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Christian Billinger

lines on the record: 53
first: 2024-07-12
most recent: 2024-07-12
sittings or episodes: 1
sources: podcast

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“Yeah, sure. I think the best place to go is to our website, which is Billinger4Waldling.se. And there's articles and podcasts and you can see our holdings and you can find contact details. So yeah, I'd love it if anyone wants to discuss this or other topics.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Think as an investor, that's part of the opportunity, right? You get earning cycles, you're exposed to the economy, to asset values, and also you get cycles of sentiment here, right? Whether people are concerned about tariffs or what have you. But I think as a long-term investor, if you're confident in the quality of these businesses, that's welcome. That's where the opportunities are.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Is no doubt a cyclical industry, and so the most recent example would be, I mean, it's a very unusual experience, but if you look at 2020, I think for Albion Age, their top line was down something like 15% and their EBIT was down almost 30%, right? So clearly, now that's an unusual, that's perhaps not a normal recession, but I think it does show you that there's also a lot of operating leverage in these businesses because they have a meaningful, you know, their production facilities, but especially they have a store network, right? And so you certainly have an earnings cycle in these businesses. The other thing to keep in mind is it doesn't sort of hit everyone with the same magnitude or impact. So I think we mentioned this earlier, that if you look at recent experiences that the strong have been getting stronger and certainly the brands selling to the wealthier consumer like the Chanel, Cena Mess and Cucinellis, they have been much better able to weather any downturn. So yes, it's cyclical.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I agree. I think MS is probably the best example if you look at the listed groups of business where you can have some confidence in the sort of succession and the future governance of that business. And then I think with most of the others, to some extent with LVMH, certainly with some of the other businesses in the sector where you have a much more institutional shareholder structure, I think you're much more dependent on external professional management coming in to run the business. And so you look at Burberry, for instance, and the sort of turnover they've seen when it comes to management and creative lead and so that's something else to consider. But yeah, I think the big one to watch here is, of course, what will happen at LBMH when you look at the list of groups. But you're right. I mean, they haven't so far haven't proven themselves as a multi-generational business, so we'll have to see. Having said that, it's a large, diversified group. So I think in some ways, the nature of that business provides some protection. Yes, certainly that's a big important question for anyone investing in this industry.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Expensive, despite that it's been an incredible investment over one and two decades and longer. Some of these companies like Aburbury has looked inexpensive for a long time, but it's not been a good place to be invested. And in fact, it probably in some ways is interesting because we're discussing this book. I think in some ways the valuations seem to reflect how well they follow many of these concepts and strategies. Now, I'm sure they were doing that long before the book came out, but that does mean that this is a good sort of book to be going through, I think, for anyone looking to invest in the sector because it can also give you a sense of where the real quality in this sector is.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“These aren't necessarily businesses where you should just be looking at the CapEx statement to get a sense of how much they reinvest because of course much of their spending goes through OPEX, go through the income statement. So you get to the question of, you know, are these companies over or under earning? And I think it's fair to say that certainly LBMH and LMS now and Chanel is obviously not listed on the exchange, but these tend to be businesses that invest for the long term because of their shareholder structures and the culture of these companies. So I think that's worth keeping in mind. Having said that, I think they've had a lot of things going their way in recent years, right? Certainly through and coming out of the pandemic, we have some companies in our portfolio where we strongly feel they're underearning. I wouldn't include the luxury goods companies there, right? I think they've had a pretty good time. And on top of that, they've been rated quite highly by the market. Those are the broad sort of considerations, I think, when it comes to valuation. Of course, MS always looks”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“The large conglomerates. If you take LVMH trading in the low 20s and then you have at the sort of lower end, you have companies like Burberry and a number of other examples that are called them turnaround candidates or less and some wouldn't even include them as being true luxury businesses. But for reference, they're trading in the low teens perhaps. So, you know, there are significant differences within this group. And I should say, you know, we've been invested in these for a long time, but we haven't been buying LMS or LVMH for a long time. And in fact, if anything, we slightly reduced these holdings in the last year. So clearly they're not as attractively valued as they were. Yeah, I think on the whole, the market's sort of clearly gets the ranking in terms of quality and in terms of how well they operate a luxury business model. I think that's reflected in their valuations. The other thing to say is that, and this is also something the book touches on, is if you look at reinvention,”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“So, personally, I don't necessarily think LMS is the best business I've ever looked at. I think it's very good. I think it's an exceptional brand. I think the business actually, although very good, I think potentially isn't being run as well as it could be, which is an interesting conversation in itself. But if you look at the store network and the customer experience, and I think some of that is intentional coming back to Kafir, he talks about dominate your customer and make it difficult for the customer to buy the product and all these things. And I think people inside the business would acknowledge this, that there are some aspects of the business that could probably be better managed. But having said that, in terms of valuation, so generally speaking, valuations reflect, I think, on the whole relatively well the sort of differentials you see in growth rates and resilience to some extent the strength of the balance sheets of these companies. And so, of course, if you look at the top end, you look at LMS trading on 45 or 50 times earnings, right? And then you have”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Ability to grow internationally. And then thirdly, the risk profile of these companies will vary depending on if you're looking at, so when you say smaller independent player, most probably you're looking at a much more focused portfolio, both in terms of geography, but also in terms of product range, right? So of course, you know, if you get it right on the upside, there's much more opportunity, but equally you would probably be much more dependent on often they're monobrand. So you look at LVMH with 75 or 80 brands in there. Many of these smaller independent groups will have one brand and a very narrow product range. And they may also be quite limited or focused geographically. That's not to say that they're not equally good businesses, but it can have a real impact on the risk profile. I would probably focus on those aspects.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“So, one of the difficulties I think is heritage and track record. So small doesn't necessarily mean that it's a recent brand, right? But if it is, then I think that's a real something to keep in mind here, right? And many of these are first generation still. So if you look at a cucinelli, for instance, which where you haven't seen, and in fact, LVMA and shoulder very large is in a similar situation where they still haven't proven themselves as multi-generational businesses. Another, so I think governance and succession is one thing to keep in mind when you look at some of the smaller call them independent players. I think another one is, and we've seen many of the Italian groups, several of whom are now part of the large French conglomerates, like a Bulgari, for instance, have struggled, I think, to fund both in terms of financial and sort of human resources to fund the certainly international expansion of their store networks. So I think that's another thing to keep in mind. Do they have the resource and sort of”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Professional shoppers coming over to Europe and other parts of Asia to bring a lot of product back to China. So the European brands have had to be very careful about how they manage that as well. So some of these are more to do with brand and identity and the broad competitive set. Some of it is to do with resale values and sort of managing that equation. And some of it is more, say, call it operational or more short to medium term commercial. So, you know, without being able to put numbers on these things, I think these are some of the considerations of managing these brands successfully.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“I mean, what's the empirical evidence? Well, one thing to keep in mind is that, of course, some of these are seen as source of value. So if you look at resale values, for some of the strongest brands, of course, they're trading at a premium or trading at sort of par in the resale market. So if you look at the Berkins and the Kellys, but also, of course, when you look at some of the prestige or I should say luxury watches. And so that has a real significance for the way you price your product, right? Because to many consumers, you know, that means that these are seen as investments or at least that sort of eliminates the downside risk because if you want to offload some of your collection, you can do so at perhaps even with a gain. So I think that matters. And then for the global brands, they also need to manage these price sort of inter-regional price differences, right? Because, of course, for many years, we've had the phenomenon of the daigu, the Chinese”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Think generally speaking, it comes back to the points we've made earlier about the fact that these products are not prone to comparison, right? And the other thing to keep in mind is, broadly speaking, that the competitive set is very broad for these products or services, right? So I think one of the examples Kafir makes is if you're looking at some of the prestige champagne, for instance, what is the competitive set there? If you're looking to purchase one of these as a gift, you know, you may also be looking at a piece of jewelry or you may be looking at a painting or an experience of some kind. So I think it's much. But he actually puts a number on this, I think. I can't speak to whether, you know, how sort of what the empirical basis is here. I think he talks about a minimum for somewhat comparable products, a minimum price premium of 30% for a luxury product. But it probably should be no more than 100%, I think he says. I don't know how he gets to those numbers. It seems very sort of precise.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Wide variety. What you can say is that some of these companies, if we speak about fraud purposes, I guess the focus is on the listed groups. What you can say is they certainly sell to different kinds of demographics, right? So I mentioned Chanel, MS, and Cucinelli certainly. They will sell to, you know, if you look at average earnings and net worth and age, that will look very different, right? from many of the brands in the LBMH group. So that's probably also as an investor, I think that's relevant to keep in mind when you're trying to figure out where do I want to be exposed here.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“So, as we touched on earlier, these companies will argue certainly the large diversified groups would argue that it's not primarily the very rich, it's the mass affluent, but it does seem like a small proportion of their customer base accounts for a large proportion of purchases. The 2% of customers driving 40% of purchases, I think speaks to that fact. And then, of course, you have differences between geographies, as I think we touched on this earlier, but the fact that, for instance, in China, you're looking at a very different typical luxury consumer than you would do in Western markets. And also, you have the fact that these things tend to sort of change over time. So, you know, the average age and other sort of characteristics of the consumer base here will have changed over time. So I think apart from that, it's probably difficult to say much about who the typical consumer is because within that sort of mass affluent group, there's such a...”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“right and so there's a number of things to consider right the overall market the divergence you're seeing between geographies and categories and also the sort of large diversified conglomerates versus the small call it independent or family controlled players many of which are Italian and many of which have struggled I think to actually have enough resource to invest in this in the critical store network and fiscal retail so There's a number of things to consider when you sort of try to figure out where you want to be exposed.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Think depending on the way you look at it, the reason elections, but on the whole, there's been really positive sort of momentum there. I think it's just at the base effect means that for now that will, and for the foreseeable future, that will, you know, remain a much less significant driver. If you look at the last decade, the US has been, depending on casgi, but mid single digit growth or a bit less than that. And Western Europe has been relatively flattish. So there's a lot of differential in terms of geography and category. You know, one of the nice things, the large diversified conglomerates is you're getting some sort of, well, one, you're getting diversified exposure, right? So you're getting different categories and different price points and geographies, but also, as I mentioned earlier, this strong have been getting stronger. So if you look at LVMH, for instance, between the financial crisis and the pandemic, they averaged about 10% organic growth, which is much higher than the overall market. So you've been getting a lot of outperformance from these big groups.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“I'm sure it will do. I think certainly for now and when you speak to many of these companies they will say that the next China is still China so I think many of them feel that there's a lot of opportunities still there. In terms of the big picture, you know, if you come back to the personal luxury goods market of say 400 billion or so, I mean, the big growth drivers in terms of category, if you look at the last decade, for instance, has been certainly the leather goods. That's been one of the highest growing categories. And on the other hand, if you look at watches, that's been a much more difficult part of the sort of sector. So there's differentials in terms of category growth rates in terms of geographies, of course. As I said, Chinese consumers have accounted for something like two-thirds of growth in this sector. So that remains a hugely important part of this market and most of these companies still feel that there's a lot of untapped potential there. India is very interesting not just for the luxury groups, but generally speaking, I think there's so much positive sentiment around. I mean, that may have changed somewhat.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“For Prada and Gucci, right? This has been all over the news. So I think it seems like there's a bit of polarization here as well, where the sort of true luxury players are really holding out and they're very selective in the way they distribute online. I think it's difficult to sort of answer this generally for the whole space, but it's certainly happening in some ways. It may also help crystallize the true luxury players from the rest of the group.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“And if you look at LV, for instance, there is some distribution online of certain products, but it's very selective. And I think one of the points that Kafir makes in his book is that it's perfectly fine for these companies to communicate and to market or sort of engage in brand building online. But the distribution part is much more difficult or challenging. And so I'd say it's certainly happening. Kafir makes the point that it isn't a very good fit because you're missing out on a few key elements of the luxury experience and especially fiscal retail, which is still unusually, which is hugely sort of important for these brands. And if anything, I would argue you've seen the opposite in this space where the level of investment in the store network has been extraordinary in recent years. And you might have seen many of these companies spending huge amounts of money on very prime real estate. So, you know, the case of LVMH, there's a couple of very significant investments they've made in Paris and New York and similar.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“I think part of it is that there is no real consensus, I think, so far, right? Historically, these products, as you said, have been deemed not to be a good fit for the online model, right? Having said that, penetration of online, this will vary hugely by segment and price point and brand. But if you look at the overall personal luxury goods market, as we defined it earlier, I think that number has gone from rough numbers, but from somewhere around 10% five years ago, five or seven years ago to say 25% now. So clearly penetration has increased hugely. There's quite a few sort of pure play online businesses in this space, but generally they've had a very difficult time, especially coming out of the pandemic. So you look at far-fetch, Richemont have an investment in Ukes, Netherporter. They've also had a very difficult time. The strong brands have been very reluctant to move any of their distribution online. They now have some of their own brands.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“And I think it also comes back to the idea of heritage, right, and sort of cultural identity. So if you look at these predominantly European brands, part of what you're selling here is the idea of take some of these French brands, for instance, you're selling the idea of these French heritage and French traditions and French culture, right? So the idea that you would outsource that production or relocate that production to a low-cost country, I think it just doesn't fit with the DNA of these businesses, right? And then there's another aspect of that, which is that the stronghold been getting stronger in this industry and have therefore been able to sort of the likes of LVMH and LMS and Chanel, etc. have been taking significant amounts of market share in recent years. And therefore, and it's a virtuous circle. So they've been better able to reinvest in product quality and branding. And I think they have more headroom in terms of producing, in the case of many of these brands, producing all of their volumes in sort of high cost locations.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Some of these price increases we've seen in recent years will turn out to sort of be excessive and whether that will have any impact on the brands. But so far, I don't see any evidence of that.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Cases, Claire, I think the pricing of these. And Kafra talks about this in the book, the idea with if you operate a true luxury business model is that you only ever increase prices, right? And certainly we've seen that in recent years, and especially with the sort of, let's call it the best or strongest brands in the business like Chanel and Ames and to some extent some of the brands LBMH brands and including some smaller lesser, perhaps less visible brands like Alauropeana. So yes, the way you think about price here is clearly very different from most other businesses. And I guess as, you know, if you compare this to what we said about the premium idea of a premium business, for instance, there, you can compare product features and you can therefore look at what you're getting versus what you're paying. And I think one key element of these businesses and these products is that it is very difficult to compare. And in fact, usually the consumer doesn't even want to make that comparison, right? So yes, they're very different dynamics. We will have to see whether”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“So, partly this comes back to the idea of selling a singular unique product, right? And I think part of the idea there is that you price your product so that it is perceived as being unique or singular in a way, right? And prices supposedly irrelevant. Having said that, you've seen for some of these companies recently they have been getting some pushback for what are perceived to be excessive price increases. So Chanel, I think, is the most sort of visible example of this where there's been a lot of attention at least paid to the price increases they've taken on some of their flatbags and through the pandemic. Having said that, when you look at their actual performance and the growth of the business, I must say it's difficult to say whether this is just sort of social media noise or whether it's actually genuine pushback from their consumer base. I mean so far it seems to be the former but we will have to see I think yeah clearly in some”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Carefully But yes, it feels like some of these companies are doing a very good job at it still at scale and in fact I think most of the examples I referred I don't think we've seen any of the big four have any big trip upstairs there so far. But yeah, I think over 10 and 15 and 20 years time this will be one of the top things to watch.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Think that sort of touches on what Kafre to refer to the book talks about. I think he calls it the dream equation where he says, you know, one of the key things in this business is to increase awareness of a brand at a higher rate than the penetration of the brand, right? So you want to make more and more not necessarily potential consumers, but you want to make more and more people aware of your brand, but you don't necessarily want to grow consumption in volume terms at the same rate. I think with LMS, for instance, they do manage, they may be producing as much as they can. but they're not growing capacity as much as they could. And so they manage that very carefully. Of course, there are restrictions, and especially for these highly vertically integrated businesses, right, in terms of access to skilled labor especially. And I think with MS, you've also seen in recent years, while it's an exceptional brand, they've had some issues with service levels and the sort of quality of the store network. So I think there are restrictions or constraints on the retail side of things as well that need to be managed.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“That are protected because simply for the fact that you cannot purchase these the most desired products if you haven't gone through that sort of process. But this growth paradox, I think, is one of the key questions for any long-term investor in the sector, as in, for how long can you grow at these kinds of rates and still be perceived as an exclusive or operate as a luxury kind of business model? And it's a real question and it's probably one of the top two or three things that I worry about when I look at the very long term sort of outlook for these companies.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“For the historically, at least, these brands have been able to expand geographically, right? So even if the product or the brand was becoming highly visible in some markets, they could expand into some other part of the world. I think they're running up against a limit there, certainly if you look at the very large brands. So if you look at LVD or Chanel and Almes, I think, you know, for them, that's becoming increasingly difficult. And then you have the question of visibility. you know, with some of these products, a very large proportion of purchases are made by a relatively small number of consumers. And so if you look at handbags as an example, in many cases, that means that only one of these bags will be visible at any given point in time, right? Now, some would argue that might change if you have secondhand retailers and if you've had experience here like rent the runway and all of these businesses. So far it's been very difficult for them to sort of build any momentum, but I think it's certainly one thing to watch. I would like to think a company like American.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“For the last 20 years, we were getting this when LV was a 500 million dollar brand. We're still getting this question. But of course, at some point, you will run up to that sort of critical level. I think what some now argue is that it's more about discovery than scarcity. So this comes back to the idea of making it somewhat difficult for the customer to access your product or service, right? And that is in fact part of the appeal of these products and services. So if you look at LMS, for instance, to take an example that most people are familiar with, the way you get an allocation or the way you get access to the Birkins and the Kellys is that you need to have a relationship. You need to be buying other products, right? There are certain things you need to sort of tick off to get to the point where you can actually buy one of those bags. You know, some people would argue that process of discovery is more important than the scarcity as such. And then there's a couple other aspects I would touch on there. One is that”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So, just to touch on what you said now, I think if you spoke to management of these companies, they would say that there's a very sort of clear price ladder, right? And that they're able and segmentation and that they're able to sell products like cosmetics and perfumes for customer recruitment. And they would sell these through different channels than the channels through which they sell their sort of very highly priced handbags and apparel, et cetera. So I think they would argue that you can do both. That remains to be seen, of course. In terms of keep the non-enthusiasts out, yeah, historically the idea with luxury has been that you need to focus on scarcity. And if there isn't real scarcity, you need to create scarcity, right? You need to restrict supply of these products. So there's been a question mark around this for a long time now for brands like LV, for instance. And if you put the question to the company, they will say, we've been getting this question.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Some of the brands, at least, it may over time change the dynamics and the way we should analyze them. I think it's too early for that, but it's certainly one thing to keep an eye on. Will LVMage still be following these anti-laws in five and ten and fifteen years' time? I'm more confident that the likes of Chanel and Mess will. Having said that, you know, there's other successful ways of running a business, but it may require us to change the lens we use to analyze these companies somewhat.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. I think that's what they would like. And if you look at the case of LMS, that is what they're getting because they don't do any endorsements or, and they certainly wouldn't pay anyone to sort of expose their products. I don't know the details in Louis Vuitton's case, you know, when you look at their campaigns with Nadal and Federer or with Messiah Ronaldo. I don't know what the details are in terms of the sort of financial side of things. And I'm not necessarily saying that it's a bad thing, but I think it has changed the way the business operates or the way they sort of communicate with the consumers somewhat. And if you look at their involvement in the Olympics this summer in Paris, I think on some level, you could argue that partly at least they look a little bit more like traditional large consumer goods group because also if you look at the other big sort of names that are major sponsors of the event, they are historically they are companies like Coca-Cola and P&G. And I wouldn't want to bet against Bernard Arnault. I'm sure he knows what he's doing, but I think it may facilitate”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“especially LVMH, because of the scale they're now at, you know, some of these rules, which we may come back to, aren't perhaps being followed quite as closely as they were. So the idea, for instance, of do not sort of use any kind of celebrity involvement or celebrity endorsement in your advertising, clearly if you look at brands like LV, that is no longer the case. And there's one or two other ones. I guess the internet distribution aspect, I think, is another one where you could argue that some of these companies no longer just communicate or advertise online, but they also sell meaningful volumes of product online. But I think on the whole, when I go through the list of the 24, the vast majority of them still seem to hold, and especially where I would argue, you know, for the companies that we consider to be the highest quality and truest to the luxury model, almost all of them still hold. So I think they're a very interesting set of anti-rules for anti-laws. And actually, they're also useful for looking at other businesses.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Think it comes back to the concept of these products being singular, right? I guess what I would add is the entire, it's not just about the product and the advertising, but it's the entire business model. So if you look at the way brands like LV and Dior and MS and Chanel, the way they retail the product, for instance, they control the value chain, they're highly vertically integrated. So they can make sure that no competing products, so to speak, are available, right? So they can really sort of push this idea of singularity because they control that value chain and it comes back to the way these products are being marketed. So I think, yes, the rule number one fits very nicely with a few of the sort of themes or unique aspects of the luxury business that we've talked about. I should say that in some ways some of the companies you see in the luxury space may or may not be breaking one or two of these rules these days. I think since Kafira wrote a book, something have changed. I think with some of these groups,”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“This idea as being employed in other businesses that aren't necessarily traditional luxury businesses. So if you look at the airlines, for instance, and the idea of reward tickets and companion tickets, I think many of us have had this experience where that's the first time you maybe get on a plane and you get a business or a first class seat and then next time you may actually consider should I be paying for that because the experience was so special and having experienced it, I don't want to go back to what I had before that. Yeah, I think it makes a lot of sense and that clearly makes these businesses more robust in a way because all these high spending consumers, I think in fact the example Kafra talks about is that even when you look at sort of high and ultra high net worth individuals, they are more likely to cut back on essentials than they are on their luxury spending because that just isn't an option. I don't know what the numbers are, Clay, but I think it makes a lot of sense and it's sort of it fits nicely with my sort of impression and understanding of because you”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I think it becomes difficult to put numbers on these things or find sort of But yes, the idea that once you've started moving up this ladder of consumption, that it's very difficult to sort of step back down again, I think makes a lot of sense. And this is my personal opinion. But I would think it's partly to do with the fact the sort of functional aspects of these products, right? Because even though they are supposed to be singular and not to be compared to other products, often they do have superior product characteristics. So if you look at a Lorapiana cashmere sweater or many of these other products, objectively they are very high quality. I think that's one aspect of it. And then you have the other aspect, which is more social and to do with prestige, right? So once you've sort of entered into the realms of the prestige that comes with buying these products and services and the access you get through invites to parties and travel and exclusive events and right, I think it's very difficult to sort of step back from that. And I think you see...”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“The wealthiest demographics, right? So clearly our mess, Chanel, Cucinelli, to speak of a sort of smaller player, although listed. So that's been one of the key trends there. And you can also see that these companies are spending more time and effort and money on entertaining these very important high-spending clients, right? So there's a real sort of battle, I think, for their attention. So there's much more going on in terms of private events and viewings and dinners and travel, etc. So I think that's one important thing to keep in mind. Another one is that, of course, these demographic characteristics will vary by market. So if you look at the Chinese typical, if there is one, luxury consumer, they would tend to skew much younger, right? And then if you look at say Western European or American consumers, they will probably much more often be self-made and so there's a number of these things to keep in mind. But yeah, they're probably one or two of the sort of important trends.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so in terms of the customer demographics, if you speak to these companies, they will say, we don't sell to the very rich generally, well, of course they do sell to the very rich, but most of their revenues, they would argue are not from the very rich. It's from the, as call them, the mass affluent. Having said that, the numbers I've seen from Bain, I think for 22 suggest that about 2% of customers by volume account for about 40% of personal luxury purchases by value. So clearly there's a very significant skew there. And I think it's also increased, that skew has increased in recent years. So through the pandemic, the rate of increase in terms of spending for the very wealthy or high spending customers has been much higher than for the low spending customers or lower value customers. So I think there's been a bit of a polarization there. And you can also see that when you look at which of these companies have done the best in the last, say, three or five or seven years, generally speaking, the brands that sell”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“And then, of course, you see these large groups entering new adjacencies. So in the case of LVMH, for instance, they've been investing into experiences. So they've been acquiring hotel chains and the like. So I would like to think that there's significant runway for growth here. And on top of that, we touched on this idea that these companies effectively create the market themselves. And so I think in some ways they're more in control of their own destiny than some other consumer groups because assuming they can provide products and experience that consumers are willing to pay for is probably wrong to say that there's limitless growth, but I think there's much more opportunity if you get it right. There's more opportunity to grow for a long period of time than there is in some other more sort of consumer demand driven industries.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Certainly over the last couple of decades, China has been the big part of the overall market. So if we refer to Chinese purchases, so that would include purchases both made in China and elsewhere, predominantly in Europe, by Chinese consumers. I think over the last 20 years, that's been something like let's say the Chinese account for about a third of the personal luxury market. But I think over the last two decades, they've accounted for something like two-thirds of the growth of that market. So clearly that has been the big driver of that market. And then you've had relatively similar proportions accounted for by European and American consumers. So that's been the sort of broad splits. And so I think it's right that people are concerned about any deceleration in China. But it's a very large market. Fragmentation certainly behind LVM age remains very significant. So I think there are opportunities to grow both organically in terms of consolidation.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Yes, absolutely. Yeah, I think you touched on the heritage point. I think that's another important aspect of these businesses. You know, most of them, of course, coming out of Europe, France, Italy specifically. I think that's one of the things that will hopefully mean as an investor in these companies, that will hopefully mean that they can better withstand the challenge of new entrants if you look at the Chinese market or the Indian market. There's another good book on the sector called Selling Europe to the World, I believe, which sort of talks about this idea that in a way we're exporting this sort of cultural identity to other markets and parts of the world. So that's another very important aspect of these businesses. Most of the brands, if you look at the LVMH portfolio of 75 or 80 brands, most of these go back with some exceptions go back a long, long time. And if anything, I think somewhat unique feature of them is that they often improve over time, right? So they become more durable. There's an element.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“In the advertising, right? It's usually very sort of minimalist, right? It's all about the identity and the feelings and emotions that that evokes. So hopefully that makes the idea between premium and luxury clear. Because I think often if you're not being sort of disciplined with these definitions, I think many people interchange the two or say, you know, higher end premium or that I think from an investor and operator point of view, they're very distinctive ways of running a business.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“That Kaffir refers to as cars, right? So if you look at German cars, these would often be thought of as a premium product. And the crucial point there is that you can compare them in terms of performance, right? So whether it's in terms of speed or whether it's in terms of boot space or whether in terms of emissions or range with electric vehicles or any of these things. And so therefore you can compare performance across a number of metrics and therefore you can also as a consumer you can take a view on whether you know on the equation of price versus value. But that's much more difficult or often impossible or irrelevant when it comes to luxury goods because the way they're marketed is much more about identity than it is about positioning. And so for instance you would never see LMS marketing any of their products relative to Chanel or even to make reference to any of their competitors. You rarely ever see or I would argue you probably never see any product claim.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“One interesting sort of categorization that I've heard is that luxury tends to be French, fashion tends to be Italian, premium tends to be German, and mass prestige tends to be American. Now that's obviously, I'm sure, highly offensive to some people. And, you know, it's a very broad generalization. But I think it gets the idea across, right? I think most people can probably see that there's some sort of reflection of these different cultural identities in there. So I think what distinguishes luxury from premium is this idea of singularity, by which I mean that the luxury groups, you know, everything they do from their product offering to the way they market these things to the way they price and distribute them is focused on this idea of singularity, right? So that these products aren't easily compared to other products in the same or similar categories. When you look at premium, on the other hand, and I think the classic example”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“All these kinds of things, and also on the experience side, right? So luxury holidays and cruises, but they wouldn't be sort of included in the definition that applies to the sort of European listed conglomerates, which I think is perhaps the most relevant one to think about, you know, for us as investors in these companies. So that's probably the broad breakdown of the market”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“So I think when you talk about personal luxury goods, and that's usually when you look at the listed groups, certainly the French conglomerates and the Italian sort of often still family control businesses, they would most often be active in personal luxury goods. And so these would be things like clearly handbags, apparel, what we call hard luxury, which is jewelry, right? Watches, those kinds of things. But it wouldn't include things like, you know, depending on which definition you choose. But if you look at cars, for instance, they usually wouldn't be included in the definition of personal luxury, which I think when I look at Baines numbers, I think they say for 2023, the total luxury market as they define it was something like 1.5 trillion euros. And I think about a quarter of that is personal luxury, what they define as personal luxury. So say 400 billion US or so. And then in addition, you have things like fine art, fine wine, yachts.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Characteristics to these businesses, which I think make them very interesting to study. Sometimes it's difficult to determine if you're looking at a true luxury business or not. And sometimes within these large groups, take an LBMH, for instance, some of their offering for some of their brands, take cosmetics or perfumes, some of that offering I probably wouldn't classify as a luxury business, right? But they're still part of the group and they generate some revenues at group level. And then you have some parts of the business, say the LV or DR brands, and especially leather goods and apparel, where it's much easier to say that this operates as a true luxury business. So, you know, you can attempt to draw these distinctions, but I think sometimes the lines are blurred. Yeah, so those are probably a few things to keep in mind.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“In a commercial sense and in the sort of financials, investor sense. And so the idea there is if you look at many artisans or makers of high quality bespoke goods, they may very well be high quality product, but there's no social dimension, right? So there's no element of showing off, if you will, to use a slightly sort of negative connotation. And so therefore, I think in a, for the purposes of our discussion, the artisans and the sort of small independent bespoke makers would not be considered luxury businesses, right? So they would probably be two or three things I would look at, Clay, to figure out if I'm looking at a true luxury business. And then finally, the fact that these businesses and the market overall tends to be driven more by the offering than the demand side. So in some sense, these companies create, you know, their own market, they create their own demand by offering things to the consumer that the consumer may not realize they need or desire or even dream of, right? So there's a number of unique.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT
“Sense of companies doing the right thing over time. So if you look at LMS is a good example of that, Chanel is a good example of that. Keeping in mind that some of the companies that are formally classified as luxury companies, I wouldn't consider to be luxury companies. So clearly that applies to some of the American, you know, if you look at a coach or Michael Course, I think are good examples of that. But even if you look at some of the European names like a Burberry, and I know Kafra sort of refers to Burberry a number of times in his book, And he says it's not really or truly a luxury business if you look at the way they operate. So I think that's also important to keep in mind. So they're probably two of the key things that I would look at to determine are we looking at a true luxury business? And then you can go into all kinds of detail. But I think they would be the two one I'd look at. In terms of the experience from the customer point of view, I think it's also important to remember that there needs to be a social element to the product or service for it to be a luxury.”
2024-07-12 · We Study Billionaires · TIP643: The Luxury Strategy w/ Christian Billinger · IDENTIFIED FROM THE TRANSCRIPT