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Shree Viswanathan

lines on the record: 89
first: 2024-09-13
most recent: 2024-09-13
sittings or episodes: 1
sources: podcast

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“Sure, I run a fund called SVN Capital Fund LP. I'm on SVNCital.com. That's the website to my fund. And I'm also on Twitter, handle is at SVN Capital. I would love to hear from some of your listeners if they're interested in learning more about Ermas or just my fund.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“No, your questions were very well thought out, detailed, given that the company has such a long history, we could pick any one of those topics and go into just one question or maybe a couple of questions and make that a podcast by itself. But thank you for giving me the opportunity to talk about a very high quality business, whether I own it or not. The business is business talks quality and highlights its own strengths and establishes its presence in a very dynamic industry. So thanks for giving me the opportunity to talk about a wonderful business today.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Question, I think that's sort of a reputational risk, is what I worry about the most. I'll keep my fingers crossed as to when the next existential question arises.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“The front skins, one of the areas where the company is spending capital on is something called mycelium. Mycelium is essentially the roots of a mushroom. Apparently when you put a whole bunch of roots of the mushroom together, it gets into a material that is close enough to leather. And so they're working on making their products even more eco-friendly. I'm not sure when they will come out with mushroom leather, but to avoid these types of reputational risks. I don't think they'll be able to avoid completely, but to at least address the need for these types of animal skins and other types of leather they are working on certain alternatives. In fact, Patrick Thomas, the CEO who defended a company against Bernard, he's now on the board of a company in California, which focuses on mycelium. So bringing it back to you.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Years ago, 2020 or 21, there was a video circulated which Very inhuman, it was very unfriendly. People immediately concluded that it was her mass-controlled crocodile form, hermas, by the way, it controls its suppliers, crocodile skin being an important quality feature on a birkin bag. They do control crocodile farms in Australia. But it was the video that was distributed and got wide attention. In fact, Jane Birkin before she passed away she actually announced that she may actually dissociate her name from the company because she was so perturbed by this mistreatment. Later on they found out that this whole footage was from a farm that somebody else had. It was not a mess farm, but the damage was done. That sort of a reputational risk is what I worry about the most. By the way, to address this leather and various”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Any case, in the middle of the annual report, about 380 or 384 page number, they have a nice table about risk factors, certain risk factors that they view and the severity of the risk factors on one axis and the variety of risk factors on the other. As you very nicely said, listening to Howard Marx's podcast, debt is a killer in many businesses. We don't have that problem here. It's a net cash balance sheet has been a net cash balance sheet for a long time. Ownership interest is held within this family and now they have this other investment vehicle called Krefeld Invest, which makes it even more difficult to pry open the family ownership. Those things are not going to be a problem. But if you go back to this table, one factor that they list, and which I agree with, is the reputational risk. Just a few years ago,”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Having come through these tough situations, it has the experience, the expertise, the management team, and the financial wherewithal to withstand any kind of assault. One of the quirky things about this company is there are many quirky things, one of the quirky things about this company is they put out an annual report that runs to almost 600 pages. 2023 annual report is about 592 or 93 pages. European companies generally cover many things ESG related and all that which makes the annual report even longer than American ones but this is one of the longest that I have come across it is so long that they actually have a sort of bibliography or a sort of a cross-reference table in the end where you can search by words or phrases and go to the actual page number but in”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“As a bag did not become as popular until Grace Kelly, the Princess of Monaco, a Hollywood actress, essentially hid her pregnant belly using the bag. And Birkin Bag itself was also an accident that turned out to be a big success. Jean-Louis Dumas, he was sitting right next to this actress Jane Birkin, and she spilled a whole bunch of things from her bag and complained about not having a good bag to keep all her things, including her kids' things, in a big enough bag, and that's how the Birkin was founded. So while the company has had existential questions raised, it's had some lucky breaks. It came through this Bernard Arno assault successfully. And I'm sure it'll go through some existential question in the future. I'm absolutely not discounting it. However, I am confident”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so in a company that is more than 180 years old, you would suspect that it's gone through some existential questions. And of course it has. As I mentioned, Adolf, one of the brothers of ML Morris, left the business in 1919 because there was a significant slowdown in the sales of horse harnesses and saddles because automobiles were sprouting up all over the country, all over the world. Of course, Emil Moores started supplying to both the automobile market and some of the nobility that existed at that time. That's just one example of how the company had an existential question raised and it has come through very successfully. It's also had the factor of luck work in its favor. For example, even though the bag itself was released to the market in the 1920s, Kelly”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Play out over the next few years, they're still growing their store base within the country. I'm not sure what the plans are in terms of specific numbers for both countries, and that's something that they don't disclose publicly. What they have disclosed is the Adeliers, the workshops, and they are talking about just four workshops over the next four years. But the number of stores in both countries are expected to grow. I suspect the number of stores in India will be growing, the number of new stores in India will be more than number of new stores in China. I think that's a reasonable conclusion to make.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. So they currently have 36 stores, I think, in China, but only three in India. Only three. The third one was just opened recently. But in both markets, they expect the number of stores to go up. I mentioned anecdotally from my own experience as to where I see luxury in India. And I left the country a long time ago. And it was an absolutely poor. It still is poor, but it was an absolutely poor and the socialist country has come a long way, is positioned exceptionally well, is evident in many of the market dynamics that we are seeing today. That's just India. China, over the last 30 plus years, has had a phenomenal growth. No time in history have we seen so many hundreds of millions of people get upgraded from penury and poverty to middle income and upper class. As I mentioned, they just expect this soft market to”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Markets. So, yeah, China is a big market, as is going through a relatively soft patch company, and a few of its competitors do expect the Chinese market to come back. It may take a little longer than expected, but we'll come back. In the meantime, many other peripheral markets are opening up at a healthy pace.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“This is a very common scene in India. This is a country with contradictions galore. I come from a city down south, a city called Chennai. It used to be called as madras, supposedly a conservative city. Right close to the airport is a Rolls-Royce dealership. I was very surprised. This is to just highlight the fact that India as a luxury market maybe is at a very incipient stage, but is absolutely bound to grow. That's just one of the markets. Africa is growing through similar growth pattern. Much of Indonesia, Vietnam, a few other Southeast Asian countries are also growing at a reasonably good clip. And that's partly why I keep saying I have a growth expectation that's slightly better than inconsistent numbers relative to what they have done in the past, definitely better than many other luxury.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“To come back and buy or mess products over time. But in the meantime, they're not necessarily just waiting for the Chinese buyer to come back. Within Asia, for example, as I mentioned earlier, India is a big market for them. The Indian luxury market itself is expected to grow three times. In my most recent trip, for example, I was in Mumbai. I was going through going in an Uber to one of my meetings, going through the largest slum in the world. This is the slum where part of the movie Slum Dog Millionaire was shot.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Announced that along with many other luxury brands, that their sales in China was a little soft, Chinese buyers have historically, this was Axel Duma who mentioned this, he said Chinese buyers have historically relied on their local real estate and their stock market, which has been the support for their wealth to be able to spend on luxury products. As you very well know, both asset classes have been hurt badly in China. And that's one of the reasons why the luxury market has had this soft patch. Be that as it may, they still have a very robust presence in China, 30-some stores, the second highest number of stores around the world, you know, 40 something in the US, 30 something in China, and I think 22 or 23 in France. They still have a big presence there and they expect the Chinese buyer to be able to”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“And that's another distinct feature I want to highlight here. Twice a year, every six months. The store director approximately 300 stores, 295 to be precise, but 300 stores, all these directors go to Paris twice a year and they buy products that they think or they essentially get products from the headquarters that they think will sell well in their store. And that's the reason why products in different stores may look different. Of course, they're going to be similarities like some of these handbags and a few other products that they sell, but the scarves, for example, that you find in Beijing may be different from what you find in Bombay or Mumbai. So that's another distinct feature. Catering to the local community as opposed to the tourist community is an important feature that has helped the company come through different cycles. And today, in the most recent quarter, ERMAS also owns”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Back in the 70s. The other interesting aspect this is not just China. The other interesting aspect about Ermes is when they operate these stores, what they maintain in each store is essentially catering to the local clientele. There are many luxury companies that cater to the tourist community. Chinese are known to spend enormously on there when they travel. And so many luxury brands and premium and super premium brands have geared up their businesses to cater to that touring Chinese community. But for example, in the case of Hermes, what you may find in an Ermes Beverly Hills store would be different from what you would see in Boston. And that's because the store manager, the director, is buying products from the company that cater to the local community.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and so this person was essentially pointing out how Birkin could be a better inflation hedge than many things that we generally consider as inflation hedge. That's for you to true on later. But back to your question about China, many luxury brands have benefited from this enormously benefited from this growth of China. I mentioned luxury as a sector has grown at two times the global GDP since the mid-90s. Much of it is due to the growth of China and today both LVMH and Ermaz, for example, have a little less than 50 pursuit their business coming from Asia, X, Japan, which is essentially China. Japan, by the way, is another big market, has been a big market for luxury for a long time. And as I mentioned, German Francois, he moved to Japan because the Japanese market was growing.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, absolutely. Before I forget, you brought up a very interesting point about inflation. I don't know who ran this study, but somebody did, and they actually compared the price of gold, the price of S&P 500, the index, and the price of Birkin bag. As you may guess, over a long stretch, I think about 25 years or so, S&P, of course, beat out gold hands down. But the price of Burkin actually beat out S&P itself.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“You that so in luxury discounted pricing is never the right strategy most of them do not do it but instituting this price increase is somewhere in the I would say high single digit percent and that's been consistent it's essentially Axel Dumas he talked about this it was his mom in the 1980s who came up with a strategy of having this price increase at a percent higher than the cost in this case cost increase was around 6% and they're pushing through a few percent more than the cost. That's how they end up in this high single digit percent so that's been consistent for a long time I expect them to continue to do that in the next three five years and far into the future”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Don't talk about the Somewhere in the high single digit percentages price increase. Of course, in the case of 2024, Axel Dumas and the earnings call did say they were instituting 8-9% price increase, but it's generally in the high single digit percent. At the company level, and different geographies may have different price increases. That's been a consistent theme. In fact, going back to the book about luxury by CAFER, one of the things he talks about is a luxury company must institute price increase irrespective of what the underlying economy does. And in fact, do not have a price-based or a discount-based sale program. If you walk into a store and you end up buying, eventually buying, say, $30,000 worth of birkin bag, and for that exact same bag, I go in and buy a $20,000. How would you feel if I told you?”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Tells you a lot about why one should at least take a view at what Bharat is saying and what Peter Bernstein has written about. That's how I view valuation today. And that's why it's part of my portfolio.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“And that's what I would bring to bear in the case of Fermersis valuation today. Of course, we can't run around assigning super high multiple to all businesses and claim that their quality. And that's where I would bring in, for example, Peter Bernstein's 1956 article in HBR to bear. When you bring all that to account, you know, you've got a business that is almost, that doesn't have any competition has complete control over its growth. has control over its pricing power has a strong brand loyalty when you bring all that together and you bring Barat's view of quality and how it translates into valuation. Current valuation, I would say, is fair. It's probably not cheap, but I don't think it is supremely rich. It's just fair. And the historical performance”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Over the last 20 years, earnings have gone up 21 times, and the stock has gone up almost 50 times. Back to Bharat, you know, he says quality is more real than the numbers like growth or whatever else that we can compute because it can be computed, it sounds mathematical. What is mathematical sounds precise? And what is precise sounds true? While all of that may have some merit, quality is simply because it's not so easy to compute or to define very pinpointed manner. It doesn't mean that it doesn't exist. It's just that we need to learn to better appreciate the market mechanism. And valuation mechanism really works in the market. That's essentially the essence of what Bharat has taught me or what I have learned from him through his view of quality.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Fabulous book long time back called Off Long Term Value and Wealth Creation. As you know, I started investing in India. I was in India recently and met with them. He talks about quality and valuation associated with quality very elegantly. He didn't talk about Hermes, but I'm just highlighting his perspective on quality and how I view Ermes' valuation today. Typically, returns on stocks reflect the underlying business's earnings growth when earnings have compounded at X percent, returns on the stock or generally around X. When the stock returns, X plus Y percent, that Y is the result of quality. Obviously, this should be evaluated over a long stretch of time. In the case of Hermes, earnings have gone up around five times over the last 10 years. The stock has gone up about seven times over that 10-year period.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Yes, the premium valuation of her mess relative to the market or even to the luxury landscape. At the outset, in a one explanation for this valuation is the markets expect Ermas to continue to maintain its healthy profitability while growing at this fast pace. That's been the case for a long time. If you actually go back to 1990, mid-90s, if you look at the P multiple, average has been somewhere close to where it's trading today. maybe slightly less, but not a whole lot different from where it's trading today. While that may not be satisfying for the valuation-minded investor, let me offer a couple of thought leaders who have helped me think about quality and long-term, you know, one that I would bring to this point is one Mr. Bharat Shah. He's the head of research at a firm called ASK Funds in India. He wrote a”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“They get more than 12 pay checks per year depending upon the year there is one extra paycheck for seniority, a few other paychecks for the company doing well over a stretch of time. So those all come into play as a part of what we may define as inefficient capital management, but that's part of the culture. Bringing it back, yeah, they currently sit on what appear to be a hefty cash balance approximately nine and a half or close to 10 billion net cash on the balance sheet, but that's by design again. They want to remain independent, be able to fund their growth internally through their own funds, keep the family unit, the group together without a revolution. And so that's how they've thought about capital management. It prioritizes the capital allocation strategy, prioritizes long-term value creation, and”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Not their primary capital return. As we discussed earlier, this is essentially a family run business, almost 70%. 67 is in the hands of those family members, 50 plus family members are a part of this. As a part of keeping the group together without a revolution, it's part of their strategy to pay a healthy dividend. So unlike LVMH or maybe a few other even non-luxury businesses where we may see very efficient capital management, you can probably point out a few inefficiencies. Of course, the management team wouldn't accept them as inefficiencies. It's part of the strategy, it's part of their culture, keeping their artisans together. In fact, they also have a free share compensation program to the artisans. In addition to these things as a part of the culture of keeping the artisans happy,”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Its organic growth and reinvestment through what are called this ateliers, these workshops. They've got 54 of them in France today along with the year-end earnings announcement they said they want to open up four more earliers over the next four years, one each year. And so these things take up a lot of capital. And as I mentioned, Chicago's store, for example, was refurbished a couple of years ago. I haven't been to the new store. So that's sort of a refurbishment is an ongoing exercise across the world. They did one in Vegas. They've done one in Beijing, for example. And so that refurbishment and of course they open up new stores. So all these things take up capital over a long switch of time. They also have a small buyback program in place. I think 10% is something that they can buy back. They have done a little bit of buyback, but that”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“So that free cash flow is a number that continues to grow at a very healthy double digit rate. And I expect, as I mentioned a few minutes ago, expect that to continue to perform at a high level. What does the management team do with the prodigious cash? In fact, Axel Dumas addressed this in 2018 in his prepared remarks, he said, we keep one third of the cash for dividends. This is for the following year, and that includes special dividend. For example, in 2023, they just announced a special dividend of 10 euros per share on top of the regular, one-third for CapEx for the following year. And another third for the future. And that, I think he was referring to as CapEx for the future. Unlike LDMH, Hermes doesn't do any acquisitions. They've done a few, very few in the past, but that's not the Mojo here.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“When you look at any business, when you go from the top of the income statement down as you hit the gross margin line item, you can tell by looking at the gross margin, the consistency of the gross margin item, you can tell what the quality of the business is. To understand the quality of the management team, you can go from the bottom of the income statement up. And in both cases, in the case of a mess, you can tell the quality of the business, you know, 70 plus percent gross margin. The healthy net margin tells you a lot about the quality of the management team as well. That all leads to this prodigious cash machine that we are discussing today, which is Zermes. On a free cash flow basis, on a per share basis, free cash flow per share in, for example, 2023 was about 34 euros per share, which is almost five times what it was 10 years ago.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Every single time I arrive at a terminal value that's well north of mid 80%. That tells you a lot about the definition quality as it relates to a mess.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. Yeah. Again, luxury as a business is one where it's grown at almost two times the GDP growth rate beginning in the mid-90s. Of course, a big reason is the growth in China over the last 15, 20 years. But the business has continued to grow at a much better rate than GDP. As for your question about terminal value, yeah, that is absolutely key. If you extend it, say over the next five years, your cash flow model based on let's say the next five years irrespective of whatever timeline you use, anywhere from 85 to 90 some percent of the eventual value lies in this terminal value. That is based on the kind of margins, the kind of cash flow that the business generates and the quality aspects that we have discussed all through the call today. So I've run variety of scenarios in my analysis.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“That's likely to continue. That's likely to continue for a variety of reasons. The brand strength, the increasing demand from not just the existing marketplaces, but also countries like India and Southeastern Asia, African countries. And so in my estimation, I still expect a low 10% revenue growth after taking into account these types of price increases.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“And that's an extra cost of about 300 million euros. This is in 2024. So the price increase that they institute takes into account the increase in raw material cost, labor cost, and this foreign exchange in certain situations like Japan. All that is taken into account and they push through somewhere in the 5 to 10% consistently, but more recently they've done 8 to 9%. Typically when you push through that sort of a price increase regularly, you may feel pushed back from your customers. It's the exact opposite in a company like Hermes in many luxury companies as well.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“And a business model, fixed costs are high, at least relative to many other players in the ecosystem. In 2024, for example, NLA instituted an 8% to 9% price increase. That's at the company level, individual geographies will have had different percentages. For example, Japan, whose currency has been depreciating at a rapid clip, notwithstanding what happened in early August is expected to see a double digit price increase. So that 8 to 9 percent for 2024 is at the company level. That is essentially remaining true to covering its production costs, production costs have increased at approximately 6%. The price increase that they institute also goes towards pointing out the commitment to the employees. Axel Dumas said we wanted to cover the currency impact. That's quite negative.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“That actually had revenue go up about 8.5% in 2008 during the crisis, during the financial crisis. As for the next few years, I expect a similar low 10% revenue growth. Your question, you mentioned that the company has the ability to control its growth. I think that's a very unique feature in this retail business. In some manufacturing businesses, for example, the customer puts down a deposit while placing an order which then leads to a negative working capital situation, which is wonderful. But here it's a retail business where the customer is scrambling to get on a waitlist that runs anywhere from 1 to 6 years, apart from being able to control its growth. Another aspect to take into account is the considerable operating leverage. Now given the business where the company controls its vertically integrated”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Somewhere between 540 to 580 billion. That's about a 50% growth. Among these, rising stars, one of the countries that they highlight is India. India stands out its luxury market is currently approximately 50 billion euros, is expected to hit 200 billion by 2030, more than three times where it is today. If you look specifically at Hermes, as you would suspect, sales has grown at a much better rate than what the market has done so far. As I said, revenues did go down a little bit during COVID, but revenue growth over the last five years has been approximately 19%, more than offsets the small decline in 2020. Revenue growth over the last 10 and 20 years being 14 and 13%. It's a remarkably resilient business. And as I mentioned earlier, this is one of the few businesses”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Alta Gamma is an Italian trade association that includes mostly Italian and some European brands. Alta Gama and Bain Consulting. They released a report on the luxury market in I think it was 2022 and a couple of years prior to that Deloitte had also released a similar study and Sanford Bernstein's analyst Luca has released some studies on this luxury market. All of them point to a market that's about personal luxury product market is about 350 billion and is growing at a high single digit percentage. Luxury market consumer base is expected to grow from 400 million in 2022 to 500 million by 2030 just about eight years already crossed a couple of years into that. The size of the market is expected to go from 350 billion euros”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Companies, and he listed a number of items. A few of them are relevant to this point that you are raising. One of them is the ability to create its own market is the strategic dominating and the single most distinguishing characteristic of a true growth company. The company's products have above average profit margins. The products have little to no price competition. The company is constantly improving products, developing new products or creating new markets for existing products which help insulate it from economic trends. It's a non-confirmist in economic society. It adapts the outside world to itself by creating something or a demand for something which did not exist before instead of adapting itself to the changes in the outside world. So he lists a number of these things and I'm sure he did not have Hermes or luxury for that matter in mind when he wrote this.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“There are no alternatives. There are really no alternatives for something like Burkina Kelly. If it was available, yes, many of these buyers could gladly go buy those alternatives. The Chanale puts out good quality bags, but it's not a Birkin. Louis Vuitton puts out good quality bags, but it's not a Birkin. So there is something about a qualitative feature of this name Birkin or the name Kelly that brings credibility to these bags that is absent in many of them. With some of the buyers, it may not matter, but many actually crave would actually wait for a few years to get their hands on these types of bags. Peter Bernstein in 1956, he wrote a very interesting article on Harvard Business Review. He talked about growth companies provided essentially a checklist of growth.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think that's a wonderful question. In fact, there is actually a case going on, a couple of purchasers from California filed a suit alleging that there is something called this tying, which is you get to buy the bag only if you buy a few other items. Not sure how this is going to settle, but it is a live case that you bring up at this point. It is tied to this question about why aren't customers willing to go buy other products? Well, that tells you a lot about the quality of some”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Down, but the fact that even during the Great Financial Crisis, the company was able to put out positive revenue numbers tells you a little bit about how this waitlist helps them remain committed to quality and continue to put out strong top line.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“As a result, the company maintains sort of a waitlist. It's an unofficial waitlist. You are not required to put a deposit down. You're required to put your name and contact info down as and when that particular salesman or the representative at the store finds it available. And interesting enough, picks up the phone and calls you. And if you are ready, you go buy. If not, they go to the next guy on the waitlist. And these waitlists go from anywhere from one year to six years. It moves around a little bit. And that again lends to the stable top line over time. In fact, both Hermes and LVMH were the two companies that had positive revenue numbers even during the financial crisis. Now the numbers did go down. They were down about 7 plus percent in Nermass during COVID, partly because most of the stores around the world were”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“There is significant demand for these products, and at the same time, they have serious constraint in how many bags they can actually put out. Unofficially, I've seen numbers something like 12,000 Birkin bags a year. For a company that's about 240 billion in euros in market cap, 12,000 bags a year, and each bag taking about 40 hours, that's partly self-constrained and at the same time that commitment. So that all translates into a really healthy margin and net margin in fact has continued to go up post-COVID net margin has also gone up quite significantly. So these bags are not readily available, even though the company has, in fact, the fastest growing segment within the companies online. You can buy many products within from the online stores, but you can't buy these two bags or a few other bags that they manufacture through the online option.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Described the veteran who is well trained is also not necessarily focused on making the product every day because he or she is now having to spend time with these novices who are growing within the organization. So the culture and the commitment to quality comes from a variety of different angles and so the margins on these products are immense while they don't necessarily disclose what the cost is on a per bag basis. If you look at the gross margin of this business you may think that it's more like a software company at 70% consistently over time. It's partly because of the pricing that they're able to obtain on these really high quality products. Back to your point about pricing and the ability to walk into a store and buy these things. Yeah, that's not possible because”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“But still, it gives you some context. And the other interesting and an important feature here is Irma's as a requirement that the artisan who makes the first cut on the leather gets to essentially complete the back. So it's one artisan working on one bag. That's the reason why it takes about 40 hours. And by the time the artisan gets to make the first cut of this very expensive leather, the artisan has gone through some serious training. The company hires about 200 artisans a year and they go through mandatory schooling for about a couple of years. And even after that, it takes about six years for them to work with a veteran. And another couple of years after that, before they can graduate to making the first cut for a Birkin or Kelly. So it takes a really long time. In the meantime, as I did”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“That's just retail. And you're right, these bags are not necessarily available for us to walk into a store and buy it on the spot. Typically, this is again part of the culture within the organization, part of managing the brand, managing the supply, and everything associated with making sure they put out the best quality product that lasts for a long time. And so to begin with, these bags which are made by these artisans, it takes a long time. So for example, an average mass market automobile can be put together within somewhere between 18 to 35 hours. It takes about 40 hours to make just one bag, one Birkin bag. Takes about 20 plus hours for Kelly, which is apparently a little less complicated.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, absolutely. Yeah, those prices that you mentioned, you know, there are actually 17 different bags, at least that I am aware of, that the company makes. Burkin and Kelly are the two famous ones close to those two or the third brand, which is Constance, and many other brands of bags that they manufacture. The 10,000 for Birkin is at the lowest end. The price of the bag depends upon the complexity involved, the skin type, the quality of the leather. For example, the crocodile skin is one of the most expensive and they have something called the hemalayan crocodile skin color. Himalayan is not necessarily to do with the mountain, but it's more the color white with a blend of gray in it. When you see it in picture, you'll see what I'm talking about. But those things go for hundreds of thousands of dollars.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT
“Francis Norbert from France, he went to Japan and stood up to the Empress. All three factors are sustainable or are really long term. And these are the sort of features that combine to form what is called as the moot within the organization.”
2024-09-13 · We Study Billionaires · TIP659: Hermès Stock Deep Dive w/ Shree Viswanathan · IDENTIFIED FROM THE TRANSCRIPT