In the field of luxury goods, Hermès can be said to be the gold standard.
Its sales grew by double digits even as other luxury goods companies experienced sales declines or significantly slower growth. Wealthy customers lucky enough to be named the “King of Birkin Bags” can spend about $11,000 on a Birkin 25 and flip it for more than $23,000 on the same day. Analysts predict that Hermès will surpass Louis Vuitton in revenue within the next three years and become the world’s largest luxury brand.
Hermes Shares are up 13% this year, while LVMH The stock price is flat, dry dropped by 18%.
However, there is one luxury company that has surpassed Hermès in terms of growth and brand reserve – Ferrari.
This year, ferrari The company surpassed Hermès for the first time to become the world’s most valuable luxury goods company, measured by stock multiples that measure growth and profit prospects. Ferrari’s stock currently trades at a price-to-earnings ratio of 50 times, while Hermès’s price-to-earnings ratio is 48 times and LVMH’s price-to-earnings ratio is 23 times.
The storied automaker was founded by Enzo Ferrari in 1947 to finance its racing team and listed on the New York Stock Exchange in 2015 at $60 a share. The company trades at $410 per share.
The company is valued at more than $75 billion – roughly 1.5 times the company’s market capitalization Ford or General Motors, Millions of cars are produced every year. Ferrari produced just 13,663 cars last year.
Of course, Ferrari is not a traditional luxury company. It makes cars and owns a racing team, a merchandise company, an auto restoration company and businesses that bear little resemblance to a manufacturer of $1,300 scarves and $800 sandals.
However, Luca Solca, a luxury goods analyst at Bernstein, argued in a recent research note that Ferrari and Hermès are similar because both “occupy the top of the pricing pyramid” in their respective categories. , and is “perfectly positioned” to benefit from the surge in global wealth.
In order to better understand why Ferrari has become a luxury brand, CNBC went to the Ferrari headquarters in Maranello, Italy to interview the company’s CEO Benedetto Vigna.
Vinya is an unlikely king of luxury goods. He spent most of his career at Geneva-based semiconductor manufacturer STMicroelectronics, where he ran the company’s microelectromechanical systems and sensors division. For example, he helped create the screen sensor technology used in the iPhone.
His appointment to Ferrari’s top job in 2021 signals that technology will be central to the supercar maker’s development and, in a sense, the future of luxury cars.
In an interview at the company’s $200 million electronics building, Vigna discussed the upcoming electric Ferrari, its commitment to sustainability and the current global demand for Ferraris.
The main topic of discussion, however, was why Ferrari has become a leader in luxury goods and what lessons other companies and executives serving wealthy clients can learn from Ferrari’s rise. Here are the five main takeaways:
1. Play hard to get
Ferrari Prasange SUV
Adam Jeffery | CNBC
As Solca noted in his research note, both Ferrari and Hermès “sold less than the market could bear.” Much less.
Based on orders, analysts estimate Ferrari could easily sell two to three times its current production. Ferrari’s appeal is built on scarcity and exclusivity.
Even if you could afford a Ferrari with an average price of $380,000, getting an order would be nearly impossible.
But CEO Vigna said scarcity is part of Ferrari’s brand promise.
“We must stay true to our founder’s strategy of always selling one less car than market demand.”
His strategy was to increase profits by increasing the profit per car, not by building more cars.
“We always want to improve the quality of revenue, not the quantity,” he said.
In fact, Ferrari’s production growth over the years has lagged far behind the growth of wealthy potential buyers. In 2010, it produced 6,573 vehicles, meaning production has doubled over the past 14 years. During the same period, the number of billionaires worldwide more than tripled (as did the number of people worth more than $30 million and those worth more than $100 million).
Vigna said seeing a Ferrari on the road was like seeing a rare, exotic animal. This imbalance also gives Ferrari a unique position in the automotive world: cars typically appreciate in value over time.
Vinia said it would be better if customers had to wait.
“Waiting is part of the experience,” he said.
During CNBC’s factory tour, a Ferrari customer took delivery of a new maroon 812 Superfast. He looked to be in his 70s or 80s. When he saw the car and posed for a photo under the famous Ferrari gates, his face lit up and he transformed into a 10-year-old on Christmas morning.
Ferraris are special because they remain special.
2. Let emotions be the driving force
The Ferrari SP38 was unveiled at the 2022 Goodwood Festival of Speed in Chichester, England on June 23.
Martin Lucy | Getty Images
Ask any Ferrari fan or owner what makes a Ferrari a Ferrari and they’ll probably say it’s the design, the sound of the engine, the handling, the power, the braking, or the 100 years of racing history behind the bright yellow badge.
Vigna says true luxury is defined by one main characteristic: emotion.
“Ferrari is a luxury company because it is a company that offers unique products. It is connected to the innermost part of people, the emotional aspect,” he said. “A luxury company is one that leverages technology, innovation, storytelling, tradition, everything, with the ultimate goal of satisfying the emotional side that we all have.”
Vigna said Ferrari would never build a vehicle that people only needed for transportation.
“When I get invitations to speak at conferences, if I hear two words — utility or mobility — I won’t attend. We don’t make useful products. We make emotional products,” he told CNBC.
This is similar to what LVMH Chairman Bernard Arnault calls “attractiveness.” It’s not enough to just make a high-quality product, an expensive product, or a product with more features or functionality. It has to touch people’s hearts.
3. The Art of Pricing
A Ferrari in production sits in Building E of the supercar manufacturer in Maranello, Italy.
Liu Jingjing | CNBC
Based on Ferrari’s skyrocketing price, you might think that pricing is based on the need for profit and Wall Street’s obsession with profit growth.
But Wigner said each model’s base price is actually set about a month before launch, an unusual process.
“The way our company defines price is very simple,” he said. “A month before the car is ready to be unveiled, we – me and a couple of guys – go to the track and drive it for a day or a day and a half. Then, with fresh emotion, we define the price and I, the chief marketing officer, The chief executive and chief financial officer determine the price.
Clearly, these sentiments are rising. The cheapest Ferrari in 2012 is the California, with an MSRP of $195,000. Today’s entry-level Ferrari Roma starts at $273,000, or 40 percent more.
Ferrari is launching more limited-edition and special-edition cars at higher prices: the SF90 XX Stradale starts at about $900,000, and all 799 coupes and spider convertibles were sold out at launch. Only 599 of the SP3 Daytona will be built, with prices starting at $2.3 million.
Perhaps the biggest driver of profits is personalization. Today’s Ferrari buyers increasingly want bespoke paint colours, leather, fabrics, stitching, exposed carbon fiber and other personal details to make it their own. Those personal touches can add $100,000 to $500,000 to the sale price.
Vigna said his “value over volume” strategy meant Ferrari could achieve double-digit profit growth despite modest growth in vehicle production.
4. The road to VIP status
Ferrari will never admit it, but dealers will tell you that customers have to climb an expensive commercial ladder to get their hands on a new Ferrari, especially a limited edition.
This is similar to the path a Rolex buyer must follow to end up with a new Daytona, or an Hermès buyer must follow to end up with a platinum Birkin.
In short, you buy the basic (and sometimes less popular) model first. Then you can buy a slightly more desirable model, or two or three. If you attend Ferrari events, show support for the brand, or even join the Ferrari racing program, you can eventually qualify for more expensive or even limited-edition cars.
Nearly three-quarters of Ferraris are sold to existing customers. This means starting at the bottom of the ladder is difficult.
“Ferrari and Hermès reserve the most desirable products for their most loyal customers,” Solca said. “This effectively ‘bundles’ access and increases desirability.”
5. Happy employees mean happier customers
Workers at the new Ferrari NV electric car factory in Maranello, Italy, Friday, June 21, 2024. Produces Ferrari’s first electric hybrid models and cars powered by internal combustion engines. Photographer: Francesca Volpi/Bloomberg via Getty Images
Francesca Volpi | Bloomberg | Getty Images
Luxury goods companies often reflect rising inequality in the economy. Even well-paid, respected employees work every day to make products they can never afford or experience.
Vinia has always tried to bridge these two worlds.
Soon after becoming CEO, he discovered that many Ferrari employees had never even driven a Ferrari. The company takes employees to the test track for test drives to experience firsthand the importance of work.
Last year, he also announced an employee stock ownership plan that would give every employee the option to become a Ferrari shareholder and receive free one-time shares worth up to about 2,065 euros ($2,229).
While ESOPs are common in the United States, they are rare in Europe. Wigner said he learned to appreciate employee stock ownership plans while working in Silicon Valley and the importance of letting employees share in shareholder benefits.
“The proposal came from the team and the board and I approved it immediately,” he said. “People are the center of the company. You need to motivate everyone. If you give shares, they all feel part of the company, like owners of the company. All companies have people. Only a few companies are made up of people.”
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