fine and I think they have taken that on board. I mean, I've heard companies talking about that on conference calls recently, which they never talked about in the past. So I think like they've understood that people feel prices have gone up too much. And so I think for example, in the U.S. you know, if they increase prices it will be by a couple of percent. It's not going to be, I mean some companies increase prices by 88,0% over the past five years. So that's just been like almost a doubling of the price. And you know, I can 100% say that when I was in my sort of 30s or 40s, I could buy a bag for, you know, less than $1,000, a very nice luxury bag. And now it's scarcely worth going in the store unless you have like three or four thousand dollars in your pocket. And salaries have not tripled. So it's just like it's out of proportion to earnings is a lot of

A (35:39)

these price increases just during COVID there's a lot of stimulus. They kind of misgauge what the long term demand was and they kind of had scar and so they kind of solved for that by increasing prices. And is that kind of why that happened? Because I know a lot of these brands otherwise tend to be pretty steady with their price increases. But it did seem like there was quite a jump in that period.

B (35:59)

I think it's a combination actually of the fact that there definitely was, you know, inflation for raw materials. So I think it's a combination of the fact that raw materials were going up in price. But then I do think that that companies increased prices by more than the sort of raw materials went up. So I think it's A sort of mixture of like you know, maybe sort of false understanding of demand after Covid combined with the inflation on the raw materials.

A (36:33)

Was anyone a particularly bad offender on this? That was at maybe more of an extreme than others?

B (36:40)

I mean based on research I've seen, I believe you know, Chanel and Dior both increase their prices by 70 to 80% over a five year period.

A (36:52)

Okay, that's interesting. And just kind of going a little bit back to quiet luxury as we're talking about this. Obviously you know, for a very logo heavy brand like Gucci, probably not the best Louis Vuitton will kind of talk about how they have a range of different products that don't have the logo. But if someone is going to go for something that's quote unquote quiet luxury, do you think they're going to still go for just a Louis Vuitton on without the logo or do they want a different brand entirely that is high quality and never kind of had that whatever kind of cachet you would call tied to it?

B (37:24)

I mean first thing to say is I don't think the quiet luxury trend will last forever. And in fact if you look at the catwalks For Spring, Summer 26 various brands including like you know, Versace, Fendi, Prada, etc, all you know, were quite, I would say, you know, using vibrant colors and not being particularly quiet luxury at all. So I don't think that that trend will last forever. But I think that in terms of, you know, another thing to say is if you look at what customers are buying today, it does still signal, it does still signal quiet luxury. Like I list just published their third quarter report showing that the sort of most popular brands and the popular products. I just wrote a LinkedIn post about it actually and it was really interesting because it was, you know, brands like the Row and Cos, which I know is a high street brand, you know, and the products which were in the top sort of 10 were all, I would say fairly sort of minimalist quiet luxury. So it's, it seems people are still searching for those items and buying those items. But as I say, I don't think it will last forever. Going back to your question about logoed versus non logoed. I mean both, both Gucci and Louis Vuitton are perfectly capable of producing products which are less heavily logoed. But I think that, you know, I think if sort of logomania came back they would also like benefit from it. It.

A (39:11)

Right. But I guess if you are thinking of kind and I hear your point, quiet luxury is not Going to probably be around forever. If you are thinking of the big beneficiaries though, is it someone more like Laura Piana rather than Louis Vuitton's logo list designs?

B (39:26)

Yeah, I mean Laura Piano has been a good, has been very strong over the past few years. So yes, the kind of Zegna, the Row, Laurel, Piano, those sorts of brands tend to benefit most. But you know, as we all know, the bulk of LVMH's luxury and fashion division comes from LV, not from Laura Piana.

A (39:48)

Right, right, of course. And as we talk about lvmh, let's get into kind of this conglomerate model a little bit that they have and I want to hear your thoughts on how good they are at nurture, nurturing and building brands for the long term. Because Louis Vuitton, that was something, of course they've been building up for the past 30 plus years, I guess even longer than that, since 80 I believe. And then they've did a pretty good job with Dior. But can you just say a little bit more about kind of their opportunity to nurture a lot of their other brands also the smaller ones too?

B (40:19)

I think that the great advantage they have over everyone because of their size is the, you know, nurturing of talent and the ability to move executives and creatives from one brand to the other. And I think like that's just a huge, huge thing which goes on and, and you know, if you look at the head of CEO that the, you know, CEO of Louis Vuitton today, he's been within the group for a long time at you know, another brand and it's just something that they do all the time. And I, I think that yeah, the same is true for their creatives really. I don't really think any other group, I mean not even caring has the ability to, to support, of attract talent. Like if you an upand cominging executive in the luxury world, of course you'd want to work at LVMH because even if you were going to join Kenzo or you know, one of the smaller brands, you'd always think well, maybe I can move to Louis Vuitton. So I, I just think it's a magnet really for talent.

A (41:24)

Do you think over, you know, I don't know what time period you want to put on it but eventually Loro, Piana, Celine, some of these other brands could get to the size of, if not Louis Vuitton, maybe Dior.

B (41:35)

No, I don't, I, I think that, you know, one of the big differences is, is the sort of Emphasis on leather goods, you know, that there's always going to be, is always going to be I think easier to, to grow a leather goods business than it is like a clothing business.

A (41:57)

Is there room for these brands to start their own? I know some of them already have their own leather goods businesses but to continue to grow that as nurture the brand.

B (42:08)

Yes, but I still don't think, I mean, you know I, I think with Louis Vuitton it's just so much bigger than the other brands and it's also much more profitable than the other brands. So I mean there are only estimates but it does, you know, contribute the, the sort of major part of the earning according to estimates. I've seen it contribute, you know, a very, very large part of luxury and fashion division's earnings.

A (42:40)

Yeah. And I've seen estimates, you know, at 60% plus between LV and Dior for profits. If you are thinking though of again back to Celine, Laura Piana. I know they sometimes disclose, you know they're doing, I believe are a little over 2 billion in revenue each. They have a couple other small brands that are around 1 billion. What, where can these kind of end up in 10 years time? Can they get to 5, 10 or is this kind of just going to be a slow sl of single digit growth on average?

B (43:08)

I mean I think a lot of that depends on what you think of the luxury sector's prospects. And I think that takes me on to another point which is really the fact that even though, you know, there are signs of a recovery in China and that's good news for the sector, I personally think that we are not going to see the same level of growth. Growth. I, I just don't think we'll see anything like the same level of growth that we've seen in China for the last 10 plus years. So that then begs the question of, and by the way, it does remind me of like the late 90s because at that time it, that really is a very, very interesting parallel with like 1997 because just as you've had a big creative reset today with you know, 15 designers showing new houses or you know, showing their first collection this year in 1997 there was a big creative reset with a handful of designers showing for the first time very big names. And at that period, you know, the luxury industry was really, really suffering from like lack of growth in Japan and having to like find the next growth market which was the US and we're almost like at such a similar juncture today with the fact that China growth has Sort of really as we know, slowed, etc. And I just don't think that the luxury companies can think that China is going to be their savior. I mean, I think it will improve, but it's not going to provide the growth. And that then begs the question of how fast can the luxury market grow in the future. And I think that, you know, there are pockets of growing markets like the Middle east, you know, various markets within Asia, you know like say Vietnam or Singapore, but, or Thailand, but I, and also there's India, but I just don't see one big market for the luxury sector to turn to. I think that they're already operating in the major markets and so I think, you know, the sector is going to grow in the future, but it's not going to grow like fast. And relates to your question about Celine and the other smaller brands in the LVMH portfolio that I, I think that, you know, unless something exceptional happens, I don't really see why they are going to grow way faster than the second sector.

A (45:48)

Okay. And I want to get back to that, but just a real quick one. Do you feel like the leather, leather goods industry is generally saturated or is there room for other brands to kind of continue to grow and grow the whole market, not just take market share?

B (46:04)

It's an incredibly competitive market and what I find interesting is that there are some real outperformance customers, you know, even this year in terms of growth, but they're still small companies. So you know, I mentioned earlier, Polene, which is owned by, I mean LVMH is an investor in that anyway, indirectly, you know, Demelier is growing fast, Strathbury, etc. So like there are fast growing luxury companies but you know, they're in millions, not that they're in the millions in terms of sales rather than billions.

A (46:44)

I, I guess the question is kind of how much do you think these new brands are growing the market versus kind of taking share from existing players?

B (46:53)

Well, they're definitely taking share from existing players because markets, you know, the market's in decline this year. I think they saying the luxury market will decline by right, 5%. So yeah, they must be taking share there.

A (47:07)

Would you say the same thing though if we looked at, you know, a five year horizon kind of going forward?

B (47:13)

Well, so what's your exact question?

A (47:16)

Do you think that kind of these new leather goods brands are helping grow the market because they're offering something new that's exciting people or is it mostly everyone is fighting for a pie that's kind of stagnant as China maybe is not growing that much and consumers are kind of pulling back a little bit bit.

B (47:33)

I think everyone's fighting for a pie that's stagnant. Definitely.

A (47:38)

Okay. And I want to switch back to long term growth drivers. And so you kind of made your point that you don't think China is going to be as important going forward and you didn't seem that excited about India. And I know there's some issues with opening up a store distribution network in India. What? Because I think, you know, if you listen to Louis Vuitton Bernardo. No, you talk a lot about how India, he thinks long term there's a very large population there, eventually there's going to be a large middle class there. And also looks at South America as like two potential large growth drivers. How much growth do you think if we look at the next 10 years is coming from these new markets versus just selling more to existing markets?

B (48:17)

Yeah, and I mean another big positive factor for India is the, the size of the Gen Z population is huge. I mean it's, it's really, you know, very, very important. I think it's just, just. I'm not saying India won't be important, but as someone who's just been or recently been to India, it's very, very, you know, polarized between, you know, rich and poor. It's, it's, I wouldn't say like it's, it certainly didn't seem to me that the entire country was on the up. You know, it, it's, it's still very sort of polarized between, you know, the, the people who have money and people who don't. And so I think India will become an important, it will become a good market for luxury goods. But firstly, I don't think it will be quick and secondly, I don't think that the Indian culture, and I may be wrong, so this is just my opinion. I don't feel that it's so status driven as parts of Asia. I don't know the reason for that, but I think that there's probably more love for homegrown brands and homegrown products. I think that's very different from the sort of Asian mindset which certainly historically has been, you know, to, to sort of really love Western brands. But as I say, you know, I know I'm not claiming to be an expert on India.

A (49:46)

Yeah, I've heard something similar too. Do you think there's an opportunity for them to find an Indian or for let's say an lvmh, to find an Indian brand? And nurture that or is that just such a long term game and they probably still want to be owned by some, someone who's Indian in order for it to really feel like it's a

B (50:03)

genuine luxury brand, I, I don't believe that it would be easy. I think they'd have to almost create it, if you see what I mean. And I think it would be a very long term game because I don't think that that sort of brand exists. I think a lot of the Indian culture is probably more to do with like needlework and embroidery rather than than, you know, actual sort of leather goods. But I do think you've hit on an interesting point, which is to say another thing that I think is going on in China which I think the luxury sector should be paying attention to is that of the growth of sort of homegrown Chinese luxury brands. And you know, we've seen in the jewelry sector how Lao Poo, you know, is really be sort of considered up there with Cartier. And you know that there's a fast growing luxury ready to wear brand Chinese called Rouhan, which I think it's R U O H A N I believe is the spelling, which you know, is also very popular. So I don't rule out that the Chinese are becoming, I think the Chinese are becoming proud of being Chinese and, and definitely cultural sensitivity is such an important thing. And I think, I don't rule out that a Chinese leather goods brand could emerge. I'm not saying it's going to rival the Western ones, but I think we shouldn't rule that out as a development.

A (51:42)

Interesting. Switching gears a little bit as we just have a little bit of time left. I'm curious what businesses do all industry or what brands do all industry kind of insiders really want to work for who has the easiest job getting the best talent in the industry?

B (51:58)

Well, I think, I mean, I think that sort of LVMH would be like the, the number one destination for the reasons I gave really, because it would, you know, if you're ambitious, you're going to be able to move from brand to brand. And I think the company, company really sort of spots talent in one brand and probably moves the person to a more important brand.

A (52:23)

And would you say if someone had offers at like a Hermes, a Chanel in an lvmh, is there one that they'd pick over the other or it's all kind of dependent?

B (52:34)

I think it would probably would just be dependent on the exact job and the role.

A (52:39)

Okay, so there is no kind of between those three though, they're kind of viewed as equals. It's not like people kind of poo poo LVMH a little bit as saying not true luxury.

B (52:48)

Not at all. No. And you know, I, I think that, I think they'd be different, very, very different career paths. So. Because I mean if you, if you went to Almez, for example, I mean you, you'd stay within Elmes. It's not like they own any other big brands. I know they own a few tiny brands but like there would be nowhere else to go. And I think you're, you'd see your entire future at Almeids and that's just very different from joining LVMH or caring where you'd be able to, you know, probably leapfrog if you were any good and just.

A (53:27)

Do you have any closing thoughts on who you are most optimistic on and pessimistic on if we look at like the next decade?

B (53:37)

Oh, that's. That, that's a good question. I mean, I think that, I just think that the giants, that the importance of economy of scale and sort of the. Because cultural capital is going to be such an important part of how these companies grow. Like it's no longer just good enough to be focused on the product. You need to pay a role in culture, etc. And you know, as we know, LVMH sponsored the Paris Olympics at great cost, etc. Etc. That just requires such a huge checkbook, like it's, it's so expensive to play a role in cultural capital. So I think what I'm really trying to say is I just think that the power between the giants and the smaller companies is just going to increase. And so for that reason I would say, yeah, that the, I mean, I'm, I'm answering it very generally I think that the very big companies had a huge advantage.

A (54:45)

When you say big companies, is it just carrying lvma, Chanel, Hermes or anyone else you want to include in there?

B (54:53)

I mean, I, Yeah, I think that those are the main ones that spring to mind. But it's not that I'm saying the other companies are not going to be successful. I think plenty of them will. It's just the fact that I think that the ability to sponsor the Paris Olympics is not something many companies can do. And that sort of. Because we talked earlier about Gen Zers and the fact that they're not just interested in materialism, you know, that they're interested in meaning behind these products they buy. Because of that, I think culture will just Continue to be a very, very big part.

A (55:40)

Just kind of as a last one. Do you think LVMH has a knockoff effect of doing things like having Louis Vuitton, but not lvmh, just Louis Vuitton sponsor the Olympics? Does that benefit their other brands?

B (55:52)

Well, the other brands were involved in the Olympics because they were. I mean, maybe not in such way, but a handful of different. Of their different brands were sort of present in the, in the Olympics. I don't think the consumer makes the connection between them. I think it's commonly known that they're part of one group.

A (56:15)

So is it that there's maybe a little bit of synergy on hiring and. Definitely in terms of financial resources and the ability to think for the long term, but by and large, there's not a lot of kind of revenue synergy, we'll say, between the different brands because they're all very standalone and the consumer doesn't really know the difference. So it's kind of just a capital allocation decision.

B (56:36)

Yeah, I mean, I think there are lots of advantages, you know, like, particularly with, for example, you know, locations in sort of stores, you know, being able to get your sort of, you know, second. Second brand, you know, next to Louis Vuitton on the ground floor of a department store like Harrods, like. I think there are lots of advantages, particularly in terms of real estate.

A (57:05)

Yeah. And that makes a lot of sense because it is very expensive and hard to get those real estate that's very sacred, very scarce in these very desirable areas. And when they do have kind of the negotiating leverage of putting in Louis Vuitton as an anchor or Dior, that does give them a lot of kind of power in that conversation.

B (57:22)

Yeah. Yeah.

A (57:24)

Well, thank you, Claire, for an absolutely wonderful conversation. I certainly learned a lot. I hope that everyone listening learned a lot. And thank you again for joining this expert insight conversation and AlphaSense for sponsoring today's session. If you want to try AlphaSense for yourself, you can get a free trial by just going to alpha-sense.com speedwell and so you could. There'll be a link there and you should definitely check it out because again, there's over 200,000 thousand of these different expert call transcripts. And thank you everyone for joining us.