Moncler: The Après Playbook - [Business Breakdowns, EP.218]
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This is Matt Russell, and today we are breaking down Montclair.

You know they're down jackets, they're stylized, M logo. It's the mix of style and substance that blends into the brand history and evolution of Montclair. I was joined by Chris Davies, investment manager at Bailey Gifford, to cover Montclair's evolution, particularly in the hands of Rema Ruffini. And we get into the push to define luxury outerwear.

extend outward into other product categories, and keep that core DNA of fashion and function. This is a particularly interesting episode for anybody interested in the luxury market generally and Montclair's push to carve out their own niche. All right, Chris, excited to have you here to cover Montclair. It's a product, a brand that I think most would be familiar with, but maybe we can just start out by saying

covering an introduction to the business itself, what does Moncler entail, and just a little bit of an overview on the business itself to kick off the conversation. Thanks, Matt. Well, it's a pleasure to be here. So Moncler is a really interesting breakthrough brand. I'm going to come back to that idea of a breakthrough brand a bit later on, but let's just deal with the basics, first of all. So it operates in...

the luxury outerwear market. So what on earth is that? Well,

To put it really simply, it's a segment of the fashion industry that's focused on really high-end outer garments. So think coats and jackets and other things that we all wear outside. Lots of it is linked to the cold. That's generally where Montclair has made a name for itself. But there are plenty of other brands here as well, like Canada Goose and Arc de Rix, which people will probably have heard of before.

But like other parts of the luxury business, generally, we're dealing here with very high quality products. We're dealing with high quality customer experiences, and we're typically dealing with pretty high price points. So I'm going to try to sit Montclair in that context. So it was made famous by its puffer jackets.

And if you think of most luxury brands, they will typically have some kind of iconic product or a collection that they're associated with. If you think of Hermes, you think of the Birkin bag or the Kelly bag. Equally, if you think of Cartier in jewelry, for example, you'd think of maybe the Trinity collection. You know, you have those three interlocking bands associated.

Now, if you look at the Birkin bags, prices could be like $10,000 to $100,000 and way above that. If you think of the Trinity collection products, it could be prices getting as high as $20,000. So Montclair has an iconic product. I would say it's their Meyer puffer jacket. And this was launched in 2009, but there have been iterations of it in the past. But basically, it's a very loud, so...

Typically bright colored jacket. It's typically made out of very shiny nylon. So it's very, very distinctive. You can tell when someone's wearing one of these things. Various colors have been released since the initial launch in 2009.

Some of them darker than others. Some of them a bit more garish than others. So basically, it's this really iconic product that they've come up with that people will think of when they think of Montclair. And it's around that core product that they've then built other things. So like a lot of other brands that have got these Anker products, they've built other things like knitwear, footwear, accessories, other things. Because people don't just wear jackets when they go outside. They wear other things as well.

So they very much established themselves in this luxury outerwear space, I think, via this really unique core product. I think you tapped into a lot of what makes Montclair interesting to me as this luxury player. Their garments or their coats, jackets do have a little bit of loudness to them. You know when someone is wearing them.

I'm always interested in the DNA of luxury brands, the history. How did they emerge into this category? So maybe we can cover some of that, the past. I know it goes back before 2009, many decades. So maybe you could just cover some of the history and what went into Montclair becoming the brand that it is today.

That's right. The history does go back some ways. I won't go through every single year, but I tend to think of the history in three phases, if you like. So if you go back to the early 1950s, when Montclair was first established, so 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 1952, 195

It is founded in this village near Grenoble in France called Monestier de Clermont. And this is where the name comes from, Montclair. So it is quite a young brand in that sense. You think of Chanel, which I think was founded in 1910, maybe. Hermes maybe goes back to the 1830s. The origins of Montclair really were making kits, coats,

I think they even made some sleeping bags and tents and stuff for people who worked in the mountains, but also for mountaineers. And in 1954, a famous French mountaineer called Lionel Terry said,

discovers this brand, this line of products, is impressed by the quality and begins to collaborate with Montclair on this new line, the Lionel Terry line. But also that year, they kit out this Italian expedition to K2. And I think really that early stage in the 50s was really all about building those technical credentials.

But it goes a bit further than that. So if you actually go into the late 1960s, around 1968, when you have the Grenoble Winter Olympics,

Montclair is actually at this point kitting out the French downhill ski team. So that's the first phase of the company's history that I tend to think about. That was really all about building these technical credentials, which it still very much has a right to claim today. The next phase, which I think is really important, is basically the 1980s.

So this is when Montclair came down from the slopes to the streets. This is how they tend to put it. If you were in Milan around this time, you might have seen youngsters hanging out around sandwich shops and fast food restaurants.

They'd have been wearing some pretty loud designer clothing. They would have been wearing Timbaland boots, Ray-Ban sunglasses, Levi's jeans. They loved American pop culture, motor scooters, fast food, pop music.

And actually, the original crew of these youngsters hung around a sandwich shop, I think, called El Paninaro. And this is basically where this subculture is born. And it's called this Paninaro subculture. And it's very much associated with enjoying life, expressing oneself, luxury consumption, and

The cultural undercurrent was so strong that actually the Pet Shop Boys sang a song about this called Paninara, which they released in 1986, which is worth a listen if anyone wants to get a flavor of that sort of cultural milieu. We can dub it into the recording, perhaps. Put it in the show notes, definitely. So this is like the second phase of the company's history. It's quite different to the first. It's much more fashion oriented. And that brings us on to the third phase of the company.

So by this point, you basically established that Montclair has these technical credentials in performance, in mountaineering, outerwear, but it also has these credentials in fashion as well. Now, that's an unusual combination, and it's something that was recognized by a guy called Remo Ruffini.

who actually starts working for them around the time of the late 90s, early 2000s, and ends up buying the company. And over the course of the next 20 plus years, basically takes full advantage of this really unique amalgamation of the technical and the fashion and builds Montclair into this gigantic, successful fashion powerhouse.

It's amazing how often when you look back at history of luxury brands, it does start with earning the credentials and whatever space it may be. Hermes with their leather actually being used with the horses or in the field with the watch industry, certainly with Rolex watches. There's some overlap here with Montclair. When you think about the brand today, obviously that street sale is what I see, at least on a day-to-day basis.

Would you say that is the primary focus? Do they still keep that focus on the actual slopes in the mountains and that type of physical exertion type wear? When you think about the brand as a whole, how do you think they approach that? So there are two brands actually under the umbrella here, which I'm going to get to the other one later on, but it's called Stone Island. But for Montclair, they have these three pillars to the brand.

So the first is what they call collection. And this is the core brand. It's the core products. It's the Maya jackets. It's the bread and butter of the business. But you also have these two other pillars, which are really important as well. One is called innovation.

Grenoble and the other is called Genius. Grenoble is basically this kind of strand of the Montclair identity that Remo Ruffini has pulled on. So it was launched

not as a separate identity by any means, but certainly as an extension and expansion of Montclair. And this was back in 2010. And it very much harks back to the company's technical heritage. It actually launched in New York, I think, at a golf driving event

range on the Hudson River on an old pier with this massive scaffolding with 100 models standing on it wearing Montclair garments. So it was very much calling out the fact that, hang on, there's a technical heritage here, but this is still very much a fashion brand.

And what you've seen them starting to do over the course of the last 10, 15 years is gradually open some of these more technical-leaning stores. And I guess this has culminated a bit more recently where they've actually started to open dedicated Grenoble boutiques where you take those technical products, and you can see these online, by the way. It's not just something you have to go to a store for. You can go online and have a look at the various stores.

that they have under that Grenoble range. But it's very much this deliberate reclaiming of that technical heritage. The other one is Genius. Now, Genius is really quite interesting because, first of all, it's the newest of those three pillars. It was brought in back in 2018.

And it's kind of a platform. It's a multi-designer platform. If you think of the typical way that a luxury fashion business would work, you would usually have one creative director. Gucci's a good example. How many creative directors of Gucci could you name over the years? Well, you've had people like Tom Ford, who did pretty well for himself. Frida Giannini, I think, came after him. More recently, you've had people like Alessandro Michele,

But that model is very much dependent on one individual, how they think about the brand, how they imagine the brand. And you'll have fashion shows which then reveal on a periodic basis what that designer has come up with. Remo Ruffini is not that keen on industry standards and the usual way of doing things. And part of the reason for this is that when he bought Moncler back in the early 2000s,

you already have some pretty big brands out there in the world. So if you want to try to compete with these, you've got to do something that's really quite different. And this really culminates in the launch of Junius in 2018. And the idea is that you just collaborate with a whole bunch of different designers during the course of an individual year.

So I think so far they've probably collaborated with 80 plus different designers over the history of Genius so far. But what it does is basically generates hype and excitement and interest. These are limited edition, time-limited collections that they develop with individual designers.

And they've actually blown this up to a much larger scale. So actually, if you go back last year, they had this incredible extravaganza in Shanghai where they basically took genius and in one go had 10 different designers collaborating in this old shipyard, which had been completely revamped. It was a bit like Disneyland for fashion designers, right?

And they had 8,000 people attend. It was live streamed by nearly 60 million people. And so you had these 10 different areas where these different designers would interact with the Montclair brand, reimagine, reinterpret it. So you had one section, which was Donald Glover with an agricultural theme. Another, explore the intersection between fashion and AI.

So that was really interesting. To really understand how it works, you need to see it as part of a flywheel. It very much drives interest and excitement for the brand. So those are the three pillars, I would say, the core collection, Grenoble, and then you've also got Genius as well. And I think you've covered a decent amount about what makes Ruffini different. But are there other things that you would point to just in terms of him taking over this business, which was struggling at the time?

he was opportunistic in terms of the time that he acquired it. You've described some of the ways that he's left his fingerprints on it, but anything else that would get into the ethos of Ruffini? Because he does seem like such a primary character within this business story. Oh yeah, he is the impresario in this case, for sure. So he's the chairman and CEO. Moncler doesn't have a creative director, but he's like the driving force on the creative side as well.

He is restless. He is constantly innovating, looking for ways to reinvent Montclair. I've heard him say in the past, we should never compromise, never get bored, so we don't bore others.

And this, as a philosophy, has worked pretty well. So I think Moncler had about $45 million of revenue when Ruffini took over. He grew that tenfold by 2012, which was the year before the IPO. I think to really get into his head, you need to go back and look at his history.

So actually, his parents were involved in the fabric industry a long time ago. So there are stories of him aged six, seven, sitting around the kitchen table talking about fabrics and styles and the like. He said to us in a recent meeting that he used to have this light blue Montclair jacket when he was a kid. And he loved this jacket, but it really planted a seed for him.

his career when he went to work for his father's business. So his father set up this business called Gianfranco Ruffini in the early 1980s. He actually moved out to the east coast of the US. And Remo Ruffini actually went to work for him for a while, but he was traveling around. He explored the east coast of the US. And this was around the time back in the 1980s when the sort of preppy lifestyle was taking off.

very much oriented around quality clothing, lots of links to sailing and tennis and these sorts of things. And it's the sort of style that's really survived. And people even today can still figure out what preppy actually means. But that inspired him. And he came back to Italy, went back home to Como and basically set up these two brands of his own, one of which was called New England. And he describes this period as basically a bit like going back to school.

Now, these two brands were pretty successful. He sold both of them to a private company called Stephanel. And this was in about 2000. Stephanel specializes in knitwear. But this gave him some liquidity. Now, I think I mentioned earlier, he was working as a creative consultant for the holding company, which owned Montclair at the time.

And they were really struggling with the fallout of the TMT crash and were just looking to sell. And so Raul Rufini is basically in the right place at exactly the right time and acquires this brand for about a million dollars in 2003, which is a real bargain. He acquires the operations in 2005 with the help of a private equity company. The operations are valued at about 1.2 billion euros. And he basically had the succession of

private equity investors being involved, the likes of Carlisle, for example. Now, the IPO was originally planned to be around 2010, 2011. But for those of you who will remember what was happening around that time in Europe, the chat was all about Grexit, not Brexit, which people have been talking about so much since 2016. We had that referendum in the UK. Europe felt at the time like it was falling apart.

There were all sorts of problems in Portugal, Ireland, Italy, Greece, Spain. So the private equity firm that was involved basically decides, you know what, actually, we're just going to sell to another private equity company. So this is Eurazeo.

And the IPO was pushed out, but it eventually happens. It happens in 2013. The share price pops, I think, 40% or something on the day. It's an incredibly successful IPO. And then private equity gradually kind of sells down and you get to fully listed Montclair. So Ruffini is still very much invested. Most of his wealth, and he's a multi-billionaire by now, most of his wealth is tied up in the business. So Ruffini,

By the end of last year, his holding company actually held around 16% of the company. He's still around. He's still really important. He's a driving force. He's only 63. So he's kind of in the luxury world, still a bit of a spring chicken. If you go and look at Bernard Arnault over at LVMH, who's been incredibly successful in the luxury business, he's in his late 70s. He's just got an extension to stick around in his capacities as chairman into his 80s. And he's fit as a fiddle.

Rufini's still young. I don't think he's going anywhere anytime soon.

Yeah, Arnaud's got his crop of the next generation of Arnaud's getting prepared in the force, but I don't see him leaving anytime soon. So can you get into just, we've covered some of the backstory, we've covered the interesting history about how it's evolved. What does it look like today, just from a numbers perspective, if you can paint the picture about size and any relative data points, I think that would be really helpful.

Sure. So last year, if you look at the whole Moncler Group, it made €3.1 billion of revenue.

So that's quite a substantial growth rate from that $45 million I told you about at the outset of Ruffini's involvement. Now, the lion's share of that is the Montclair brand. I mentioned earlier they did that Stone Island acquisition, which I know we're going to talk about because it's so important for thinking about the future and capital allocation generally. But

But the lion's share of the revenues really go to Montclair. That's about 2.7 billion euros. Stone Island is the rest of just over 400 million, about 13% of group revenue. So to kind of put Montclair in context as a group, it's now bigger than Burberry and fast catching up to Gucci, which I think did just under 8 billion euros last year.

And if you look at the sort of longer term performance over the decade to the end of last year, the top line compounded at just over 16%, roughly the same for operating profit and earnings per share. For the five years to the end of last year, it was about 14% top line.

And that is pretty incredible when you think about the fact that the pandemic happened in the middle of that. So you basically had two ski seasons kind of wiped out. And China, which is a really important market for Montclair, went through this horrible period of really extended lockdown. So I think that's pretty impressive from a revenue growth standpoint. As far as margins are concerned, the operating margin of the business, the EBIT margin is really hovering around

30%. And it's been there or thereabouts for the last four years. But actually, if you go back to 2012, since then, they've been above 28% every year since 2020, which obviously was a tough year for reasons we all know. And they did just under 26% in that year, which was actually pretty decent. So actually, when I look back at

our internal meeting notes, minutes from discussing this company, which we've been following for the best part of a decade.

One of the big doubts was really about margins. How do you maintain margins that are this high? You guys have interviewed one of my colleagues, Mark Urquhart, talking about Hermes. And actually, if you look at Hermes' financial outputs, the operating margins have been in the low 40s. LVMH, if you look at their fashion leather goods business, that's where Louis Vuitton sits. I mean, they've been in the sort of high 30s, low 40s. So Moncler is a pretty good company, I would say.

Yeah, it's interesting. Another episode we did was on Gucci where you've seen the volatility of the margins and at one point being at 40%, getting as

as low as into the teens. But it's interesting to see that type of durability specifically. Before we move on too much further, I do want to touch on the Stone Island acquisition and the brand. I mentioned before we recorded in one of our previous conversations, I did not appreciate that they owned Stone Island. It's a brand that I've always had some affinity for and wondered if one day it will make this revival to the masses. And I'm just curious what went into that deal first

How does it fit into the broader Montclair strategy and anything else you think is relevant to that piece, albeit small as a percentage of the whole, but to your point, is a potential growth engine? It's a much younger brand than Montclair. If you go back to 1982, that's when it's founded by a guy called Massimo Osti. He is based in Ravarino, which is just north of Bologna.

Now, he made a name for himself as an experimentalist. He experimented with lots of different types of dye, different fabrics, and he sells the business to an Italian businessman called Carlo Rivetti. This is in the early 1990s. Rivetti's family roots actually are very much in the textile industry in Italy. We trace back to the second half of the 19th century.

He's got deep expertise. He knows the industry. He knows the business. So he owned the business really since then. And to get to your question, which is how this all came about, it was actually their sons, Carl Rivetti and Romo Ruffini's sons, who struck up a conversation and suggested that their fathers get together and start talking about the possibility of an acquisition at some point.

So Ruffini had known Rivetti for 40 years or something. He'd been an admirer of Stone Island. He knew the business well. They get together and eventually agree that it would make sense for Montclair to buy Stone Island. So there's this two-stage process, which begins in December of 2020. It's finished by February or March in 2021. So Montclair announces it's going to buy Sportswear Company, and this is the parent company of Stone Island.

valued at 1.15 billion euros. So that's roughly just under five times sales, just under 14 times expected EBITDA for 2021. 70% is basically bought from Carlo Rivetti and his family holding company. Montclair pays 50% cash, 50% stock for that. And then the other 30% is bought from Temasek, which is Singapore's sovereign wealth fund. And they're bought out for 345 million euros in cash.

So now Moncler owns the whole thing.

Rivetti sticks around for a few years. He's on the board. He has since departed the company. He's no longer involved, although he did actually appear in a recent Stone Island advertising campaign. So he hasn't gone very far. To maybe put some context to Stone Island, as I mentioned earlier, it's around 400 million euros of revenue, which is a big increase from the 240 million it did in 2020. And around that time, Ruffini said he

was aiming to really double sales within five years. So they're getting there. And just to revisit this point I made earlier about Stone Island being a bit of a diamond in the rough, the average selling points here, average selling prices are probably 30 to 35% below Montclair.

It's got a big exposure to wholesale. So I think maybe 80% of the business at the time. So this is where you basically have an intermediary that's buying the stuff from you. You have to sacrifice some of your margin for that.

So the retail exposure, the direct-to-consumer exposure is pretty low. And Montclair had been there, by the way. They'd been there when Ruffini took over. He went on this long journey, really tilting the business away from wholesaling towards retail, towards that direct-to-consumer channel. The other main differences with Stone Island are, first of all, its demographic is quite different. So it really skews towards the male demographic.

It is also younger, slightly younger demographic. So Ruffini sees this as a way to speak to us, to a different segment of the population, maybe a younger segment of the population. But it's also really massively exposed to Europe.

So Ruffini sees this really as a huge opportunity because it under-indexes to Asia and it under-indexes to the US. So he sees opportunities there. So he's basically bought this thinking, you know what, I have turned Montclair into this incredible brand, but I can see some things in Stone Island that might actually mean I can do the same thing again.

Yeah, it's interesting when you see a playbook emerge. For Montclair, that wholesale versus direct-to-consumer split, has that shifted over time? And just if you compare it to the 80%-ish wholesale for Stone Island, what does that look like for the Montclair brand specifically? Yeah. So today, they're almost the opposite, which is interesting. So Montclair's been on a bit of a journey here. So if you look last year, so this is 2024,

At the group revenues, basically 80% of the group revenues were direct to consumer. But if you look at the Montclair brand itself, that's more advanced. That's 86%. Sloan Island is 52%.

So it's way, way, way behind where Montclair is, but it is moving in the right direction. So if you look at where it was at the end of 2021, for example, Stone Island's direct-to-consumer was only really 29%. So it's moved quite materially. The geographic exposure has moved as well. So again, going back to 2021, because that's the first year that they probably got their hands on this asset,

You had at that point 77% of revenues coming from EMEA. A third of that region was Italy. Asia was just 13%. Last year, EMEA was down to 67% and Asia was up at 26%. So he's already making these pretty serious moves in the business.

Yeah, it's quite interesting. Getting back to the outerwear market, specifically as a luxury market, you mentioned some of the brands that might be considered in this category, like a Canada Goose, Arc'teryx. I would even think about people considering a Patagonia jacket for certain things. How do you define this segment, whether it's from a size perspective, from a competitive forces perspective, just thinking about where Montclair is?

dominates or has significant amount of competition? I think both of those are actually really hard questions. I'm going to have a go at answering them because I think it is important to really try to think about what Montclair is doing and why these growth rates might actually be sustainable over the long run. So if you were to look at the market at a high level and try to really define it, let's go right up to the highest level we can, the luxury market.

I've heard estimates saying that that is maybe one and a half trillion dollars. Now, that's huge. That covers everything. That's watches, it's jewelry, it's cars, it's yachts, it's spirits, it's leather goods, it's fashion, etc. That's useless. That tells us nothing. Even if you calculate what percentage of this market is Montclair, well, it's going to be tiny. That doesn't really tell you very much. So if you're trying to figure out what is a sensible estimate for what this market size is today,

I have tried to dig around to find some reasonable estimates. And the best I've found is a company called Perfect Moment, which is a small luxury skiwear lifestyle brand founded in France in the 1980s. And I think they published some numbers saying that they think that the global demand

luxury outerwear market is probably about $16 billion. And that was back in 2022, growing 6% or 7%. Now, I don't know if that's right. I guess if you were to look at some of the big names here, so look at Moncler Brand, which was doing $3 billion of revenue last year, roughly. And

You've got Canada Goose, which maybe was $960 million to the financial year at the end of March last year. And you've got ArcDirects, which I think its owner actually claimed that it had surpassed about $2 billion in sales for the brand last year. So let's call that maybe $6 billion between the three of them.

But that's not the whole market because there are a whole bunch of other players in there. You will have other luxury brands which in some way participate in this market. But maybe $16 billion as a whole for that market is not a ridiculous number. I'd make a couple of observations on this. First of all, you're trying to think about

how big this market is going to be in the next five to 10 years. There's an element of these companies almost deciding the size of their own market. And that's a dynamic which is quite rare and quite unique to luxury businesses because you have this really perverse setup whereby when you've established this brand with great heritage and credentials, you can put prices up. And that almost helps you grow the business regardless of what you're doing with volumes.

Luxury, I guess, is also just much more visible than it used to be. Now, that's not necessarily a bad thing. I mean, if you control the scarcity of your products really well. But it's arguably much easier than ever to create that gap between demand. Think back to that Shanghai event, all the hype you can generate through social media and supply. Exploiting that gap is really what you're doing when you're putting up prices.

I think at a high level as well, you've basically got more consumers around the world who can afford luxury than they used to be. I know that's a really simplistic argument, but if you had bet on people liking nicer things as they get wealthier over the last 30 years, you'd probably have done

all right, whether you invested in this brand or that brand that did a good job, you'd have made quite a lot of money. So I actually think that the growth rate and the size of the market is in Montclair's hands here. This is not like we're going out into the world and coming up with something that

Basically trying to take share away from another player. This is something new. It's a new phenomenon. And I think that's really underscored by the fact that they say, I think it's 60% or something of their customers are new customers. So they're still very much in this early phase of growth. And there's a foundation of quality in the product. What does that mean for outerwear specifically?

specifically Montclair. If I think about some of the other brands, there is both materials and process, sometimes weighted towards more materials or more process, depending on what the brand is. How would you define that and just what makes up the quality of a Montclair jacket? Yeah. So I tend to think of the quality for most luxury brands in two ways, really. So one is actually the quality of...

the product itself. And there are many different strands of that. There's the history, the heritage, there's the actual craft that's gone into it, the touch, the feel, the smell, if you're dealing with fragrances. And then there's the experience. And that, I think, is a really crucial part of any luxury brand. You need people to feel like they're experiencing something. This is something that's really special and unique.

Now, on the product quality side, Montclair has this really high standard when it comes to thinking about the down that goes into its jacket. So this is white goose down that Montclair uses. And these standards are really, really strict. So it has this special down integrity system and traceability protocol, which sounds ridiculous.

very complicated and very scientific. And in some ways it actually is. For example, they actually do have a third party audit that's basically testing the DNA of some of the down to make sure that the species is right. But to go maybe a level deeper on the quality of the down itself. So you've got various standards around fill power. So if you think about the way in which the down is clumped together, the way it's put into a jacket,

There's various high standards around ensuring that you've got the right amount of down occupying a cubic inch after it's been compressed.

There is actually a lot of detail about this online. Yes. We had a very cold winter here in the New York area, and I went down the rabbit hole of researching the different types of down insulation, duck down, goose. There are rabbit holes to go down, so I would agree with you there. There definitely are. I'm desperately trying to avoid going down one, but basically with fill power, it's how many cubic inches one answer down occupies after it's been compressed.

So higher fill power basically means better insulation and better loft, which is basically how much space one ounce of down occupies when it's expanded. So higher loft means better warmth to weight ratio. So basically more effective at trapping warm air.

And you can measure fill power. 300 to 500 is generally seen as lower quality. 700 plus is higher quality. That's the down that usually comes from more mature birds. It's got excellent warmth to weight ratio. And that's the down that Montclair is really focused on getting into its jackets. And they will go to extreme lengths to make sure that the jackets are perfect. So avoiding clumping, trying to avoid cold spots, all this kind of stuff.

which is incredible. But you've also got this product quality notion extending beyond materials. It's relevant for the animals themselves as well. So they've got very strict standards around how you treat the geese whose down you are harvesting. So there's

a complete ban here on what they call liability of plucking. That is just completely unacceptable here. So they use this protocol, they've got a third party auditor which makes sure that they're following these standards. So that I think is really integral to thinking about the down and again, it speaks to that technical heritage.

And then on the customer experience side, which is the other really important aspect of the quality here. Think of some of the other great brands out there. One example would be Panerai, which is a famous watch brand, which is owned by Swiss group Richemont.

If you're a top client there, you'll get invited to private factory tours in Switzerland. You'll get the chance to buy maybe limited edition watches with engraving options. It makes you feel like you're part of the brand narrative. Or if you go to Louis Vuitton, if you happen to be a regular customer, you'll have a sales associate that remembers your birthday, that knows your past purchases, this sort of thing. So it's really feeling like you're actually quite special.

as a client, not a consumer. I've been to a few Moncler stores now. I remember visiting their Galleria store in Milan last time I was out there meeting Moncler. And they've got this really special secluded area upstairs, which is for their special clients. They've got all modern technologies that help you trace customers so you can try to create one identity and match that up across the footprint.

I also went walking around the store and just picking things up, having a look, feeling different products. And there was a really diligent employee following behind me who was just putting everything back neat and tidy. If I were to do that in another bog standard retailer here in the UK, that just would not happen. So there's this attention to detail. They're obsessed with the presentation side of things as well. And also, I mentioned Shanghai event last year, but the stores are also quite unique.

Particularly the flagship stores where the architecture tends to be really quite special. But also the inside of these stores is different wherever you go. I mean, the Galleria store in Milan, it feels a bit like an art gallery. Whereas there's another in Tokyo, which has this LED facade that mimics snowfall.

So it's a bit like being in this giant snow globe. So it's very experiential. Those two strands, I think, are really, really important. And those two things, I think Montclair does incredibly well. I love hearing about the experience examples. Those are just always so interesting to me. You

You covered the financial overview quite well previously, but on that point of something like the down supply and the cost associated with that, is there anything that they do to manage the risk of having an undersupply of materials or anything else that would be a risk from the cost side of the spectrum? Yeah.

Yeah, so I think with a lot of luxury brands in Italy and also in France, as when you've seen Hermes do this over time, you've seen them vertically integrate. They've started to buy up local supply to ensure that they've got that access when they need it. So, I mean, Moncler does have a very strong relationship with its suppliers. I don't think they're quite as vertically integrated as some of these other Italian brands.

As it stands today, they have got very strict rules about the supply side, particularly on quality. But in terms of access, they haven't actually had any problems to date with any luxury brand. You've got to manage the demand side of the equation very carefully. So I don't know, let's think of an example. Think of Ferrari. The founder of Ferrari used to talk about the idea of providing one less car than demand.

So you're never quite meeting that demand. If you look at the number of units that Ferrari have sold in 2019, it was just over 10,000. Last year, it was just under 14,000. They've grown a bit, but not that much. They found other ways to grow. It's been through price and mix and selling special editions and the like. So I think for Montclair, you're never going to get this situation where you're

They are really going to flood the market with lots and lots of inventory. They're really carefully trying to manage how much they're selling. So the whole commercial strategy is based on the principle of scarcity. That's basically how they think. It's such a fun economic equation for the luxury market to think about in terms of just being appropriate about the amount of scarcity that you have.

within the business. And I guess that answers my other question. Just thinking through the financial model where risks might exist from the inventory management side, I think when you're managing to demand, you probably have a limitation on that. But are there other things like inventory management, turnover, things that get cash caught up inside the business that you would point to as either a risk or something that they manage particularly well?

The management on the inventory, the working capital side of things has actually been really very impressive over time. 2020 was a tough year for pretty much everyone, but not many people saw the pandemic coming. So if you look over the long term, these guys have been making free cash flow margins in the mid-20s. And if you look at free cash flow to EBITDA conversion rates,

Over the past five years, they've averaged about 61%, which is pretty impressive. So there haven't really been any signs that they've been struggling to manage all of this. This comes back to the whole commercial strategy of really carefully managing supply so that you're not overstocking the market. Because for luxury companies, volume can be a driver of growth, and it is in lots of cases, but price is also really, really important. If you're putting prices first,

up or you're changing the mix of your collection slightly so it favors slightly higher price point products, that is just free money from a profit perspective. It doesn't require any more fiddling around with the inventory or anything like that. But companies can be quite extreme when it comes to managing those rare situations where you do find that you end up with too much inventory. So I remember

And going back to Richemont, which owns Cartier, owns Van Cleef, so two of the most famous jewelry brands in the world, but also has all these watches of the traditional variety. We're not talking Apple watches here. We're talking the timeless pieces that get passed on from one generation to the next. They went through a bit of trouble in their watches business back in 2016, 2017. And between 2016 and 2018, they basically went out and bought back

I think it was half a billion euros worth of inventory from the retail channel and destroyed or recycled it. Moncler hasn't had to do that at all yet.

I like to think that these days, with all the software that you can get that helps you manage on what is really an on-the-channel business, that it's much easier to figure out what needs to be in each location in order to satisfy demand, rather than sitting on huge piles of inventory all over the place. But you're right, it's a risk, and you can never completely rule it out. I think back to Adidas and Kanye West and how that relationship

completely fell apart and how adidas was left with an enormous pile of unsold inventory, which ended up looking pretty toxic because Kanye West had these increasingly strange moments and it was damaging the brand and so on and so forth. So yeah, it can be a risk.

It's an interesting dynamic. And then Richemont proving the extreme of how you can manage that dynamic in the case that something does go wrong. Having that all in mind, impressive management of the cash flow conversion. When you think about...

capital allocation broadly. You have an example of acquiring Stone Island. Maybe there's an opportunity to be a luxury house over time with multiple more brands versus reinvesting back into the business or allocating to shareholders. How do you think about their capital allocation framework based on what they've said in your own interpretation? The priority at the

investing in the business they have today. So it's so early on still, there's so much left to do. And we'll maybe get on to talk about some of those growth opportunities that they've got in the future. But there are still lots of them, and they're still generating very attractive returns on capital. So if you're sitting there with a business that's able to do that, and the runway is long, it's absolutely right that your top priority is really reinvesting into the business. What does that mean? That means you're

opening new stores. It means you are cultivating your brand. It means you're investing in marketing. It means you're investing in these crazy off-the-wall events that Ruffini is trying to bring in all over the place to make sure that Montclair and Stone Island are right at the cutting edge. So I think they're going to keep doing that for years and years and years to come. I don't think we're anywhere near the end of that reinvestment story. And I think for any company, really,

If you're a long-term investor, the best ones to find are the ones that can just keep reinvesting capital at high rates of return, well above your cost of capital for a long, long time. And Bailey Gifford has been very fortunate to find a few of these companies that we've already talked about, Hermes, a few times. I mean, that's been owned by some of my colleagues for over 20 years, and it's been an incredible success story.

The acquisition side of things, I tend to see Stone Island as a bit of a one-off. Now, I'm not going to say that

they'll never do another acquisition ever again. They've played it down somewhat. I don't think Ruffini is hugely keen on the idea of building a big Italian luxury conglomerate to stare down the French, the likes of Kering and LVMH. Never say never though. I think for now his priority really is going to be reinvesting in the business

They pay dividends as well. They're pretty modest. I wouldn't say it's a big part of the story. Maybe acquisitions at some point in the future. I mean, Stone Island, remember, was the only deal they've ever done. It was the only acquisition. And you mentioned growth opportunities from here. What would you point to as those main levers of growth? I mentioned earlier that you've got these...

strands of the Moncler brand. You've got Grenoble, Collection and Genius. So I think the opportunity there is more of the same. Grenoble, however, I think is a bit earlier on. I think there's a really interesting opportunity there to start building out more and more of these stores. For example, this big show in Courchevel back in March. This is a luxury ski resort town in

It was the second big showcase of the Grenoble brand. I think that's got legs. So I suspect they're probably going to be doing more of the Grenoble stuff. Genius is that really powerful flywheel. Again, they'll keep on collaborating, keep coming up with these ideas.

new and innovative ways of reimagining the Montclair brand. And that will drive lots of interest in the collection. And it's interesting, actually, when you look at some of those periods where genius has been a bit quieter, actually, the core business has grown a little bit slower. So you can see that it is an important thing to keep pressing on with. There's a big opportunity in the US. Montclair is really under-indexed there. So roughly 14% of sales come from the US.

That is quite a bit lower than most of the other big luxury houses, which tend to be north of 20%. So they're actually working on this right now. Various things going on here. They've probably been a bit slow to move to the direct-to-consumer retail model. I think they're trying to speed up that reduction in reliance on wholesale partners like Nordstrom and Sachs and so on, which

which have tended to dominate the U.S. business. So there's a shift definitely going on there. They're opening more stores now.

They've got this really big flagship store that's about to open on New York's Fifth Avenue, which is home to lots of other famous flagship stores. Armani, Cartier, Harry Winston, Louis Vuitton. Again, they'll be in very good company there. That's going to be their biggest flagship store, I think, in the world. And that's going to open in the US. But I think if you look at the East Coast and the West Coast, they're probably more penetrated, I would say, than everything in the middle. So it's interesting to me that...

They only recently, a couple of years ago, opened their first dedicated boutique in Dallas.

There is a big gap, I think, they need to address in terms of growing brand awareness in a lot of these states in the middle of the US. So I think they're only just getting going there, really. There's a long, long runway to explore there. It's worth touching on Asia and China because this is a really important part of the business. I mean, Asia was about half of the group's revenues last year. China's been a bit of a difficult market recently for lots of brands. We're starting to see some real signs of recovery coming through for Montclair, but it's

But the long term is really what matters to us. And what we see from Montclair is a huge commitment to that market. Obviously, the Shanghai event was one event, but it was massive. Every year they have this genius presentation where they put out the hint of what we're doing, that they actually moved that to China for the first time. Again, breaking the mold somewhat.

So they're going to be doing a lot more of that. They're going to invest heavily in China, but we're still in the foothills of growth there. And they've got a really interesting organization in China, which is really digital first. It's really client oriented. They actually see it internally as run in quite a unique way. They've got somebody representing that business on the exec committee as well. And one thing they said to me was we could learn something from what we do in China and our other businesses.

So China and Asia more broadly, I think, is going to be really interesting. And Stone Island, this is possibly the second act. It's the what comes next. And we talked about a lot of the growth drivers there, the growing direct-to-consumer. Your price points could be growing over time. I can see how that brand possibly will

splits into different pillars itself. So for example, they've got a range called Ghost, which is more of a subtle, quieter version of the brand, which is not a quiet brand, Stone Island, by any means. So I think there's room there and you're starting to see some of that come through. So if you look at last year, for example, for Stone Island as a whole, the top line actually shrank 1%.

Now, if you look under the bonnet or the hood, as you North Americans say, Asia grew 23%. And again, the Strait Islands barely got going there. It's much, much earlier than Montclair is. Direct-to-consumer across the board grew

grew 23%, wholesale fell 19%. So that shift is ongoing. And it's still in the midst of that unfolding, but it's going to end at some point. And the baton will be very much passed to retail, and then it'll be over to them to really drive growth. So it'll be interesting to see how that works. But I can see that really starting to come through as they build up their business in Asia, they build out a business in North America. I think that's going to be really interesting as well.

And within that context, I mean, what risks stand out to you when you think about main risks that exist within the business? What stands out for Montclair? Yeah, I think with any fashion business, you have to have a healthy skepticism about the long-term sustainability of the business. Fashion can be quite violently cyclical. So we mentioned Gucci a few times.

They had some incredible years under Alessandro Micheli as creative director. That came to an end a couple of years ago. So they've had a really, really difficult period. I think there's that cyclical element to it. Now, I've got quite a lot of faith in Moncler because they've got genius, because they're constantly staying relevant and fresh, that you can actually fend that off. The obsession with avoiding the boredom of your clients, I think that's really quite powerful.

Another thing that worries me is when you are, as a lot of these genius collaborators are operating at the edges of experimental fashion, there are dangers. We've seen

various examples of this over the years. I don't want to pick on Gucci all the time, but it's one that comes to mind. If you go back to 2019, they introduced a sweater that was criticized for basically resembling blackface. So this sweater which came up over the mouth and it almost had this gap for your mouth and these red lines where your lips would be. And they did this during Black History Month.

which in hindsight, of course, was an extraordinarily silly thing to do. I'm sure they wouldn't do that again if they had their time over. You could actually look at Moncler itself. There was quite a controversial collection back in 2016 when Tom Brown, who was a designer that they were working with at the time, basically had these models wearing what looked like military or camouflage-inspired clothes,

at a fashion show not long after the terrorist attacks in Paris in November of that year, which were absolutely terrible. People died. It was awful. So that was regarded by some people, a lot of French people, as really very distasteful. So that's a risk as well. I'll give you two more. One would be the supply chain. We've talked about this, but there is...

Huge risk here, if you get this wrong. And there's been lots of scrutiny in the press recently, particularly companies like Dior getting into hot water because their manufacturing arm was implicated in labor exploitation. And it became clear that there were big flaws in their audit and oversight process. That's a big risk. And the other one, I guess, would be Ruffini.

He is so important to this story. Now, we've met a number of people around him over the years. Some very impressive people like Luciano Santel, who is like his right-hand man, Roberto Eggs, Gino Fisanotti. There are lots of really impressive people who've come to Montclair from other really big brands over the years. It's a really deep bench. It's an experienced bench.

but there is a kind of magic stardust to Rufini and he is important and I think if he got hit by a bus tomorrow I'd probably be quite worried fingers crossed of course he is in great health for many many years to come the question for us would be around succession I think he said at the end of last year I

I would love it if my sons would take over the business. And I think one of his sons actually does work at Stone Island. So it might happen at some point, but it's clearly a risk. He's important. He matters. He's a massive driving force. Key man. Yeah, exactly. It's key man risk. Exactly. Well, this has been fascinating diving into a new niche of the luxury market. We finished the conversations with the key lessons that you can take away. What stands out for Montclair as a key lesson that you might be able to apply elsewhere?

That's a great question. I think protect your brand.

The brand should be basically at the center of everything you do. Every decision you make should be forcing you to ask yourself, what does this do to my brand? And this is what Ruffini is obsessed with. I remember seeing an advert actually at an airport recently, a different brand. It was a watch brand, Patek Philippe. And the tagline was something like, you merely look after it for the next generation. You never actually own it. I think that's true for all luxury brands. The stewardship aspect

is so important because you're passing this on to either the next generation of the family or at some point maybe professional management. And you've got to be absolutely sure that you've done everything to strengthen that brand, to avoid it being caught up in scandals, besmirched in some way. So that to me is one of the vital lessons here. It's being obsessed with

the quality of the brand and being willing to actually not do things. What are the things that we are willing to give up in order to maintain the brand equity? To give you the example of Richemont buying back all of that inventory, they described it as an investment in the brand, not a loss. I love it. It's a great lesson that certainly applies here and to the broader luxury market. This has been fascinating, Chris. Thank you very much for joining us. Thank you, Matt. Cheers.

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