Global Champions - CFR SW

In a crowded, competitive world where time is an ever-scarcer resource, people desire filters that can help them quickly identify high-value collaborators. By creating belief networks that connect their brands to certain characteristics, luxury goods companies provide consumers with valuable filtering tools. Richemont has created one of the largest collections of luxury watch and jewelry belief networks ever. Through savvy marketing, impressive craftsmanship, a storied heritage, and brilliant acquisitions, Richemont has assembled and cultivated a collection of brands that many consumers believe are synonymous with wealth, culture, and status. This stable of iconic brands is anchored by Cartier but also includes other industry powerhouses such as Van Cleef & Arpels, Jaeger-LeCoultre, and Montblanc. The strength of Richemont’s brands is evidenced by both their size and scope. The company’s brands are world-renowned and possess storied heritages connected to celebrities, royalty, and centers of culture going back, in some cases, for hundreds of years. This heritage aspect is particularly important since new brands can’t go back in time and create a heritage, putting them at a huge disadvantage versus incumbents such as Richemont’s brands. As a result of the social signaling value of the company’s brands, we believe Richemont is likely to grow both its volume and pricing over time, particularly as billions more people are added to the global middle class and the value of their belief network likely grows even stronger. This can be seen by jewelry sales gradually ceding to branded players over time. In fact, we believe its pricing outlook is among the most favorable in our whole portfolio. Even if competitors create virtually identical products, for the aforementioned reasons, we believe Richemont will be able to continue to sell its products at a premium. Furthermore, because signals of loyalty to a group and status with a group are only reliable so long as they are costly to send, Richemont has to raise its prices as wealth increases in order to maintain its brands’ value propositions.

To read a more detailed description on CFR SW as discussed in a prior investment letter, click here.

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