Hermes shares are up 13% this year, while LVMH shares are flat and Kering shares are down 18%.
There is one luxury company, however, that has surpassed Hermes in terms of growth and brand cache – Ferrari.
This year, Ferrari overtook Hermes for the first time to become the world's most valuable luxury company, a stock multiple that measures growth and profit prospects. Ferrari's stock now trades at 50 times earnings, while Hermes' is at 48 and LVMH's is at 23 times.
This famous automaker was founded in 1947 by Enzo Ferrari to finance his race team. It debuted on the New York Stock Exchange in 2015 at a price of $60 per share. It is now trading at $410 per share.
The company is worth more than $75 billion—about 1½ times the market cap of Ford or General Motors, which make millions of cars each year. Last year, Ferrari made just 13,663 cars.
Ferrari is not a traditional luxury company, of course. It makes cars and has a race team, a merchandise company, a car-restoration company and a number of other businesses that bear little resemblance to a company that makes $1,300 scarves and $800 sandals.
Still, Bernstein luxury analyst Luca Solca said in a recent research report that Ferrari and Hermes are similar in that both are “at the top of the pricing pyramid” in their categories and “perfectly positioned” to benefit from the growing number of global wealthy people.
To better understand why Ferrari is a luxury brand, CNBC visited Ferrari headquarters in Maranello, Italy and interviewed the company's CEO, Benedetto Vigna.
Vigna is an unexpected luxury king. He spent most of his career at Geneva-based semiconductor maker STMicroelectronics, where he ran its micro-electromechanical systems and sensors group. For example, he helped create the screen sensor technology used in the iPhone.
His appointment to Ferrari's top job in 2021 is a sign that technology will be fundamental to the supercar maker's growth, and in a way, the future of luxury.
In an interview at the company's $200 million e-Building, Vigna talked about the upcoming electric Ferrari, his commitment to sustainability, and the current global demand for Ferraris.
The main topic of conversation, however, was what makes Ferrari a leader in luxury, and what lessons other companies and executives serving wealthy clients can learn from its rise. Here are five key takeaways:
Ferrari Purasangu SUV
Adam Jeffery | CNBC
As Solca points out in his research note, both Ferrari and Hermes “sell less than the market expects.” Much less.
Based on orders, analysts estimate that Ferrari could easily sell two or three times its current production. Ferrari's appeal was based on rarity and exclusivity.
Even if you are able to afford a Ferrari with an average price of $380,000, it is nearly impossible to get an order.
Wait times for Ferrari's pseudo-SUV Purosangue and other hot models have now reached three years, the longest in its history. Ask any Ferrari dealer about their biggest problem, and they'll say: “There aren't enough cars, there are too many disappointed customers.”
But CEO Vigna said the reduction is part of Ferrari's brand promise.
“We have to stick to the strategy of our founders, which is to always sell one car less than the market demands.”
His strategy is to increase profits by earning more on each car rather than making more cars.
“We always want to focus more on the quality of revenue rather than the quantity,” he said.
In fact, Ferrari's production growth over the past few years has far outpaced the growth in wealthy potential buyers. In 2010, it built 6,573 cars, meaning production has doubled in the past 14 years. Over the same period, the global population of billionaires has more than tripled (and so has the population of people with assets of over $30 million and $100 million).
Seeing a Ferrari on the road should be like seeing a rare and exotic animal, Vigna said. The imbalance also gives Ferrari a unique position in the auto world: Cars typically appreciate in value over time.
Vigna said it's even better if customers have to wait for it.
“The 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 with it beneath the famous Ferrari entrance, his face lit up and he turned into a 10-year-old kid on Christmas morning.
Ferraris are special, because they are still special.
The Ferrari SP38 is seen at the Goodwood Festival of Speed 2022 in Chichester, England on June 23.
Martin Lucey | Getty Images
Ask any Ferrari fan or owner what makes a Ferrari a Ferrari, and they'll probably name it as the design, engine sound, handling, power, braking or the 100 years of racing history hidden behind that bright yellow badge.
Vigna says a true luxury product is defined by one key characteristic: emotion.
“Ferrari is a luxury company because it is a company that offers a unique product. It connects with the innermost part of people, the emotional side,” he said. “A luxury company is a company that uses technology, innovation, storytelling, heritage, everything, with the ultimate goal of nurturing that emotional side that is in all of us.”
Vigna said Ferrari would never produce vehicles that were needed to transport people.
“When I get invitations to speak at conferences, I don't attend if I hear two words — utility or mobility –” he told CNBC. “We don't make a useful product. We make an emotional product.”
This is similar to what LVMH chairman Bernard Arnault refers to as “desirability.” It's not enough to simply make a high-quality product, or an expensive product, or a product with more features or functions. It has to touch the heart.
A Ferrari under construction at the supercar maker's E-Building in Maranello, Italy.
Crystal Lau | CNBC
Based on Ferrari's rising prices, you would think that pricing is based on profit demand and Wall Street's obsession with margin growth.
Yet Vigna said the base price for each model is actually set about a month before its launch — an unusual practice.
“The way we set the price in our company is very simple,” he said. “A month before the car is ready to be unveiled, we go to the track – me and several people – and we drive it for a day or a day and a half. And then with fresh emotion in our bodies, we set the price. It's me, the CMO and the CFO who set the price. We share the emotion.”
Clearly, these sentiments are growing. The cheapest Ferrari in 2012 was the California, with a manufacturer's suggested retail price of $195,000. Today's entry-level Ferrari, the Roma, starts at $273,000, or 40% more.
Ferrari is launching limited-edition and special-edition cars with prices that are even higher: The SF90 XX Stradale starts at about $900,000, and all 799 coupes and open-top spiders were sold when it was introduced. The SP3 Daytona, of which there are just 599 units, starts at $2.3 million.
Perhaps the biggest factor boosting profits is personalization. Ferrari buyers these days want custom paint colors, leather, fabric, stitching, exposed carbon-fiber and other personal details that make it their own. These personal touches can add anywhere from $100,000 to $500,000 to the selling price.
Vigna said his “value over volume” strategy meant Ferrari could grow profits in the double digits with a modest increase in car production.
Ferrari will never admit it, but dealers will tell you that customers have to climb an expensive commercial ladder to get access to new Ferraris, and especially limited-edition cars.
It’s a similar path that Rolex buyers have to take to eventually get a new Daytona, or Hermes customers have to take to eventually get a Birkin.
In short, you start by buying a basic (and sometimes less popular) model. Then you can buy a slightly more desirable model, or two or three. If you attend Ferrari events, show support for the brand, even join a Ferrari racing program, you can eventually become eligible for more expensive and even limited-edition models.
Nearly three-quarters of all Ferraris are sold to existing customers. That means it's tough to start at the bottom of the ladder.
“Ferrari and Hermes reserve their most coveted products for their most loyal customers,” said Solca. “This actually 'bundles' accessibility and increases desirability.”
Workers work at the new Ferrari NV E-building factory in Maranello, Italy, on Friday, June 21, 2024. The Maranello site, built in almost total secrecy over the past few years, will build Ferrari's first EVs, along with hybrid models and combustion-engine-powered cars from late 2025. Photographer: Francesca Volpi/Bloomberg via Getty Images
Francesca Volpi | Bloomberg | Getty Images
Luxury companies often reflect the growing inequality in the economy. Even well-paid and respected employees work every day to create products they will never be able to buy or experience.
Vigna has attempted to build a bridge between those two worlds.
Shortly after becoming CEO, he discovered that many Ferrari employees had never driven a Ferrari. The company took employees to the test track to test the cars and give them a first-hand understanding of the importance of their work.
Last year he also announced an employee stock ownership program, giving every employee the option to become a Ferrari shareholder, receiving a one-time grant of shares worth about 2,065 euros ($2,229) free of charge.
While common in the U.S., employee stock programs are rare in Europe. Vigna said he learned to appreciate employee stock plans while working in Silicon Valley — and the importance of employees sharing in shareholders’ profits.
“The proposal came from the team and was immediately approved by me and the board,” he said. “People are the heart of the company. You need to motivate all of them. If you give shares, they all feel part of the company, as if they own the company. All companies have people. Only a few companies are made up of people.”
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