00:00You highlight, you know, the idea of the K-shaped economy in the notes you sent over to our producer.
00:05So let's start there because, you know, the conversation we've been having is that it feels like the two ends
00:10of the K are just getting farther apart.
00:13And you take a look at the different earnings that we've gotten from the retail sector writ large over the
00:17past several weeks.
00:19I mean, does that theory hold water with you?
00:22Well, it does, although I would say even within the luxury sector, I'm seeing a K in performances.
00:27The brands that are delivering really well, that started this difficult cycle with strong brand equity, that are geographically well
00:37-balanced, so not overly dependent on China or, for that matter, the U.S., that are telling their stories and
00:44creating experiences in elevated ways.
00:47They're doing really, really well.
00:48Well, the ones that I think that we're leaning way too heavily on the aspirational consumer, many of them in
00:55the LVMH portfolio, they're having a hard time.
00:58The ones that have taken price too aggressively over the last couple of years, they're having a hard time.
01:04The ones that are too reliant on fashion, which is one of the harder hit segments, they're having a hard
01:10time.
01:10So even within the luxury segment and even within the affluent consumer, we're seeing some bifurcation.
01:17So how do you navigate this current environment?
01:20If you are one of those brands who, you know, perhaps you mentioned LVMH and that aspirational consumer that just
01:28doesn't seem to be a good place to play right now, how would you sort of tread water here or
01:34try to advance?
01:36Well, I think treading water is very much the analogy here.
01:41And many of these companies are struggling with that.
01:43On the one hand, they have seen that the most stable source of revenue and of growth is that ultra
01:52high net worth.
01:56They're wealthier than ever.
01:58And if they have their equities in technology, they're even wealthier than those that don't.
02:05Their lifestyles don't change at all.
02:08I think they are becoming more demanding, but they're also being preyed on by a lot more brands today than
02:1310 or 15 years ago.
02:15So the competition among the players going after that very top segment is pretty intense.
02:22For the larger group that have grown on the base of this aspirational consumer, I think they have to just
02:30wait it out.
02:30I don't think there's anything they can do without compromising their position and their credibility to try to make it
02:38more affordable.
02:39I am curious, though, Paulie.
02:40I mean, I understand the chase for the aspirational consumer.
02:42I also want to talk about, you know, kind of the consumers that aren't aspirational.
02:45They're already at the top because we saw a chase there.
02:48And I was kind of looking at all the big European luxury houses and the various, the divergence, if you
02:54will, in some of their earnings.
02:55And some of that seemed to have been based on pricing.
02:57And I was particularly struck by an interview that I saw on another network with the CEO of Brunello Cicinelli,
03:03who was kind of talking about how they actually held price a little bit,
03:07the idea that they always kind of had this business model of being about 78 times whatever their production costs
03:12were.
03:12Meanwhile, you saw some of the other competitors actually sort of really sort of get aggressive on some of that
03:18pricing.
03:18And that seems to show up in their earnings, 14 percent growth at Cicinelli.
03:23Meanwhile, you saw some of the other names still in the single digits in terms of growth.
03:28Yeah, I wouldn't give Brunello Cicinelli any credit for being excessively priced or particularly controlled in their, you know, in
03:36their margins.
03:37But I think when you saw that huge, what they called greedflation from about 2019 to 23, 24,
03:46some brands like Chanel and Dior were raising prices on items as much as 50, 60, 70 percent, the same
03:52item.
03:54That was really a fashion move.
03:57And ones like a Laura Piano, which would be a more direct comparable to Brunello Cicinelli,
04:02were more, I would say, more disciplined in their run up.
04:06But they still, in both cases, started at a very, very high price point.
04:10I would actually attribute Cicinelli's success to two factors.
04:15One, it's relatively small still.
04:17So, you know, there just is more room to grow.
04:21There's more white space in terms of places for new stores, customers that are just growing into the brand.
04:26And number two, unlike many of the others we might talk about, it has a very healthy business among men.
04:33And if you look at where some of the new wealth is coming from, particularly in Silicon Valley, it's a
04:39stronghold for a brand like Brunello Cicinelli.
04:42So I think that the fact that they're balanced male-female, that they have a relatively small footprint,
04:47and that they are very well run would give them a lead in this particular time.
04:52With some of the more, I guess, sprawling luxury companies like Richemont and LVMH,
04:57is that sort of broad model that they've taken of having this sort of just complete, this plethora of brands,
05:03is that working against them or is that an actual asset?
05:07It's definitely working against LVMH right now.
05:09I'd say the breadth and complexity of not just having that many brands, but that many segments.
05:15How you operate a watch and jewelry brand is very, very different than a wine and spirits brand or a
05:20cosmetics or a specialty retail.
05:22And so the complexity of the group, I think, is weighing it down.
05:26In the case of Richemont, interestingly, a few years ago, their biggest disadvantage compared to the other groups
05:33was that they were so reliant on one segment, which was watches and jewelry.
05:37Because right now that is the one segment within high-end luxury that is doing really well in pretty much
05:45all markets,
05:46they are outpacing all their direct competitors, and they have been for quite a few quarters.
05:53There's just so much more value of perception of value by the consumer.
05:59If they're going to spend $5,000 or $8,000 or $100,000, there's more perception of value on hard
06:05luxury than there is on soft luxury.
06:08And, Pauline, before we let you go, I do want to talk a little bit directly about Gucci here,
06:13because, you know, you mentioned that Gucci, the estimates, we're going to see double-digit declines there.
06:18And I do wonder, you know, where Gucci falls in this environment, what the path forward is there.
06:24Yeah, turnarounds are always hard, and they're particularly hard in fashion business.
06:28This is where, you know, the cycle is so fast and so unforgiving, and the customer base is pretty unforgiving,
06:36too.
06:37This was probably the worst time in Gucci's history to try to take on the kind of restructuring that's required.
06:44And it's only exacerbated by the fact that they are by far the largest brand within their group, and it's
06:50a public group, caring.
06:51So they have taken some bold moves, most notably bringing in, and he's been there now for about a year,
07:01but a new creative director.
07:04It's not working yet.
07:06Some would say it just takes time, particularly when you have a new creative direction.
07:10Others would say that the issues are too deep for any new runway presentation or campaign to try to stem
07:19the bleeding right now.
07:21So I expect for sure it's going to take time, but it also may be that this is a brand
07:31that just shouldn't have been chasing the kind of volume that it had at its peak.
07:35Thank you very much.
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