Champagne Problems

19:53Luca Solca:I don't know that it's a good idea to hold off because the brand has known huge momentum and that's the time to make hay and to continue to develop the brand. it would be ideal if they could find a designer that takes the brand to the next step yeah has definitely been a success story in the most recent years and it would be a waste to just get it fade again because you don't pay attention to it which is i think the reason why the market doesn't like this soft luxury business because the risk is that in a company like that to get distracted by other more important things, while the assets you have are worth of attention, it could be doing very well if given the right attention and the right amount of love.

20:49Lauren:Yeah. Well, another brand is about to get Peter Mulier Versace, which is now owned by the Prada Group. The results for Pradas aren't until March 5th, right?

21:03Luca Solca:That's right, yes.

21:04Lauren:Oh man, we're missing it. But what do you think? Here's a question about Prada that is not connected to particularly to any quarterly earnings. But Prada had a tremendous amount of growth at the Prada brand itself and also at the Miu Miu brand. Obviously, there were quarters when they'd be up 100 % or whatever. A lot of that growth came from moving more of the business direct. A lot of that growth came from opening new stores and also just from accelerating the Miu Miu business generally. That kind of growth is obviously not sustainable. Like you can't keep doubling sales every single quarter.

21:45Lauren:what do you think moving forward and especially as they absorb versace which has has been explained to me as one of the most like complex companies because of the way it's set up and just completely a total mess and they're gonna have to spend all this time you know fixing it what do you think the challenges for product group are for the next year i would think that

22:13Luca Solca:they need to make sure that Prada stays in positive territory when it comes to growth. It would be underwhelming if you had the second derivative at mu mu turning negative, which I think is a given because, as you say, you cannot continue to grow in the high double digits forever and it's natural that they would fade that organic growth going forward, this wouldn't be too bad if at the same time you had a sense that Prada is fine and is in positive territory. That, I think, is the point of debate because there are a number of questions that the product has to address first. There's a risk that given the amount of creative directors changing houses last year, there's a risk that consumers could be distracted and flock to brands with new creative propositions.

23:23Luca Solca:And there's also a risk that the sound of the brands may have increased prices a bit too much and could be a bit too slow in adjusting the mix, and maybe Prada is in this list. So I think that the best insurance policy for Prada to regain altitude, because the share price has been hammered and the valuation is very low, is to, on the one hand, show that they can move Prada forward, Prada the brand, and two, that they don't have extravagant plans for Versace and that the Versace revival is not going to be a bloodbath of kitchen seeking and doing or trying to do everything at once, but possibly a more gradual endeavor of improving the business step by step.

24:18Luca Solca:First, by beefing up desirability, reinventing the Versace iconic appeal in the modern day, which I think is very much time to do so because I think Versace has been relatively stagnant for a very long time. So there's a need to wake up the sleeping beauty. assuming she's sleeping, of course, and then correct distribution and everything else that has to be corrected. But you want to do that once the brand momentum has at least given initial signs of restarting.

25:04Lauren:Yeah, I mean, it's tricky because this Dario Vitale collection, they're really selling it and it seems to be doing well And it's an interesting conundrum of like, you have this one collection from this person who sort of totally revamped the brand. Consumers are responding well to it. And he's out. And so they're going to have to do it over again, I guess. and they invested a lot in the campaigns and the advertising. So it'll be interesting to see how Peter does it and how he takes, if his vision for Versace has changed at all, given the momentum that Dario's one collection got.

25:45Luca Solca:That was counterintuitive indeed. And I also got positive feedback on Dario's collection.

25:52Lauren:Yeah.

25:53Luca Solca:So seeing Dario go was a setback, let's say that.

26:00Lauren:Yeah. Well, hopefully for his, I think we'll be seeing him somewhere else soon, sooner than later. He's so talented. So let's move on to Kering, which is they have the Demna Gucci debut this week. They have second collections from Bottega Veneta and um uh Balenciaga coming they have the situation at McQueen that Luca DeMeo has been very honest about which is that like we're we're restructuring it and then we'll see what we want to do with it they've said that they're not going to sell it but like prior they had said maybe we would sell it it's been you know who knows but um what do you think and I and I know internally DeMeo has been very much like stock price you need to ignore it because we haven't done anything yet he's been very like honest with the employees about not taking the fact that they can that the market has responded so well to his appointment as a sign of victory but what do you think about where they are with Gucci and and is there a world in which that company doesn't rely on Gucci so much

27:18Luca Solca:I think that this week is going to be a major racist test to see if Gucci has a new identity and a new vision. I think that is going to be the most important element in the caring revival. Luca has done a lot of good things at caring already. He has showed up the balance sheet, addressed the high debt issue. I thought that the beauty license was very appropriate, as well as the divestiture of greed. I think that there's going to be a bit more pain to be suffered when it comes to divesting recent real estate acquisitions that were made at very high prices. But that is not the issue. The issue is, what is the idea behind Gucci, behind Valenciaga, behind Saint Laurent?

28:19Luca Solca:What are they supposed to achieve in the market? How are they going to be recognizing consumer interest? And what is, as a consequence, the creative energy that they need? Going back to the archives is not necessarily making brands a lot more interesting. I think that that is maybe a bit of a sort of pause on the effort to make them relevant again. To make them relevant again, you need to look forward. I don't think you need to look backward. And so we're all very keen and we're all very interested in seeing what the new creative talents will bring to these brands. And there's a lot of expectations in the market.

29:18Luca Solca:As you saw, SharePrice reactions, and as you were saying, has been anticipating positive moves. so i think that at this point the positive moves would have to appear um and sooner rather than later um so that the market continues to open credit to this revival which is going to be from now on uh brand specific uh there's a formula for gucci which is not going to work at palenciaga you will need a different formula you will need a different formula on all of the brands and I don't know that in the very short term the group could be less dependent on Gucci. Gucci continues to be the largest portion of profits in the group so if Gucci works, caring works.

30:12Luca Solca:If Gucci doesn't work then it's not going to be easy to replace Gucci anytime soon. I know that they've been investing in other areas, like in jewelry, for example. But again, the jewelry investment is predicated on beefing up the jewelry collections of the brands they own. And what is the most important brand they own? Again, Gucci. So, Gucci has to work in order for carrying to work. I don't think we're best in any way to escape that.

30:51Lauren:this kind of brings me to Hermes because the thing that I can't kind of get my head around is is the like I was talking about this with someone at a show yesterday there's never going to be a time again like Demna at Balenciaga and Alessandra Michele at Gucci where it was like they took over the entire market. Everybody wanted a piece of it. It felt like anyone who buys luxury goods wanted them. And it just got so crazy where people were buying up until three years ago, people were buying luxury goods like they were fast fashion. They would buy one thing a week. Like it was just so wild. And that was a big part of popular culture.

31:41Lauren:I don't think that that is, I think that's on the decline. So how do these companies, knowing that, sort of course correct for this change in consumer behavior? because it's not going to go back to people being freakazoids or something, even if they really like it. Like it's just not the consumption patterns have changed. So what does the market and analysts like you expect from caring in terms of Gucci this year?

32:16Luca Solca:Well, I think you need to sort of bring that discussion to a more granular market level. And I think that one way to potentially frame the issue is there was a time when young aspirational consumers were driving growth. And these consumers were very interested in a luxury interpretation that created a hybrid between casual and luxury and streetwear and luxury. And so Caring was particularly great at capturing that opportunity, that opening in the market. They were the first to embrace it with Alessandro Michele and then Demna. Sneakers became very important. T-shirts became very important. And maybe one of the issues that you're confronting now is that you sold as many as you could have possibly done.

33:25Luca Solca:Other brands followed that lead, but tried to limit their exposure and use that product maybe to attract attention. think of how parsimoniously Vuitton used the Supreme collaboration, which could have sold a lot of product, but they decided to limit that product in order not to change, basically, the perception of the brand DNA. So as you've gone down that road as much as you possibly could, But now, sort of correcting course is a bit more difficult and requires quite a significant amount of slimming down. Having said that, most of the slimming down at Gucci has already been done. The business went from more than 10 billion to less than 6 billion.

34:22Luca Solca:And so you could argue that the pain you take has been largely taken already.

34:30Lauren:Yeah. And now you would need to think, what do I do with this brand?

34:35Luca Solca:Which segments could be interested in Gucci? Who are my clients? And where do I need to go in order to attract them? I don't know that a big brand like that can have one constituency that they need to go after. As we've seen from larger brands, you need to have a multi-pronged approach. You need to be appealing to several different segments. And that, I think, is the work you need to do. Once you know what you need to be for which clients, then you decide and you draw a conclusion on what kind of creative talent you need, not vice versa. Because vice versa would mean I choose a creative director as I buy a lottery ticket.

35:27Luca Solca:Maybe I'm lucky. And maybe that creative director is going to make me rich. The probability of success of this approach is very low. you should possibly know where you want to go first and then choose a driver on the back of that direction. That is going to give you a better probability of success. And that's why I think that the market is very interested in the next Capital Market Day, because the market wants to know where each of the brands is aiming to go and how. and then I think the market will draw conclusions on whether there's a good match between resources, the teams at the top of the brands and the stated objectives.

36:18Lauren:I believe the capital market day is April 16th. Is that right?

36:23Luca Solca:Correct, yes.

36:24Lauren:Correct. I'll be there. I'm excited. Very good.

36:28Luca Solca:So another opportunity to see each other in the play.

36:30Lauren:Yeah, we'll hang out again. I'm so excited, Luca. Okay, so the reason I was thinking about Hermes in terms of the caring stuff is Hermes is kind of the outlier here in that their business has not, they've rarely disappointed the market. I feel like there was one quarter where they disappointed the market. But this quarter, they said that the Chinese middle class is coming back, which I was shocked to hear that. But I guess Hermes is Hermes. I was just curious what you think about their business in the context of all this other stuff. And is it just not comparable?

37:12Luca Solca:No, I think that they play in the same arena. And in fact, I was at the conference in Paris for their four-year results, and I thought the atmosphere was very lighthearted, and it felt as if we had seen the end of a dark chapter. And that commentary, as you point out, was indeed very remarkable. The idea that the Chinese middle class is not as bad as it seems was a breath of fresh air. We need the Chinese middle class collectively as an industry to be supporting growth. LVMH needs it. Everyone needs it, including Hermès, which is more skewed to the high end with some of their products, but which is also very dependent on aspirational and middle class consumers.

38:10Luca Solca:So the revival of the Chinese middle class would be the hallmark of a 26 luxury sector improvement. That element alone would be a strong positive for the outlook in the industry. Today, we published a new report looking at traffic ahead of Chinese New Year. and we calculated that in the four cities where we looked at more than 10 luxury shopping malls, traffic was up here and here by 47 percent, which, even if you take into account that people are not traveling to Japan like they did last year, seems a very strong positive data point. So, it seems we're moving in the right direction, and that would be very good news for everyone, including Hermès but for the Brule sector as well

39:08Lauren:What about the like other players that are a bit more the Italians like Brunello Cuccinelli Zegna Montclair how are they all faring right now? I know Montclair is doing very well because of all this snow

39:26Luca Solca:Brunello Cuccinelli and Zegna are high-end specialists in a K-shaped market, they should be doing very well indeed. They're small enough to play just in the very top end. They virtually have no aspirational consumers or very little aspirational consumers to speak of. The rich are getting richer. And with AI around the corner, they will do so even more. So they should be fine. I think that they should be fine. There was a few hiccups hitting Brunello, like the sacks, bankruptcy, and so on. But at the end of the day, these are totally unimportant in the grand scheme of things. Moncler, I think, is a bit of a different story.

40:18Luca Solca:Moncler is shifting gears. they had quite a significant support from price increases in the past few years but at the same time their volume progression was negative there's a need to reignite volume growth there's less of an opportunity to continue to expand retail network as like for like has been tested and there's less of an opportunity to continue to push like-for-like pricing because this would alienate or risk alienating the aspirational middle-class consumers who are still relevant for a brand like Montclair. We cannot pretend that Montclair is a high-end, exclusively high-end brand. So this is a bit of a transition in a way which is going to be important to see this year.

41:14Luca Solca:At the same time, the interesting new news, which is not yet material, but which could potentially be positive going forward, is the acceleration at Stone Island, especially when we look at their direct-to-consumer acceleration. That seems to be encouraging, because Stone Island had been a bit of a drag for a long time, and things start to be moving in the right direction. Double digits growth in direct retail was a very positive sign, in my opinion. But if it continues, then this could be a very welcome complement to sustain the Munkler Group momentum. Because otherwise, what you would need to conclude that with lower price inflation available, lower retail network expansion available, you would need to see a maturing business.

42:22Lauren:yeah so so i guess or more blizzards just kidding but it was apparently really good in the u.s because of all the snow because it was so cold in america that it did so well i don't know yes but montclair is not yet very exposed to the u.s so i think that could potentially be a new area of

42:45Luca Solca:growth going forward they have dedicated quite a significant amount of resources to the u.s the new flagship store to open on Fifth Avenue, the Aspen event, the taking of department store distribution under concessions. These have all been efforts to sort of make the U.S. the next chapter of growth, which makes that. So looking ahead this year, is it still a case of it's going to get worse before it gets better?

43:17Lauren:or do you think that by the middle of the year we're going to see positive comps from most of these places and the feeling is going to be more thumbs up than thumbs down about the soft luxury in general?

43:33Luca Solca:I think it's more this latter than the former. My impression is that we could see a ray of light in the first half already and I don't believe that things would need to get worse before they get better. If the revival in Chinese demand is confirmed with a strong background in demand from American and European consumers, we should finally be out of the woods.

43:59Lauren:Luca, what do they say? Your words to God's lips or something. What's that saying? Your lips to God's ears.

44:12Luca Solca:Well, I'm not sure about that.

44:16Lauren:I think that's what it is.

44:18Luca Solca:Always a pleasure to talk to you.

44:21Lauren:You too, Luca. I can't believe we're going to meet on Friday. I can't wait. I'm definitely posting a photo to social media. I look forward to that. It means it's an idiom expressing a fervent hope or wish that what someone has just said will come true.

44:37Luca Solca:Absolutely. Yes, indeed. I hope so, too. I keep my fingers crossed.

44:41Lauren:Okay, we'll talk soon, Luca. Enjoy Milan.

44:43Luca Solca:Take care. Bye-bye. Bye.

44:46Lauren:Fashion People is a presentation of Odyssey in partnership with Puck. This show was produced and edited by Molly Nugent. Special thanks to our executive producers, Puck Co-Founder John Kelly, Executive Editor Ben Landy and Director of Editorial Operations Gabi Grossman. An additional thanks to the team at Odyssey, J.D. Crowley, Jenna Weiss-Berman and Bob Tabador. But what I wanted to tell you is that my daughter is very good at studying. The semester, laptop, books, software, computer, internet. So a master is really expensive. Say her, she can get it back.

45:22Luca Solca:You mean from the tax, but she doesn't pay. No, it's a failure. It's a very simple sentence with Wieso Steuer. And if she works then, it's kaching. That's all? Safe. Wieso Steuer. Get back your money. Now, try it out.