Luxury businesses fascinate me because they do not follow the traditional rules of economics. In many luxury companies typical rules of business are flipped on their heads; higher prices beget more demand, product flaws are endearing to enthusiasts, and supply is rigorously controlled to ensure it can never meet demand. These are not tactics you learn in business school.
Great write up, the follow up book 'Kapferer on Luxury' is also worth a read.
It's becoming increasingly hard to find true luxury listed co's. While many have elements, they are diluting the luxury with premium or fashion brand/product. LVMH has Louis Vuitton and others, but it also has businesses like Sephora - hardly luxury. Kering has Gucci, but then has it's new glasses business, hardly luxury.
I don't count either of these holding co's as true luxury anymore, though at the right valuation they'll obviously still be appealing.
Realistically for companies that truly adhere to the quite strict 'luxury' criteria, at present I find only a few companies; Hermes (if we forgive them their foray into makeup and skincare), Ferrari (if you ignore the licensing division), The Italian Sea Group and probably Richemont. Of these, only TISG and CFR currently have reasonable (arguably cheap) value multiples, but hoping the others will come down if the world collapses next year.
Curious why you don't like serial acquirers? There are many phenomenal companies that fall into this category (TDG, CSU, ROP, LIFCO, ADDT, DHR, etc.). I mean, isn't the goat of them all, BRK, essentially a serial acquirer? (I guess more of a holding company, but still...).
Generally speaking, major acquisitions destroy value in aggregate and we're always cautious of investing in companies that make large acquisitions. However, we've written about and owned a number of exceptions to this rule and you've named several great examples. Alimentation Couche-Tard, Berkshire, Heico, TDG, CSU, and others have all been outstanding stewards of capital while and created tremendous value through inorganic growth, and we love these businesses. It's an area with low base rates, so you need to be careful that you're picking those with skin in the game and rational incentives, which certainly can be done successfully!
Great write up, the follow up book 'Kapferer on Luxury' is also worth a read.
It's becoming increasingly hard to find true luxury listed co's. While many have elements, they are diluting the luxury with premium or fashion brand/product. LVMH has Louis Vuitton and others, but it also has businesses like Sephora - hardly luxury. Kering has Gucci, but then has it's new glasses business, hardly luxury.
I don't count either of these holding co's as true luxury anymore, though at the right valuation they'll obviously still be appealing.
Realistically for companies that truly adhere to the quite strict 'luxury' criteria, at present I find only a few companies; Hermes (if we forgive them their foray into makeup and skincare), Ferrari (if you ignore the licensing division), The Italian Sea Group and probably Richemont. Of these, only TISG and CFR currently have reasonable (arguably cheap) value multiples, but hoping the others will come down if the world collapses next year.
Thanks for the book recommendation, and well said, I pretty much agree with everything you said.
Excellent article on a fascinating industry and a leading company in the sector. Thank you.
Curious why you don't like serial acquirers? There are many phenomenal companies that fall into this category (TDG, CSU, ROP, LIFCO, ADDT, DHR, etc.). I mean, isn't the goat of them all, BRK, essentially a serial acquirer? (I guess more of a holding company, but still...).
Generally speaking, major acquisitions destroy value in aggregate and we're always cautious of investing in companies that make large acquisitions. However, we've written about and owned a number of exceptions to this rule and you've named several great examples. Alimentation Couche-Tard, Berkshire, Heico, TDG, CSU, and others have all been outstanding stewards of capital while and created tremendous value through inorganic growth, and we love these businesses. It's an area with low base rates, so you need to be careful that you're picking those with skin in the game and rational incentives, which certainly can be done successfully!