Hermès
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So I don't know you realized this M S, is reporting earnings in like two days? yes. And at first I was like, we should probably not do this episode because there in your report comes out in two days. What if we're not current? And then I realized, this is air, is the short term.

is of no consequence. Also the air ma's annual reports are the most beautiful and your reports ever created in the history of the financialization of mankind.

You might think you can do all of your charts in orange. You need different colors, but you would be wrong.

The illustrations, the themes, you can tell. The cake you can tell.

All right, let's do IT.

Let's do IT. Who got you easy? You busy. You with you sit me down, say.

Welcome two, season fourteen, episode two of acquired the podcast great companies and the stories and playbooks behind them. And then gilbert, David, and we are your hosts today.

We tell the story of a handbag company that won't sell you a hand back, a traditional settle maker that makes very little of their revenue from settles, a company that somehow has grown to be worth over two hundred billion dollars despite rejecting manufacturing efficiencies and economies of scale. A company so obsessed with craft and a reputation for quality that they have stayed independent while every other luxury brand has merged into conglomerate. right?

Listener is, today we tell the oldest story we have ever told here on acquired older than standard oil, or the new york times. This company dates back to eighteen thirty seven in paris, france. The crowd, dual of the luxury industry, air mass.

Then do you know what company was also founded in nineteen thirty seven that we have discussed quite a bit .

on acquired him?

No, I do not do that. That would be the other iconic color luxury company, tifany h really also founded in eighteen thirty seven.

Uh, chuck t, well, this episode listeners has been probably just under twelve months in the making. L, V, M, H was just after a one year ago, and IT was in that episode that I feel like I got a real pension for everything that air MaaS stood for you. After a hundred and eighty seven years, still under family control, they're on their six generation of family leadership at the help. And our David, everything her mez does is just so focused and intentional and pure. As much as they sort of get wrapped together with brands owned by LV age, they are, in many ways, the anti LV h oh.

we've got a great discussion of that later in the episode. I used to think that, and I no longer think that. But after our lvmh episode, I think you are so inspired by learning about her.

Maz, you went out. You bought your first luxury object. right? There was not A L V H brand.

Yes, that is true. My wife and I were on our honeymoon at this turns after L V image the last summer, and we were in exam provenance, and we walked by an ms. store.

And I thought, this be a great time to go in and get each other something as honeymoon give. So my wife got a little tWilly scarfing. I got an airbag built. And the only luxury item, my own of any luxury brand, traditional luxury brand.

As for shadow on our holiday special episode a couple months ago, yeah well, listeners.

if you want to know every time an episode rops, you can sign up at acquired data m slash email, you will get hints at what the next episode will be and follow up facts from previous episodes. When we learn new information, come discuss this episode without that acquired dt FM slash slack, come check out our second show, ACC two, where we interview founders, investors and experts often as follow up to these episodes.

So with that, the show is not investment advice. Steven and I may have investments in the companies discuss, and this show is for informational and entertainment purposes only. David, I feel that were starting before 2 thirty seven.

yes, but not too much. Before teen thirty seven.

we're not going to like the sort of egyptian invention of the bag or anything like that.

Boy, let me tell you, I was tempted. I was tempted. Well, if you read the luxury strategy, which is great book that we've references many times on acquired, they start back fifty thousand years ago. We start in eighteen. No one not in paris, not even in france. We had been talking about the land of beauty, luxury, enlightenment, where most, of course, was founded and is still based today, and uniquely, is still does eighty five percent of their production by hand by mastercraftsman france, as we will talk a lot about. But instead we start in the land of hardness and precision, of engineering, of exactitude, the future land of the portions of the world, that is, rate germany a .

century before the portions, and folks to agents of the world. Yes.

where theory her is was born in the town of craft eld, which is just outside of duce udf. Where is the sixth child of a family of in keepers?

So air mez, is that a jan name.

a french name? Obviously not a german day. I mean, even I know that tears father was french and his mother was german, and shortly after tea is born, he born in eighty.

No one. Something, uh, pretty major happens in france. And then to have cut into europe, that will become very, very important to our story here. And that is that napoli comes to power in france. This is the error we're talking about here like .

that we finally did IT here and acquired your ap. European history class has now merged with business history.

Recover in the polio. He is critical to what is about to happen here. So in the aftermath of the french revolution, the poly, an essential stages a coup, declared himself emperor r first of france. And then he basically begins conquering all of continent, europe, including germany.

Now this napoleonic conquest was, at the same time, both the very best thing that could happen to Young tario, and that leads directly to miss, but also the very worst and truly worst, you do all this conquering the glory of france that we're going to talk about becomes important arms. That's the result of worse. So Terry's entire family, his parents, his mom, is dead.

All five of his siblings, they are all killed, either directly in the polymeric wars, or by disease and feminist, or result of this. So IT absolutely terrible. And the result is that, T A, by the time he's twenty years old, he is an orphant. He is the last armas left.

So, David, eighteen twenty one, you pretty rough time out the world. Do you know who was born in this year twenty twenty one and was also an orphant? Oh, we have talked about them unrequired.

Obviously not rock of failure, which is where my mind first went because we talk a lot about is dad .

yeah louve von himself.

He will also come up here, or a minute.

twenty years Younger than T V M S, but also an orphant.

Wow, I didn't know. He was also an, well, IT is crazy. Two orphans, one of whom was german, go on to found the two most important, most french, most luxurious brands and really communicators of status in the modern world. That's wild.

Yeah, especially crazy, considering they both came from nothing. These people who would create the monikers of the elite, what would go on to be the symbols of wealth, nobility, came from nothing and were orphans. And at their greatest aspirations were crafts people for the elite, their Normal servants.

yes. So in two thousand twenty one, Terry leaves crafte leaves germany. He abandoned his original kind of destiny as an in keeper, and he moved to france, not to paris, but to Normal in the north.

And there he becomes an apprentice under a master craft man, learning the art of equipage classman ship. Now, equipage is the business of outfitting horse drawn carriages. And who were the customers of horse ong Carries been like you're talking about, but .

nobility ability.

you know, horses were extremely important to the world. Back that the horse was the car IT was the four 55IT was the toyota ama。 IT was also the rolls rice that drew the carriage, and only the world's races where the carriage is. So when tary moves to Normally and takes up best apprentice, he apprentices for sixteen years wow.

And it's not until eighteen and thirty seven that he finally moved to paris, has now a and opens up his own shop in paris on the rule bus do run power in the night around this month, which that whole street today in the longer exists. And there he establishes himself as really quite an exceptional harness maker for horses on carriages. Now it's kind of unclear to me at this point if he's using the famous subtle stitch, which becomes so important to amazing.

The reason it's unclear to me is because he's not making settles. Settles are what other people are making. It's not that the nobility don't ride horses. They do, but they ride horses like the elite today driver for ri. It's not something they do everyday.

right? Their daily driver is eventually because someone else is driving them, and they have a ferri for when they occasionally want to drive a ferri. The occasionally.

but mostly in the carriage, arrives in paris in nineteen thirty. He pretty quickly starts becoming known as really the best harness maker and carriage outfitter in paris, serving the nobility, which is pretty impressive. I been here. He's this immigrant from germany, a premised in NorMandy. He shows up in paris, and all of a sudden he's making the best stuff out there.

Turns out he was just really good at the craft.

and he had exceptionally good timing. We'd spoke about napoleon a little bit earlier when teary finally comes to paris. At this point, napoleon the first has been defeated.

The battle of waterlow, that was eighteen fifty. France has now, sea saw, do like a whole bunch of different republics. And the monarchy comes back, and, you know, it's crazy.

France, history stuff. But shortly after theary returns, napoleons nephew, napoleon the third stages another two and reestablishes the empire in france. And this is super important than to what you were talking about earlier, about, hey, this guys in orbit.

Levitan was an orbit. How did they become so important? When napoleon the third comes to power in france, he does two things.

One, he completely modernized the city. So if people have heard of the barren osman, who kind of rebuilt paris, that happens at this time under napoli. The third, they transform paris from a medieval city with super tight streets.

Like if you go up to mar the streets around there, that is old paris. But what you think of the I fall tower, the museums, the grand boll of ards, that should say that's happening right at this time. And the barn o man, his kind of like robbert moser, was in new york in the mid twenty a century. Remaking new york, he has given full attitude and direction by napoleon the third to burn paris to the ground. And we make this city as a modern city.

fascinating.

And this is super important, fertile. Ia, or as for two reasons, one in the old medieval streets in paris, not that many people were going up and down them. Not that many people.

We're gona see the nobility in their carriages, in all their finery. Now you've got the shows, at least the and boards, everything about the sort of gallery of paris that we know today. It's all on display now.

So this becomes really important for showing off, for signifying your wealth, your status. The other kind of related thing here that happens with napoli and napoli, the third is that status is no longer just about what you were born into in the old system. The nobility, the royalty IT was like like you're born noble or your not.

And it's kind of independent of how much money you have or what you do or what influence you have. Under Apollo, he brought in this modern idea that you could shift your class. I mean, he was essentially in nobody, and he became the emperor of europe.

Dat completely upset the mindset of people. yeah. So all this is happening. This is the best thing that could ever happen to theory.

He is the best artisan, most exclusive crafter of carriage, war of atiba's. The city is being transformed so that this can all be displayed prominently. Social stratifications are becoming more blurry. People can spend money for the first time to buy at us. Great for business.

These are like the disruption waves that enabled him to create a business. Yes.

before all this, before this era, there's no way that this evolves in as are honestly that luvumba what he's doing with luggage and with trunks. There is no way that dad evolves into l li vita. So speaking of both her mez and vita have one really important client, a key influencer, so to speak, that they both land at this time.

I remember lila ton key client was the Eugene is A M. S. The same client? Yes.

the same client. So napoleon, the third's wife, the emperors, usually becomes a client of both of these men for her carriages, in the case of her mez, and for her luggage, and for her trunks. And I actually think also for her packets. I think lue von was the royal later, A, I believe, and he packed the trunks. He was the luggage guy, or mez was the garage guy.

which is so funny, because that is still, in some ways, both of their legacy today.

Yes, absolutely. Uga e and everything going on at this time, max leverton, and makes her her. But it's interesting, right? Return and luggage that is inherently of the world that's coming, the modern world, the train that exists this point in time, steam manages are a thing, and then the car is about to come and live on. And trunks and luggage IT all translate .

tes directly sort of built for the upcoming world.

Yes, not the case with their mess. And actually today, I think this is one of the biggest strength of arms. And they still need the eastry and theme. The horse is so much of their brand, they talk about IT so much to their products, the subtle stitching, it's calling back to that other era, like that pretty modern era where the horse was primary right.

Arms is deeply rooted in french history and parisian history, and really a key part of how france as a nation has the identity that IT has today.

But IT would all be irrelevant if the brand didn't translate out of the horse into the car, which was not theory here, as is doing, nor was IT his sons doing. So theory dies in one thousand and seventy eight, and his son Charles, a meal takes over. Now he, a ponied, coming up in the shop in exactly the same way that T.

E, A friend, he just a premise for his dad. So by the time he takes over, he's been working in the shop as a craft man for twenty years. And by the way, this sort of family tradition and way of business continues to this day.

So X, L, dma and P, R, lexi dma, who are the two descendants of her as the sixth generation that are running the company to the acl, is the CEO. And pr. Lexi is the artistic director.

They are printed in the business. When they were teenagers for five years after school, they went to the ata. They learn the subtle stitch they made bags, they made items with their hands.

Now obviously, they also sort of learn the business from their parents, but they're not learning the business the way that they are. No children are learning the business at L. V.

As executives. They're learning with their hands as crafts people how to make this stuff, which is wild. Excel is the C E. O of a two hundred billion .

value plus company. It's crazy. And to bring you back to the lady hundreds, I think the point you're making here is when Charles a meal was apprenticing, there was no other example of what this company could become.

So he thought, why don't I Carry IT on an exactly the same manner ery that you did? And so there's not this grand ambition to innovative and change with the times as well. How do I learn exactly your craft, exactly the way you do IT, and then continue that.

right? The business and the craft are intimately entertained. They cannot be separated. And this a playbook team I want to pull all the way forward, but it's so critical. Understand about, and really, in my mind, differentiates IT from L V M H.

L V M H, as we talked about on that episode, has world class best in the world business executives who partner with world class best in the world creatives. Adams. These are not different people. Now obviously, there is a different C, E. O and artistic director that are both members of the same family and who are cousins, but in spirit, they are cut from the same cloth, and they apprentice as creative crafts people. And they collectively, and the family is in charge as much of the creative side of the house as they are of the business side.

Yeah, make sense.

So back to show a meal in the second generation, he finally adds salary to the business. That is big expansion. He add, les, but what you do again, like as paris is modernizing, as you can now buy your way in the status for the first time in paris, you could not be seen writing in addition to the characters.

And the idea of what IT is to be a noble person or a noble person of status has changed. It's no longer just, oh, i'm allegation cordiaz. It's like, no, i'm baring osmond.

I am doing things for the state, for the country. I am doing big day. It's kind of like american in its way in the rockefellers.

right? You're not just famous for being famous. You are famous because you've achieved something or you're in the active achieving something, or you hold a high office in which you were elected or appointed to get a specific goal done. You're on the move. You, you got stuff to do, and you know.

you gotta get there exactly, and you need a seat for that. So share a meal, he adds, settles. And in two thousand and eighty he moves the workshop in the store to van at rude duphot g son on A A twenty four rue defoe on A A in the eight and this month of pairs .

the famous address.

the building that is today known as the photo by everybody in the harmer's universe. And this street in this location is one of the most iconic streets in the world, buildings in the world.

headquarters in the world. He was stunning to walk at last summer. When I was there, you can feel the presence of air max and all the other brands that are there.

Yeah, the recover and on is where the french presidential residences is. It's where the british embassy is. It's where french fog is today.

Probably because our means there and because all of the other luxury flagships are there. So Charles and meal runs the business for twenty five years. He add saddles, he moves the company to the foreboding, and then in one thousand and two, he retires. And his two sons, a delph and immerse, have a punished in the business, just like him, just like every generation, and will do for many generations to come. They take over, and they change the name of the company to arms fare ma's brothers, because the two brothers are now .

running the company, and they're going to do this forever together. And they gonna think as deals. And you know.

there are one mind on how this company should go. So today, well, of the two brothers, I think this is fair to say that a meal who I believe is the Younger brother is the sort of much more ambitious and much more adventurous one. There's this great story that in the late eighteen ninety, so before his father Charles meal retires, the Young meal sets off to conquer russia for her mez.

He literally, like, gets on a train with a new book and a suitcase filled with miniature versions of the saddles and the harnesses that s makes. And he just finds his way into the ZARA of russia's court and land him as a customer that was wild, unreal. They have to staff up a whole new L.

A. Would like eighty crafts people to fulfill all the orders for the za in russia. Well, yeah, so this is amil. He's going places.

And right, is he an adult? Fer taking over. Can at the end of Charles eel's tenure, they decide to introduce a new product. Now they are thinking that this is going to be a big thing at the time.

But some of their customers, again, now that they've added saddles, once they get off the horse, they want something to Carry the saddle and maybe they're riding boots with them while the horses in the stables and wherever they're going. So they say, great, we can help you with this. And they introduced the old aqua bag, which translates the high belt bag to Carry saddles and boots for their clients.

Now like i'm saying here, this was intended to be an accessory to the main business of ek bags and settles the request in business. It's not really practical for anything else. I don't know why anybody else would want a big tote bag that could Carry your boots.

What's this bag look like?

Well, this bag looks exactly like the perkins and the kelleys today.

except a lot bigger. Interesting because you're putting a whole saddling IT like you're d saddling your horse and then you're putting that .

in this bag yeah but IT has the same trapezoid shape. IT has the cross over belt. The OTA kowa means the high belt bag has the belt.

IT has the turn style lock closure for the belt at the top of the bag. fascinating. So this accessory that we're going to add to the business, this becomes the spiritual heritage to avoid business today.

That's crazy. It's like a apple eventually transition to being not the vision pro company, but the vision pro Carrying case company. yes.

H, did you get the Carry case?

By the way, I just find two hundred dollars on that big.

looks like a balloon. It's enormous.

yes. And IT takes a real backpack.

So this bag, this successful, that would become the Kelly an than the burden they introduced. IT, just at the right time. It's nineteen o two can is charm is retired.

And this idea of this bag that you would put stuff because you couldn't bring a bag on a train. You know, if you're of this class, you need a trunk in a flat pack chunk that lu vita is going to make for you. And none of these three men could have seen IT at the time. But this accessory to the real business of saddles and horses and harnesses was going to become the perfect transition to move MaaS into the age of the automobile.

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Yep, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service. Now, 点 com slash A I dash agents。 Now, David, how was air mass perfectly positioned for the age of the automobiles with this new accessory?

So this is why I suspect you probably also found this in research. But when I did, my mind melted. So during world war one, in one thousand nine hundred and sixteen, the meal becomes an officer in the french military, and the military sends him to the united states to learn about kind of U. S.

Industrial and military production, you know, he sort of a leading industrial alist in france at this time, shall we say? And one of the people that he gets sent to me with is, you know, about to spend. No, I have no idea.

I'll be fully if you didn't find this. No, he meets with Henry ford. He goes to detroit.

He seize the assembly lines, he seize the car. He seize the future. He see the .

assembly lines. And then he, like a blind, as as I got painno attention to the manufacturing efficiencies, theyve got going on there.

This is what's so funny? No, he's like, this is unbelievable. And to that you manufacturing efficiencies point, he actually does take some elements of the assembly lines and bring them back miss.

It's not like their anti efficiency. There are pro efficiency, but in the context of being a craft, you know, non mechanized, human mater crash man built object. So he actually does take some of the production ideas from Henry ford.

But more importantly, he's looking at this place. He's like, my god, there is a model t rolling off the assembly line every three minutes. Ford, at this point, is producing half a million cars per year.

Everybody knew about the automobile, but this is a different era. This is kind of the same time as when we talked about our novo notice episode about the start of that company where news didn't reach europe. This wasn't a global world.

And so a meal getting this window, like literally seeing the assembly lines, detroit, his leg. wow. Once this war is over, the world is gone to change forever. okay. So a meal.

both figures out to how to open business in russia and goes to america. Metta ry ford understands the automobile iles can change the world point.

The character, this guy. The other thing he finds in amErica is, I know, you know this one. yeah. The zipper, yes.

Or as IT was originally called.

the closer, yes.

which really does not have the same ring to IT. Glad we changed to zipper.

I can believe this. The zipper was at late eighteen hundreds, early one hundred hundreds invention in america. And IT was primarily used for industry use cases. In this case, that was zippy closed the hood of a car, I think, like a military .

car yeah where a .

meal first season it's not at the ford factory. I think IT actually might have been in canada. He got a later leg of his journey where he sees on the car.

IT was also used for opening and closing boots, and that is how the name zipper came to be. I think that was the B. F.

Good, rich company, really. Yeah, I believe they made a brand of boot with this close was all function, and they called that the zipper. And that's where the zipper came from.

Regardless, enterprising Young meal, he tracks down the inventor of the zipper. Like the holder of the pattern in america, he obtains an exclusive license for two years in Francis, literally is like the novo. Notice ephod totally brings me back to france and makes the first zipper products.

He makes the first zipped jacket ever created anywhere in the world. IT is a leather golf jacket for the british duke of windsor, the air to the throne. Just amazing.

For years in france, the zipper would be called the M. S. Fascination in france.

Yes, that's rate just a while.

I think they made the right decision not to make ipps the business and instead to stay focused on playing kids.

IT does show their pension for innovation. The idea that we can push the envelope forward in functionality in what people would be willing to wear. I mean, this guys are do, and he's wearing a zipped jacket. I imagine that resume ze IT first.

Yes, and a golf jacket, literally, for use while playing golf, while playing sport. You know what more modern activity to happen here? You regardless though the big thing, firm as that he brings back is, oh my god, the car is coming.

okay. So we're still in the third generation of the M. S.

family. Two brothers are running yet. What's next when .

a meal comes back and he's running around making zipper jackets? He's collaborating with car companies. Leads to a rift between the two brothers and all the older brother.

He is much more conservative. He wants to remain in the horse market. He's kind of depressed about the car coming is like I just want to remain a niche leather worker. I'm not really cool what everything you're doing here.

This is literally like he wants faster horses of the analogy of like if you would asked me what they want on, they say faster horse like he stuck in a horse land right now.

I don't know if I was that he is had the sand or murder like he didn't want to go build a big company, right? Which I can understand totally. I can totally understand that either way, in one thousand, nine and ninety, a meal buys him out and says, I believe in my ability to leave this company, making this transition into the automobile ile era.

And legend has IT that he goes to the craft man in the ata above the shop in the photo al world and says, you, okay, what are we going to do? What can we make with our hands here in this idea that will interest our clients today? And I think this is still kind of legend around a mess of like what can we make with our hands that will interest our clients today.

And the obvious answer at the time is a version of the ta ara bag. You know, it's bags for these cars. And if you want the most exquisite bags, the most exquisite things to show in your automobile holes that you're buying, who Better than armies? And finally, hand crafted leather bags and accessories that you can outfit your car in the same way you can outfit your horse.

So the business is now a meals and the business is now handbags.

And what's again to timing and insight here, kind electoral. In the original case, what the automobile does, it's not just automobile, is also improvements to trains and improvements to ships. The global rich, the global elite, they start traveling a lot more.

IT were now in the ninety twenty years, the ring twenty. This is what f Scott fitz jill is writing about the visible symbols of wealth. It's when your home meets in your car and the bagging and the accessory is you're using with your car, but you're also out traveling a lot more.

You're rubbing shoulders with the all around the world. The american elite are going to france that going to ear up vice vera, people are starting to travel around the world. People are traveling to asia.

People are traveling to the middle ast. People are traveling to south amErica and meals go on right along with all these people and your luggage, your bags. That's what you bring with you.

That's what you show yeah and importantly, it's not just that you're trying to show a label which is a little bit different than the modern version of luxury. It's that you're trying to have something really nicely crafted. When you show up somewhere, someone should just look at your luggage and go, wow, that is beautiful. EMS is not yet a recognized brand, so merely slapping her MaaS on IT won't do the trick. The way to war, the people that you want to war, is through the raw craft manship.

The product itself. yes. yep. So in one thousand, nine and twenty two, a meals wife famously complaints that the large bag theyve been making, the OTA kwa.

The settle bag, is too large to fit through car doors, so he asked for a small emotion. And this launch is the hand and bag business in nineteen twenty five. And by the way.

by this point, they've put the zipper on a handbag.

Yes, exactly. And speaking the zipper in one thousand and twenty five, they had ready to wear clothes like the legacy of the gulf jacket here. The legend has IT that they had a close because a long time client came in and said, I am fed up with seeing my horse Better dressed than me.

Who knows if that's true, but it's a nice story. But they really go into this in this modern world where the global wealthy, the global lee, are traveling. They're seeing each other.

What outward signifiers can they supply them? clothes? One thousand and twenty seven, they are jewelry. Nineteen and twenty eight, they had watches .

and something interesting that is different than the image. You know, today, the way that they're adding all of these things, they're finding crafts people who are experts at particular crafts. Exactly what you're talking about, David, a watch.

They're finding a watchmaker and they're saying, can we work with you on designing something unique arms? But you're the crash person. We are not trying to build this competency in house, right?

It's not right to say that they're licensing products. You know IT is a collaboration, but they are selling products in their stores that are not made end to end by arms employed classman.

right? And it's interesting because there sort of towing this line between, first and foremost, s being a craft man themselves. Being a manufacturer and being a designer, but also kind of being a retailer where they are just bringing in other branded goods and selling IT in their shop.

yes. And I think all this is being figured out real time. These ideas of retailers versus brands. IT was a much fuzzy line then, then IT was today.

So what does her mez do? What does imm do? They start opening up stores outside of paris and where they are gonna go. They're gona go to the travel destinations where their clients are going.

So the first stores in the code as year in the south of france, and then they started opening up more stores around the world. You don't get not necessarily in like the londons or the rome there than new york s of the world. They're opening them up in the travel destinations.

Their mindset around additional stores at this point is it's for the same client tel in all the places that they travel.

yes. And client til was primarily french at this point .

in time yeah or if not exclusively other than this arr and yeah I suspect .

though that IT was strategic of like our french clients are going to go to these places. They are going to rub shoulders with the americans, with the british, and then we're going to have a store there so that those americans, those british, ideally they can go purchase our products there too, right?

This, by the way, is a different retail strategy than what they have today. Today, management sort of insists that the idea is that each store is for the local client tel, and we will only expand into an area if we feel that we can serve the local client tel that lives there well and that sort of a recognition of the maturation of their business. The rich people are going to go find an area store somewhere. It's easy for them to travel somewhere by IT on vacation. If we're going to open news stores, we should open in places where there is a thriving new upper class who can buy the goods locally there in their city.

yes. Now I think some element of this certainly still exists. You had a nice time going into the ms. store.

And x, yes, for sure, but IT plays well for me as someone who is on vacation and shopping to believe that i'm shopping in a store that is for the locals. It's less fun to be shopping somewhere that is very clearly created for you as a tourist.

Yes, I think the very brilliantly walk this line and the products that the shop's Carrier are very different IT will get into that later in the episode too. But back to this era. So I think we've played the ground work of a few critical components of armas so far.

First and most importantly, the classroom manage. These things are handmade by artisans with their hands, and the family and the people who owned the company are the chief artisans. S, that goes all the way back to theory.

We've talked about the connection to the legacy of french nobility, but not really, french nobility is sort of like states, but accessible status for the first time in the world, in the modern ization of the world. We've talked now here about the true modern ization of the company in the transition to the automobile era. What we haven't talked about yet, and what I mean at this point certainly is not is this element of lake wim z and art that is really, really critical, I think.

to the company. Yes, if you've ever been in an arm's store, you can feel a warmth that doesn't exist in other luxury stores. If you're in a destination with a lot of luxury shops, you'll walk past a lot of bright lights and mirrors and punch you in the face, reds and black and White, and you just feel like there's a lot going on.

And then you arrive at your mess and IT feels warm and IT feels soft and IT feels welcoming and IT feels wimco. And there's this almost dream like color pilot that they use, starting with a base of orange and having this explosive rainbow of fun, but in some ways, that all feels natural and from the earth. And just wixy, I think that you know, the David wimco.

and this, I think is really a very different thread. The original kind of leather craft, manship and IT, is a critical one in the kind of weaving of the erma's business. And this thread comes from the next generation of the family, specifically robber duma.

So a meal had four children, but they were all daughters. And tragically, one died Young, but the other three grew up and they got married. And back in this day, women weren't gonna take over the business, unfortunately.

right? Same story is the new york times, there is a whole generation daughters. Well, none of the ox daughters get the business.

And so IT goes over to the sun in law, the souls burger. And now it's the souls burger ox family that owns the business in the same way that ms. Is the arm's doma family. The sun in law tends to do well in this early twenty century period of passing IT down from, unfortunately, father not to daughter, but father too.

something law. And in this case, when you read about the arms family fortune today, it's to do my family that are obviously the C. E. O and the artistic director that you hear about visibly. But really, I think all the sons and laws and all of their descendants become active in the business.

So there's Robert, to me, there's joan egan, and there's Francis potch, and these are all sun in laws, and these are all sun in laws. And those are the three family names that you still hear about to this day of their best family. But back to rubber, dma and the fourth generation. He brings this width and real art into the business.

And the way our MaaS describes IT today when you read their annual report is they talk about their trademark humor and imaginative flare. And despite the fact that they really are tied to this old french elite, they really don't take themselves too seriously in all their products, especially the entry level. Ones of the broken is the broken. And yeah, we'll do some special editions here, but there's a weight to that product line, but there's an overall playfulness that exuded from the brand that comes from this era of leadership totally.

and this comes from robbert. So one of the first thing he does when he joins the business is he redesigns the kind of smaller otaka bag the handbag line into what he calls the sec a the pesh in nineteen thirty five, really great .

names gotto ring to. And I feel like that's GTA a be a viral hit and appear on sex in the city.

Beautiful, beautiful, elegant bag.

So, sacred pesh, hold on to that one listeners.

A little later, in the one thousand nine thirties, he introduces the shand dca bracelet, which is another iconic, as I don't in there, jewelry. Meta, David.

I can't let you get away with that. meta. Please enlighten listeners. I know armas the sprinkles around french words and all their literature and IT just expects americans to deal with IT. If it's data sized, its french. You can go look up what that means yourself here on acquired. David.

tell us about a meta. A A is like a someone's work. But in the like the craft's man sense, a meta is like a trade.

It's like a craft profession. And this is what a maz calls their divisions. But I feel growth even to saying there were divisions, there are sixteen of them today. And jewelry of courses, one of the ma, I feel so much Better than me too.

I bet. Yeah, there's a levity here in the room now.

So shanta in front means chain of angers you, anchor chain. And these are anchors like boat anchors. And the way that this bracket comes about is Robert is walking along the beach in ormond one day, and he's just inspired by the scene of these boat tankers on this fog beach. And so he makes a little sketch in his new book, and then he plays with IT, and then he decides he's gna turn this into a brace.

Let love IT. And so an important thing to know here is when you're buying air ms products, they're really not pushing the brand. There is not an iconic recognizable air mas h or horse and carriage logo or bright color that you're supposed to identify.

This is really the origin of quiet luxury where air meses handcrafted the highest quality product they can make. A single artist is the person making the good. And you know, when you receive IT, you really are just aware that it's the highest quality thing made by a single person with their blood, sweat, tears, love, a piece of them left inside.

And it's super different than luxury today because he is just not branded. And mms and even really developed the iconography yet that would become air masses version of, you know, slightly louder luxury over the years of use. Sort of look at products now the belt have age.

They incorporate horse motifs into designs on their ready to wear clothing. But that really wasn't a thing yet in this era. Arms is on the lighter side of branding their goods today, but it's still well.

They have to adapt the market.

The customers want some way to let people know that they're wearing an arm's item even if it's lower key than other luxury brand. So air mez builds that for them.

The family talks about this a lot. The words they uses, this is not a museum. There is this artistic element to what we do.

But we are not a museum. We are a business and we have clients, and we are here to serve our clients. There is this push pull here. yes. okay.

So what you are we that the best lid is entering the market.

So that was in kind of ID dirties. So then in one hundred thirty seven, Robert introduces the other key pillar of our ms product that is less talked about today relative to the bags in the west. Goods, but for many, many decades was the bigger business.

Oh yes, I have numbers on this.

So silk scarves, the are miss classic silk scarves. And this is the embodiment of this art and whimsy. Y, that we're talking about. The silks that they use are the finest silks in the world that takes three hundred sok moc cocoons per scarf, as they will readily tell you, to produce these things. But the designs on them, arts work on them, are wimco like we said.

So the first design, the is book dumplings, this sort of a White ladies at play, I guess you could translate that is based on a woodblock gripping the robber. Doesn't an this is like what an artist this guy is like. He's about to become C.

E. O of her mez. But he's making woods black and gravy and then making sock scarves out of them. That's the first design that they put out there. And quickly they become a huge, huge phenomenon with a mass clients yeah .

and so fast forward all the way to nineteen eighty eight when excel do mah has his very first internship with the company. This is crazy. Silk was fifty five percent of the company's sales.

Leather was only nine percent. You compare that to today. IT is a completely different story.

Leather is forty three percent, and silk and textiles is seven percent. So there was a run. I mean, this was intact ced one day of the thirties.

nineteen thirty seven.

So one thousand nine and thirty seven, through probably the nineteen nineties, were these silk scarves were the air as franchise. And the reason that sort of took off is IT almost became part of the french woman's uniform to have an air mass scarf as a part of your outfit.

Well, it's fun. You say the french woman's uniform? Yes, that is entirely true. But the woman who really popular ized them around the globe is a british woman, specifically queen elisabeth.

Oh, I didn't realize that really.

Yeah, this is so iconic. Queen elisabeth SHE starts wearing them as headscarves in the nine hundred and forties. And I mean, queen and he's queen of england for went like sixty, seventy years. yeah. And she's wearing these scarves, these little wimp ical playful scarves on her head as the queen of england.

fascinating. So this is a good time to talk about how these silk scarves are made. And I was gonna do this later when we talk about their modern day production process.

But IT turns out that their modern day production process is not that different than I used to be. So here's how air M. S.

Scarves are made today. They are first sourcing the finest silk that they can find, which is now from their own owned farms in brazil. So that's where the silk comes from.

Only twenty new designs are created every year, and they retired. Old designs. There is sort of a disney volt aspect to .

this bring the world.

Yes, the pipeline to get a new design into the customer's hands is two years. Now you might be asking yourself, like, come on, why is this taking two years? That's a ridiculous thing. Here is the process, the screen print, every single scarf by hand here.

There's no digital process here. It's not like you're going to customer ordering.

Some of the design seem like IT involves computers. If documentaries about the crafts man at arms, which there's a couple of good ones willingly to in the show notes, if you want to just sort of watch air meas crafts people network, they do seem to be translating designs off of a computer, but it's not like they're hitting command p. That's not how this works.

Every single color of the scarf is screen printed using its own mask, or basically a sense. So if your scarf has twenty colors, IT has at least twenty masks that they then squeak the ink over. And the precision is perfect.

This is like E, U, V. photography.

Yes, I was taking in my wife sort of tWilly scarf, the little wrist or hair tie scarf that we got a next on province. I mean, I don't know how you do this by hand, and I don't know how you do IT by hand twenty times over and over and over for every single layer. If you've ever been to an arms store, you own one of these.

You will just can't believe that this is done by hand without any of the layers being out of alignment. Because if any of them are out of alignment, you are in the whole thing and you have to start over. And so if that's not enough, the masks are also hand edged by a crafts person. Their entire job is to know how to translate a design into all the different color layers, which they then hand. H, so the pipeline is designer engraver that an engraver of each mask colorist waver printer and then someone to do the finishing.

all of which are like extremely hard to replicate and involve both extreme craft manship and extreme taste. The competitive barriers to the arms scarf, I think they're way higher than the bags. Honestly, even though the bags are bigger business .

now and the skills are completely untransferable, this process doesn't really exist, certainly not at scale at any other company. Actually, I was talking to my wife about this SHE brought up the idea that it's kind of like disney, imagine years, or almost like pixar employees where you specialized in this one crazy little piece of the production process, that no other company has your same production process. And the attention to detail is so staggering that once you enter the rs universe, then your sort of in that universe for the rest of your career, because that is where your trade is still practiced.

And I think also, you know, as a client to at least scarves, like if you enter the mass scarf universe, you're not buying any other scarves totally.

And you really like all of the law. Part of what makes R S R M S at this point is their callbacks to their own history. I mean, they they have a hundred and eighty seven years of history to call upon, and they do so over and over and over again. And they remix, and they name things after stores that used to exist at certain addresses.

It's a universe. yeah. I mean, I remember growing up, and my mom is, have british.

I'm a quarter british. And to the queen, eliza thing are made scarfs. My mom are mess.

Scarves were and are among her most treasured items. Yes, so you'll know all of this is happening. Robber, the innovations, these new products, the art, the wimsey.

He's doing all this in the nineteen thirties. This is the great depression era. This tells you about armas and arms clients.

They are unaffected. They keep buying and this Carries through right to this day. I mean, I don't know that there is a more recession insulated business than her mez.

The are exactly right. Twelve months now, after we did the alpha M H episode, were finally on the tail end of the sort of pandemic bubble of luxury. And we're seeing a lot of these brands take a hit. Arms is the most insulated of all the luxury brands where they have this sort of least cost sensitive clients.

So after this, there's world war two. And famously, before the world, EMS products came in cream colored boxes. Robert was very particulars about the packaging that his crafted items and his art would come in.

And IT was cream. IT had to be cream. During the war, there is a shortage of packaging materials.

They can get cream. The only color that is available to them in the quantities that they need is orange. That was signed for partition aries.

for Bakery ies. I always had what the orange ones were used for.

That's why there was an excess of IT because there is for Bakery ies. And Bakeries weren't baking as many as during the war. There's all this orange packing material.

Robert embraces IT, and the arms orange box is born. And this is crazy. I don't know this whole research.

A maz owns this color. You cannot get arms orange anywhere else. Penta does not listed in their colors.

It's interesting you say arms owns this color, so you are correct that air max has selected a non panton color. But what M S. Tries to do is say, well, we own orange.

We can't be nailed down by a pantone specific code. We own orange more broadly, and they've actually go hn. Head ahead with the E.

U. And this has gone to court where it's been determined that, no, you can own orange. You can't just own all the oranges of.

And what they've done is we've actually leaned into this where there is a classic ARM s. orange. But IT presents differently on each of the leathers. They have ten different leathers or something like that, that they work with when they die. Those leathers IT presents a little bit differently.

And so they sort of have this, sure, there's a digital perfect representation of the color of classic orange, but there is this whole spectrum of the way that IT shows up on leather. And they're sort of even further kind of wicked at all of us by creating five or six other oranges. They have air s few, which is sort of the fire.

They have air mass sang Green, which is sort of this red, hot, orange like lava, or they have the mass motor, which is sort of their mustard. And each of these is a little bit of I think it's to continue to a certain that we own the whole spectrum of oranges, but it's definitely to be able to stay current state present, encapsulate the theme of a season because at every year they sort of pick a theme. And so they play with their oranges a little bit to evoke the windsor that they want from this year's theme.

Yeah, there's this sort of like the metal level or like corporate level. Playful this to this. Two of we know all the oranges totally.

The air mass oranges are almost like to continue the disney logy. It's almost like the people that go to the park and look for the hidden Mickey. It's a way to even more deeply participate in the R M S universe.

So few other things that Robert ads over the years, he adds the mans silk meta A K A ties. The legend behind that one is pretty great, supposedly. And can a number of gentlemen were refused entry to the casino and that went to the neighboring arm's shop, you know, next door and said, can you take some of your beautiful silk scarves that cuttings tAiling them in to tize for us so that we can and enter the casino? I'm sure that's a part of that adds to the legend here.

And they are at these patterns, you know, there just as intercut as scarves. There's less story telling that happens in the thai. The scarves tend to be something you could frame and put on the wall and look at in sixteen different ways. And the story behind IT. But it's still, I mean, when you look at IT, you kind of can't believe that IT was hand .

screen printed totally. After world war two, Robert decides that her mez needs a logo. So taking inspiration from the nineteenth century painting the duke at legroom alatta, which means hitched, carriage, waiting, groom.

The famous images, logo is born. The logo is the call. Back to the carriage is the nobility. Though I find that really interesting, especially at that point in time that Robert decided you could imagine, like, you know, a galloping horse or something like that would be the appropriate logo.

No, it's so genius.

No, it's the carriage.

Yes, it's too intentionally ground the brand in history in something that they were a part of. That is only there because nobody else starting today is onna have that as a part of their history. They are leaning into the thing that makes them unique, special. The most like defensible, durable asset that they have is that they participated in that era that has an .

astle gy about IT and no longer exists.

Yes.

horses in the eastern world still exists. That's obviously IT wants was, but IT still exists. The carriage world is gone.

It's just a dream these days, and that's what robbert is so good at this dream. The other thing we have to talk about are the window displays. You reference this a little bit earlier. So he hires first any bome. And then she's soon joined by the legendary lila manchuri, specifically these two women.

They come from theater set design just to design the window displays at the four board, at the flagship store on the roof board cent on A P I mean, there are a whole museum exhibits just dedicated to the window place. And it's not like, you know, again, you walk by X, Y, Z, other store, even the most prestigious brands, and it's like the products. So no, here's the products.

Here's the brand you're buying. Here's the L, V. It's these displays is a dream. There are probably summer mass products in there, but it's like a museum exhibited. Its our work.

yes, and art is exactly the right way to put IT. There is no utility to these displays and these displays much like any advertising that you see of their MaaS today. It's not about the product, it's about how you feel.

So I think this is an interesting place to revisit this idea that we talked about on the L V H episode of luxury versus premium, where premium means you pay more and you get more utility out of a given product. I pay for a bigger storage space on my iphone and I get, you know, more utility out of that. I can store more photos.

Luxury means you pay more, literally, because IT doesn't create more utility. IT is either more pleasing to you intrinsically for the feeling, or an extreme c signal where you are signaling to others that you have the means to spend on this item. Even though IT doesn't provide more utility.

It's a sort of despite, rather than a because. But art IT does fall on the spectrum. Art is like luxury.

Taken to its logical extreme, IT has actually zero utility. A broken bag is a piece of art, but at least IT also Carries your stuffer around. Luxury products are this interesting midpoint between extreme functionality, but also art works.

And so when you buy a as product, you aren't just buying the product. You're buying a piece of art, a piece of their heritage, a feeling that connects you to the maker and the place that was created. You are trying to buy a piece of hair masses, heritage and reputation, and hoping to adopt IT as a part of you, as a part of your identity. And you are seeking, whether it's conscious or not, to let other people know about this too. And you're not necessarily trying to signal IT to everyone, but you do want to signal IT to the right people who would appreciate IT.

But there is a genius aspect to do, what arms is doing and what robberts doing with the arts. Like these window displays, the luxury strategy book talks a lot about this. When you're selling luxury items, they can't just be our they need to have some utility to them.

Here, you will never see any of these brands are most included become art galleries. They're not selling painting, but it's critical for luxury brands to have a connection to the arts. I think he realized this before. Anybody of like the windows in our stores are these portals les, into this world of dream and art. And you'll come in and you'll buy a scarf that you will wear, you'll buy a bag that you'll use, maybe you buy a tie, maybe you buy a while or homeless are furniture or any of the other things over time that they sell. And that will have utility, but is connected to this dream.

Yes, you're taking a piece of that dream with you, and it's almost a daily reminder of the dream that you are now participating in. The key insight is that by adopting art as a critical piece of the bundle that is your product, IT enables you as the seller to completely switch tracks to disconnect from any evaluation of values .

or features.

Exactly, you're out of the feds and speeds world you are not being combed against. Well, this other purse is much cheaper and serves the same function. Now we have bungled in the function of the object, and an invaluable.

Priceless feeling.

a Priceless, less feeling. And so now we can sell the goods for whatever we want, because it's impossible to know the value of that second component that we've bungled in.

Yeah, totally. So speaking of dreams were now in the one thousand nine hundred fifties, in the post world war two area, the most amazing, unbelievable, fantastic cal dream of the one thousand nine hundred fifties happens to arms in real life. And that dream is princess Grace Kelly.

So I sort of mentioned a little while back that one of the first things that Robert did when he came into the business was redesigned the hamburg and cry at the sack of the pesh. Well, IT becomes popular. But like we're talking about leather goods, handbags, you know, important.

But that kind of was the previous generation of the business. Now under a robber, it's the scarves, it's the dream. It's all this stuff and let this part of IT, but a sort part.

Well, in one thousand nine fifty six, princess Grace Kelly of monocle. This is a girl from filet, an american girl who goes on to become a movie star, who then goes on to become princess Grace of molecule. I can't imagine a bigger dream for any woman or any person. In the nineteen fifties, SHE is photographed using the sacca pesh in life magazine on the cover .

of life magazine.

So the legend is that that was on the cover of life magazine, but I googled a lot of one hundred and fifty six covers of life, and I didn't find IT on the .

cover interesting. So maybe that's been sort of played up over time.

This might have become part of the law regardless. Big picture in life magazine, SHE is clutching her beloved saca to pesh to her midd section and it's almost like as she's .

exciting a building and it's IT almost seems like it's like a pop AI I photo .

is a pari photo her husband prince and air of mongo is holding the door behind her. It's like the most dream like thing you could imagine. It's in black and way.

And the reason that he is clutching the fairly large bag, unbeknown to the world at the time, is she's trying to hide her pregNancy from the pope oz. She's pregnant with her first daughter, and this photo just becomes iconic. Everybody wants to be Grace Kelly.

Everybody wants to have this bag. And one of the last things that robber does right before he retires in one thousand nine seventy seven, is he officially changes the product name of the psychotic pesh to the Kelly bag. And this is the birth of I don't even know what to call IT the Kelly in the birkin or ends of ones, but these leather good products that everything that are like so truly, end of one, there's no other way to describe them.

And there is so much to say about these bags and how they're crafted and the law around them and the supply and demand and the e can one to one. But before we get to that.

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Yeah so if you want cutting edge cyber security solutions, backed by a twenty four, seven team of experts who monitor, investigate and respond to threats with unmatched precision, head on over two hunters ous stock com slash acquired, or click the link in the show notes are huge. Thanks to hunters. Okay, David, so life magazine, the Kelly bag is out, so this thing must sell like hot cakes, right?

Well, yes, I know. Certainly this plays right into this whole dream thing that we've been talking about and burnish. Es M S is already incredible brand and image.

I mean, my god, princess Grace Kelly of monarchy is Carrying this bag, not as Carrying this bag, but it's her favorite bag, the closest thing to her body. But we're still in the fifties here. So like, yes, IT becomes incredibly popular.

Yes, i'm pretty sure becomes our mas biggest selling bag, but the market isn't quite there yet in the way that IT is today with the burgers and the Kelly. The global rich isn't that big of a population. And like yes, i'm sure they're all buying Kelly, but Robert probably knows all of these clients personally at this point. We're not anywhere near the scale that we're talking about today.

And to your point, I keep saying it's launched. It's not really launched. They just rebrand to the Kelly bag. But when the Kelly bag is formally launched, it's really expensive.

It's a nine hundred dollar handbag in the fifties, which today is tend to twelve thousand dollars approximately the Price of a Kelly bag today. So IT comes out as this thing that is completely ridiculous and inaccessible, Price wise. So the people who are buying IT are the Grace Kellys of the world. And there is not really, if this stratified class below that, that's got this huge man of purchasing power right.

The number of people who could spend the equivalent of twelve thousand dollars on a bag back then was just much, much, much small then IT is today.

yeah exactly. So no, handbags do not immediately become a huge part of the business or I should say the dominant. What if vert is today six or seven times larger than silk part of the business right away?

And in fact, actually, sadly, kind of quite the opposite happens. So as we head through the sixties and into the one thousand nine hundred and seventy in the end of Roberts, ten year in his generation, as the hever is the company, kindness starts to fall on hard times.

which is crazy to say, right? I remember this men in the porch episode, you're like, no, come on porches. Canny down the entire line up to only making the nine eleven because they couldn't justify any of the other products and the whole company was a fricking mess.

Arms is not quite in those dire of straight, but I mean, they have the ingredients of our mess that we knew today. They've the Kelly bag, y've got the orange box, they've adopted the logo. They have got the scarves. They've got the scarves. They have these small workshops where they make everything, but it's not working yet.

And it's particularly not working because like we just talked about, that market was not that big year. And as we enter the one thousand nine and seventies, something really funny happens. The next generation reject that dream.

This is, you know, you and me, our parents generation, the he is the one hundred and seventy. This is democratization. Little girls don't want to to be Grace Kelly anymore.

They want na be like Steve next you something like that and the dream of a mess that was want so elegant and so desired by so many people but inaccessible is kind of now like, you know, it's certainly still got a audience, but it's not as universal. This is when so many the other what we now think of as luxury brands really start to come up. And we talked about this on the pisa, but they're connected fashion.

You its first D R. And then it's eve sanlam. This is the monthly address from eve 36。 And this is, you know, the revolution.

It's gucci. It's chanel in the eighties when carl logger failed, takes over. And what they are selling is very, very, very different than what arms is selling. This is an .

important distinction between R. M, S. And all the brands you just named. They come from the world of katou and a fashion and of cutting edge in your face, risky art and air mas comes from may remind you, by this point, there are already a hundred and twenty years old, hundred and thirty years old.

They come from the world of leather and horses and durable goods that stand the test of time, and Frankly, styles that stand the test of time. It's not how creative and crazy can we be as they talk about as responsible growth. What's the smallest amount that we can move from our current compass in order to do what our clients tel wants while staying true to our roots. It's a rejection of risk in a Normal embrace of history. So it's super different than most other luxury brands, which, as you point out, come from fashion.

right? And those brands are getting born or reborn right there in the nineteen seventies.

yes. And David, this is probably a good time to share who we added with in preparation from this episode. And his observation about air means.

yes, this was super, call the things in mind. D grows. We had to talk with domino to sola, who was see of guy during the fight with bara. Now that we roncalli, I think that was the best part of our L V pisos.

absolutely. When dominical disa and tom ford and that team rejected burners takeover and managed to not become a part of elva, obviously. Then dominico and tom ford left to start tom ford after that.

But I was super court. We talked to dominico. He comes from that world even with the heritage of guti. He in tom IT was fashion first. And in his perspective, and I think the perspective of many folks that are coming out of this seventies, eighties era of luxury, that's what's interesting.

That's what's fresh risk .

on baby risk on .

yeah let's figure out how to breaks of glass in what we're doing.

Grace Kelly is not breaking any glass.

right? That the matic helped us understand about arms as they have been so protective of their brand and is unbelievable stored, they're so careful at how they've chosen to the y the brand. They make sure that the mistake is always there.

They don't violate the promise. They never cut corners. They have been above board in their brand promise and keeping that promise with customers for over one hundred years.

And that is a strength and a weakness. It's a strengths. As long as you learn how to employed IT as a strength in the world of fashion, it's budding heads.

yes. Antithetical to fashion? Yes, exactly.

So all this comment ates .

towards the end of the one nine hundred and seventies, as robber is nearing the end of his ten year at her house in the end of his life.

Sadly, there is a moment this isn't like probably one thousand nine hundred and seventy seven or so where they bring in consultants in the consultants recommend like, hey, you guys should probably do what gucci is doing, and you should probably close the ata above the shop at the foreboding, and you should probably outsource production, and you should probably increase your number of products and your skills and have lower Prices and have them be more unbelievable. That was the accepted wisdom at the time. I don't know if I was the in here, you know who was signa.

Well, today I will tell you that armas has a corporate policy of no consultants. And now I know where that came from.

I mean, this is entrant in the luxury strategy is enti love marketing number one thousand do not higher consultants wow.

So the recommendation was to come in and destroy everything that makes you special and follow the playback that everyone else is running yeah I mean.

it's working for them and it's not working for as crazy. And this is when the next generation transition happens to Robert t. Son, jonny do mab. I kind of can't believe IT with this family every time they come in at a generational transfer.

And the company in the brand is under existential threat, even that we think government, the most unassumed thing in the world right now, but finds itself in a moment where IT can be assailed. There is a generational transfer happening. You would think this is like the downward spiral. This is the dropping of the baton. And the next generation always realize.

and is IT amazing. You would think the best person out there to brilliantly come up with both the business strategy and the creative element is probably not your direct descendant, right?

Probably not your negative stic fabling member.

That's not the best search process to run. And yet IT works. There's something about the I don't think it's like this magical blood line. I think IT is a deep understanding of the tradition of the business of exactly what type a sort of hutt ser the team has to rally and take on having the political cloud to find the right people and empower them to make the change to have a six sense for where you sit in the marketplace versus competitors and what people may want out of your brand next. It's all the intangible that come from growing up in the business, make you able to be the right person to transformer.

I really do think that there is an element. Two of the successive generations they approached in the ata is like with their hands. I think there is an element of that.

And they also appreciate, especially these days on the business side too. You know, XL talks all the time about dinner table conversations between his uncle, so who are about to talk about now, who is the fifth generation C. E.

O of maz and his mother, who was head of production at the dinner table growing up. You can not absorb that. I think that's the flip side of nepotism rate, which makes IT such a chAllenging topic on the one hand, obviously limiting the universe of talent. On the other hand, how do you replicate dinner table conversations?

It's funny. I call that a six sense. I think the right way to describe IT as actually as an a squad about what you .

sort of from those totally okay, just the way the face generation, the brain of the consultation are saying, hey, go be like .

gug shut down your shop where they still today, make a bags s bay hand one artist ata time in the most famous address in all of luxury and fashion.

Not so well. I do have to create to that. That is not specifically true.

It's certainly spirit true. I believe now the only products that are made in the photog are settles. Oh, everything else is made in patent, which is uh, twenty minute drive away.

It's not like the outsource production anyway. We will get to that. Great OK, john.

Do he comes in? What year is this? One thousand nine hundred and seventy? great.

He like all the generations before and after him, he's come up. He's a pince in the business. He knows how to do the sell stitch. It's in his hands. It's in his soup.

We talk too many times without actually talking about the subtle stitch. It's time to actually talk about the seattle stitching. So this 王 dering， why do they keep saying this? What does that mean? Sample stitching is an amazing technique that arms uses for every single bag that they make.

IT can either, I can't tell of this truth. T IT can either only be done by hand, or, until recently, only be done by hand. But IT is a far more effective, high quality and durable form of stitching relative to the typical machine zones. Stitching that you're thinking about right now, where the same thread goes through one needle and IT goes up, down, up, down, up, down, up, down.

It's also incredibly beautiful. It's got a slate, dianne at all violence to IT as opposed to the Normal straight line stitching.

Yes, so how does that work? So there is something called a horse that goes between your legs. And the horse holds two pieces of leather together.

The whole point of the seattle stitches to sew two pieces of leather together. So you first punch little holes in the leather using likely a pricking iron as your method of doing this. And if you are good, you don't prick all the way through.

You just poke a little hole with your pricking iron or all part way through, so that way you don't poke too big of a hole. You only end up pushing exactly a whole the size of your needle and thread through. And you can always tell if you're looking at something in its stitched and there's these big freaking holes and then there's this thin thread that's moving through and there's space between the thread and the leather.

You know what kind of crash manship went into that if IT almost looks like the stitch vanishes into the leather and you're like they're even a whole there at hard to even see how this was done. That is a saddle stitch. So you take your prickin iron or you're all you poke the hole where the partial hole.

So there's a lot of muscle memory involved in this. You then pass one needle through going call IT from the right to the left side. And then you have a second needle on the .

other end of the threads, the one thread.

two needles, yes, that you pass through the other direction. And so what you've done as you pull both of them through is created this incredibly strong sort of inner locking mechanism.

There's tensile force .

going in both directions. Yes, if IT gets ripped, you're not at risk of the whole thing pulling out and your sample or your bag falling apart, you just lose that one stitch and that one stitch can be repaired. And so the only way for you to unravel something that a settle stage together is to individually go through and cut every single .

stitch yeah compare that to most products that you own.

Yes, this literally provides high utility. If you're in a castle and jumping competition or if your bag needs to hold something that really needs a lot of protection and can't fall through, it's almost like it's started with real necessary utility because something life threatened could happen. Now it's just massively overkill for everything, the saddle stage, but you appreciate the craft behind that. There are very few people who are in a life or death circumstance that are dependent on their stitch holding.

true. Going to channel my inner peer, alex. I here the current artistic director of our MaaS. I think IT still has relevance. If you want your object to be permanent, if you want an object that you own to represent something holy, different and antithetical to, let's call the amazonian ation, or the wall of items these days, you want IT to be made like this.

yes. And something that made this really special for hundreds of years, if not still, is that IT had to be done by hand. So if you want something of this quality, this gets this interesting idea, is hand made stuff Better, will not necessarily.

An excel even says this in an interview. He says, in two and nineteen today, hand stitching is the highest quality. So machines are not negotiable.

When the quality of a machine teaching gets Better than hands stitching, we will do IT. We are not a museum. And David, this is where you're getting we are not a museum quote from.

But IT really gets to this element of why are handcrafted goods desirable? Well, in this case, IT literally creates something higher quality, more durable, certainly more esthetically pleasing since went done well, you know, you can see that hole in between the read and the leather is a pretty special process. And for everyone who sort of wondering, okay, but what is the rest of creating one of these bags look like? Start to finish a Kelly bag.

And we will talk about broke in. And a little bit of similar story is made by one craft's man. So one craft man starts with thirty six unique pieces of high quality leather as much .

as possible from the same animal, and matched exact.

yes, exactly. And so it's not source from all these different places all over the world. And one person's responsible for the bottom s and someone else is responsible for the straps.

IT is one craft man that takes these thirty six cuts and stitches IT together. IT takes twenty hours, and this is over the course of a few weeks to create that. So one person assembling at all, putting the fascination on IT stitching IT. This takes two years to learn how to do before you are allowed to create one for the first time.

Oh, I think it's even more than that. It's two years of training to become A R S. Artisan, period. I don't think you're allowed to touch the perkins and the Kelly who and you start day one on the job. I believe you need at least another three years, if not more, before you're allowed to touch the workers in the Kelly.

fascinating. So this knowledge is passed from generation to generation, and arm's refers to this as the save welfare, or the know how, or the expertise about the materials and the exceptional technique that's transmitted from one craft person to another.

Hey, on this, I have a lot more to say when we get to the current generation about this.

Do you know David? I will stop after this, but I thought this is very funny. Have you read the annual report, the six hundred page document that they released once a year?

I have to bit, I have not read IT covered to .

cover more history, and I have.

but I i've read large section of IT I was .

reading that I found myself laughing at how often save welfare was used in the prose. Every other paragraph they they just sort thrown in a sad welfare one hundred and thirty three times save welfare is referenced in the arms registration document.

partially in their defence. Sf are fare literally translate tes, us know how it's kind of like a proper term french.

Yeah, fair. But I think the takeaway is real, that this knowledge is transmitted from one generation to the other, in the very same way that I was from father to son all the way back at the founding of the company. And that is how the scale production, I will put a pin in that and come back to IT later.

Yep, that's the true genius of the current generation, is they have scaled that to seven thousand people. unbelievable. I was going to talk about this towards the end of the area, but I want to say IT now, because I think it's perfect.

I got to talk to a woman and beats who lives here in different eco. This is amazing. He was an artisan adamites in paris.

He was hired right at the start of janos ten year. SHE worked in the ata at the photo ook. When only we son par lexi, current artistic director, came to train after school as a teenager, he SAT next to beats.

And I got to tell out weather .

about this. SHE runs April in paris. And o so SHE moved open o front. He was like, no, no, no. I was the person for the west coast who repaired everything for north american west coast clients.

There was one person in new york, and I was in 3 ford esco， and we came from the four burg. You know, a few these people go around the world. And one of the things about her mess and actually shown the wee who say that this like the true essence of luxury and the true essence of our meis thing, they may can be repaired. And so if you buy our item from a maz, no matter what IT is, they will repair IT. yeah.

And IT gets true even if it's .

one hundred years old, you bring IT in, they will repair IT.

Yeah, that's true. They have fifteen. This is flashing forward the day fifteen dedicated repair shops worldwide. And they met one hundred and twenty thousand pieces a year.

Wow, amazing. yeah. So I asked Beatrice when I was talking to her, what was this leg? Get a well special. And he said, look, you have to understand.

When I was training as a Young person and decided I wanted to go into this field, a maz was absolutely the greatest company that anyone could hope to work for. IT isn't even close. There was no comparison years.

This was in the late, early SHE said, look, I decided that either I was gonna a job mess or I was gna leave the industry and go do something else. IT is in that high of a steam. And I saw what, why? And he said, look, by the time we are at this era, nobody else was left and right.

Everything we talk about in the one thousand nine hundred and seventy, all these other brands, they all went in this complete other direction. The consultation were telling her mess to go in that direction too. But there are the last one standing that did all of this bye.

And in the tradition handed down through hundreds of years. If that's important to you, there's no place else you can apply your trade doing that anywhere else. I asked her.

Then I was like, okay, well, as for the products and to the clients, to the customers, why does that make a difference? And what he said is what you hear the family talk about all the time, he said, look at about soul. This product has a soul.

Somebody made that thing with their bare hands. That means something. And there's nobody else certainly at her mesic scale that does that.

You know, he ended up leaving her mind, starting her own pretty current things go brl in paris. And SHE actually also runs her own leather school here in sec. To the train artisans, you can get custom stuff, small, beautiful e stuff, you know, Beatrices worldwide master. You can get that from her. But the idea that a two hundred billion dollar company at scale would be doing this like there's nobody else.

It's nuts. It's completely insane. And the people who don't work for L. M. S, your options are in the dozens.

If you go as a customer and you want something like a subtle stitched bag or wallet, or something like air mez would make in that traditional sort of prewar early twenty th century fashion. There aren't that many other artisans out there. I M as employees, seven thousand of them.

I don't know how many other ones there are, one thousand, two thousand. And it's not like our messes corner the market. They're hiring where people in training them as fast as they can. They're trying to preserve this market that otherwise would have entirely been zero is a pretty crazy thing that we've managed to scale even to the scale that they're at.

The other thing, batter said, did that to bring a bacteria on the way. He is a legend, he really cared the idea that he would follow the consultants like he was just so completely anathema to him. He's the artistic director in CEO.

The company SHE ran into him in the elevator in the photo board right after he started. He likes her and said, you be a rest and blood welcome. As you know, he knew everybody by name and then when he ended up leaving, uh, one thousand nine hundred ninety seven, open her own store, he called her.

He was like, genuinely shocked. Nobody ever leaves. Like, what are you going to do? SHE explained that, well, he wanted to be entrepreneurs, start her own thing, and then sharp inly, after the safety desk chronical did an article about, he found the article red in france, cut ted out, mailed IT to her with a note of congratulation.

And IT doesn't cost anything to do that because, I mean, on the one hand, you just say they're being a kind person and gave so much to your house for so long.

On the other hand.

this is the C. E. O. Over means, right? And I think it's important to realize these individual craft are entirely non competitive with their mess.

It's a completely different value proposition to the customer. When you're buying A S today, you don't start from a place of you know, I think I want. Some of the very best sown letter goods I can find.

Let me evaluate the whole landscape of people who could deliver that for me, and then i'll decide which maker to go with either a you're doing that and you are a person who knows about a bunch of individual leather craft man, which is rare, or be you actually just want to buy something from a mess and there is not any evaluation going on. And maybe there is between big luxury brands, but probably not. The value proposition is not. You have a need for a leather good and you can bake off all the competitors that you either want something from ams or you a different type of customer.

Yeah okay. So on the we story, how did he turn this thing around and save him? As from the consultants, well, like we said, he apprentice, just like every other generation, but unlike any other generation.

And now, I guess maybe sort of like a meal back in the day, going a meeting and reform. He comes to america. And specifically, he came to amErica to follow his wife, rinna, who became a world famous architect. Reno was in turning with I am pay in new york, really, and reno dema would go on to design all the stores that they often up all around and design the ata and pattern when they expand production.

I am pay famous from a number of things, including previous acquired episode with Michael obits designed the C A. A building in los Angeles, designed the love pyramid.

I was gna say, think about like the connections here for as a paris.

which, by the way, everyone in paris thought the parameters hideously ugly when at first relative to the seventeen hundred ds building around IT, and over time now it's become this like iconic triangle, pyramid, ID beautiful .

signature of the city. Yeah, only we. When he's in america, he works for blueing deals, believing deals, my god, of all places.

Well, there was a hay day of department stores. In fact, if you go way back, do you know how L. M. S. Entered the united states .

in partnership .

with naming markets? Yes, one thousand thirties. good. Well, so you did .

find that it's hard to start me. Yeah, but you do .

IT sometimes. Okay, so blooming deals.

So from that experience, being in america, being in this much more mainstream, you know, audience, he comes to understand what these other brands are doing, you know what the consultation are suggesting, but he takes that back. And what he says, like liked the way forward is we're gona figure out how to make a mess relevant. We're not gonna throw away everything we've done.

We're going to keep our tradition. We're going to keep our Christman ship. We're going to keep our market position. But our clients want to be like these Young people, particularly these Young women, know the moms don't want to be like their moms.

They want to be like their daughters. And it's a tall order to figure out how to revitalized, rejuvenate, make em s relevant for this new era, with this new audience.

with the same products.

This is key, right, keeping the same products and not violating everything that ARM as currently stands for. If we talked about this on LV h the not your mother's Tiffany campaign, it's almost like how do you not insult your current customer base by adapting for the next one?

This is such a tight needle, a thread to use upon here. They need to run the night your mother's tif henne campaign without actually running the any campaign.

So well, the first thing, in one thousand hundred and seventy nine, the first year he takes over, he launches a new ad campaign in paris with Young person women wearing the iconic as scarves, which remembering that the main part of the business at this point time, but it's, you know, all these old people who want to be like queen Elizabeth wearing the scarves, Young women wearing the scarves, not how you would typically wear a scarf, different parts all over their body. It's the airmen's version of not your mother is defending. And most importantly, they're wearing these scarves with genes. Grace Kelly would never wear jeans. I don't know if he ever did wear jeans, but he serves her wouldn't photographic wearing genes.

fascinating.

These ads are the scarves the queen lizbeth is wearing with genes and in fun, interesting, with playful ways to wear the scars. But they're still the same scarves. fascinating. And this is like a revolution.

I bet the rest of the family is really upset about IT, but he puts IT through, and you can still see echoes of this to this day, like a big part of her MaaS fashion. And the biggest part of, I think, the scarf fashion these days is tie the scarves on your bags, on your accessories. You do not wearing them. You, like your mother, wear them.

And this is how they have adapted for the digital era. Two, they've come up with like five or six apps to try to figure out, like, how do we engage people in the mobile era? And one of the ideas that they had was this APP that basically gives you suggestions in all the different ways you could tie a scarf.

Ah, that super cool. Yeah, I but I think this is brilliant, because this is allowing arms to exist, emi relevant along side fashion, without actually getting in the fashion themselves, the scarves, and then ultimately the bags can be the accessories to your genes, to your fashion, to your, you know, where past the era of delt bottoms, but like the spiritual equivalent of bell bottoms here. And they can say something about you, but they're still the same products that they always wear.

And it's pretty interesting if you can figure out how to co exist alongside cool, fashionable, new cutting edge things, then you sort of deserve a place in someone's lineup where they say, well, I both embracing a current trend, but i'm also respectful of the past. Guy also found my own way to weave this high class, high status thing into the rest of my image.

And I think that especially at their Price points, they're serving someone who wants to raise one hand and say, I look cool and raise the other hand and say, i'm classic. Well, i'm classic and I have the money to spend on things that are very Price anchored. Everyone knows what a Kelly bag costs and like, it's gone up a little bit, but arms has very high Price point products that stay approximately that Price forever.

Yep, so is only we. As a quote about this, IT is very friend. He says the Young customers came to us more than we went to them.

People saw again, but with a new eye, the beauty of materials worked by fine hands. They came, we followed. That's the most french way i've ever saved. This been like this, what we're talking about.

He got their client days and often the Young people's parents who wanted to be more like the Young people here to see with new eyes the same things. yes. Total genius.

Yes, for sure. okay. So that's brilliant.

So that's on the products. I didn't kind of doing this, dude. You to reposition the product center is the other thing that he did, which was huge, was he had the very same realization that on reread M, I had a leva thon. And we first set up the earlier what rm. A figured out, IT li vita, in the one thousand nine and seventies was the market. Now the global wealthy, the global at the global rich, is so much bigger now that IT was in the one thousand nine hundred and fifties, the number of people with wealth on the order of Grace Kelly and princess of monaco, or you know, even a few runs below them. But the number of people who can be in our client base around the world is just so, so, so much larger than they used to be.

And it's happening in this country by country way, which is perfect for a brand like this, like they can go to america, and then they will observe the rise of japan, and then they go to japan and the nineties and two thousands, then they'll observe the rising upper middle of china. So we'll go there. In present day, they can really position themselves as sort of the second mover, where they can sort of watch, see when this wealth class exists somewhere, and then set up shop and say, hey, Frances, whole heritage is now available to you to adopt as part of your persona yeah.

And this is super key. And I think to this day is a huge part of defense, broad of armees and leive aton to no matter where you live in the world, and no matter what your cultural background is when you attain this status, there's still something about this connection to french european nobility that you cannot buy from a brand from any other country.

It's super fascinating that french nobility, fashion and heritage is univerSally revealed everywhere. And italian is too, like I would say, european generally, but french specifically has an ability to do this in any geography as IT develops.

Yep, so all of this still comes together in one thousand nine hundred eighty four with on the e's greatest achievement. And unlike the Kelly bag, what you know again was an accident. Like, yes, he was his father, Robert, and incredible genius, then repositioning and Greenham ing. The bag, the Kelly bag, janey, this is literally whole cloth conceived of by him on a flight from paris to london in the early ninety eighties, where he seated next to the french and british actress jane burton.

the IT girl of the time.

Now here's what's really interesting. I bet ninety five plus percent of people listening to this right now have no idea who jane broken was.

which is so funny because in IT interviews with her, as the broken bag was blowing up, or at least getting a lot of attention, an interviewer joked that he was going to be more famous for the bag than for her acting career and her modeling and all that. And SHE sort of laughed and said, wouldn't that be something? Yeah, but totally, ninety five percent, if not more, of the listeners to this podcast. We will have no idea who jane broken is before this episode.

But you definitely know the broken bag.

Yeah, or at least you know of the broken bag. I'd bet seven at a ten, maybe eight at a ten. People listening to this couldn't spot IT, but if you say a broken bag user of know that it's like a unattainable ly expensive high stat is hard to get handbag.

Well, certainly if you follow the arms stock, you know what a broken bag is even if you probably couldn't pick IT out of a club. Yes, but anyway, this is the cultivation of everything we've been talking about. Who is jane broken? SHE was british.

SHE was born in england, but he moved to Frances and became a french to this. And and SHE became like a french cultural icon. I mean, to get the tide of france is so important here to we didn't talk about this with Grace Kelly either.

Grace Kelly was an american from philadelphy, but he became the princess of monocle. These two women, these two personas that are embodied in our message, doesn't do celebrity advertising. I think it's so important that even though neither of them were french, they became so deeply european and what they represented yeah.

that's a great .

way to put IT. And for jane burton, he is this next generation. SHE was an actress both in film theatre.

SHE was a singer. He was incredibly beautiful. SHE was the egir's, but in a very, very different way than Grace Kelly. SHE wore jeans, and in particular he had a trademark accessory fitting with the, you know, one thousand hundred and seventy, oh, the basket you counter culture, you know, back to the land type ethos. SHE Carried a weaker basket with her everywhere that he went.

which he has a epo s to IT, but doesn't lend itself well to overhead bins. No, he does not.

So as the two of them, gentle I C E O and artistic directive, MaaS and jane burka, french cultural, I can are boarding this free to london. They're seated next to each other, and jane is struggling to get her fixed handle worker basket up into the overhead compartment. And at this point, jane had become a mother and had kids, and SHE had, you know, kid stuff in her basket SHE a baby bottles that were.

like, spilling out totally. I mean.

I Carry a lot of kid stuff these days, like you need a lot of stuff with the kids.

By the way, how crazy is that? That the Kelly bag was to hide a pregNancy and the burden bag was designed to Carry .

baby and baby forward. yes. And I get on the one hand, this is sort of esoteric, broken, lower. On the other hand, I think this is super important to john. The we like, imagine the older generation army is embracing this.

You know, we should do, we should cut out with a fifteen thousand dollar dior bag.

right, right, right? So they sit down, they start talking and on the flight and so on. We introduced his himself.

And like, if you struggling with basket and SHE says something like yo wouldn't be great if there was a bigger bag that actually closed and, you know, but our meals doesn't make that. Or SHE made some comment and he goes, I M R S.

yeah. The legend. Now, who knows if this is true, is that he said, well, when her mez makes a dire bag, you know, all, i'll use that one.

And specifically for her, SHE sort of fancies herself someone that has a lot of stuff and wants to bring all my stuff with me. So I just need a big bag and that needs to close easily, fashion be damned. I just need a huge frequent tote.

Yeah and as they get to talking, they're talking about the Kelly and she's like, look, you know, Kelly Kelly, right? But I can't wear IT over my shoulder. So although we started getting out designs on the plane and well, the burn is born larger than the Kelly, but smaller than the old original arms bag, it's a top back, and IT has two handles, unlike the Kelly, which has one hand on. So with two handles, you can put IT over your solder. You is the sort of IT feels weird, the same more casual version of the Kelly, given that it's, you know, the bark in bag that IT is it's the more casual, modern version of the elly.

And the Kelly has cleaner lines and this sort of beautiful, almost made century trapezoid al shape, whether the birth and everything about IT kind of screams function.

So here's what's interesting. They release the product in one hundred eighty four. And IT is not an immediate success.

I think part of this is that the arms kind of brand transformation, modernization was probably still underway when you watch interviews with particular P R. Alex, I, he'll talk about this is like any other company would have given up on this product. But that takes about five years before the broken bag becomes the birkin bag. And like the time is right, we're in the one thousand nine hundred eighties, the go go years. You know, this is the the years that are shaping, bernard, are.

know here there's tons of american wealth being created. People are looking to be a little bit flashy here. Now, grant air meses, the least flashy of the luxury labels you could adopt. But people know the brand. yeah.

I mean, IT takes five years for IT to become any molecule of successful is. And then like a lot of these things, this just kind of slow burns starts that grows and grows and grows and grows.

Then there's a real law around that, that is hard to get. And it's just like with a kid, if you tell them they can't have something, they wanted a lot more. And if you tell your very fancy clients that you would love to be able to get something for them, but there's just not enough.

And we don't have IT today. But gosh, if you are a great customer of ours and we maintain a relationship with you, let me write down your number. I feel like we may just have something for you soon, could be a few years. But i'll really how as soon as we have something, you're an important customer of ours. And if you want to show us here even more important customer, please do by all means.

and i'll see what I can do. Then you would make a great arms. S A.

I don't think so. I actually had a wonderful arms associate that I worked with in the exam provant store. And IT was crazy.

I mean, we bought basically the most entry level airman's products that you can buy in one of their stores. I think perfumes are sold in department stories and make up there are some more accessible things. But in terms of durable goods, started at the bottom, you know, had a delightful time and decided to bite something.

And I think we spent an hour a half, and I had the most wonderful service and built almost friendship with the associate who helped us through the whole process, spending as much time with me as they spent with someone coming in to pick up their broken back. He was a crazy, probably the best customer source i've ever received in any retail establishment anywhere. So no, I don't think I would be a good air associate relative to where the bar has been set.

It's funny. You know, my experience was different. Of course, I had to go do some research for this office.

Said you drove out of the po outer store, right?

Yes, I went to the palo out. Start to be down there anyway for some meetings. And the sales associate who ultimately helped me is equally wonderful.

Woman had a great experience when he was Susan up, going back to see her. Tomorrow is valentine's day, and genie's birthday is coming up. But I walked in the story with the intention of buying what I ultimately did by.

which is apple watch band. I thought that what .

that was an apple watch band, yep. And what will get to the apple partnership? And a little bit.

But I was passed around between a few different people in the store until ultimately Susan helped me out and he was great. And I think he actually might be higher level S A. But when I expressed that, I was there to buy an apple watch then, uh, interesting.

Yeah, I don't know. That was just the day in the store. Yeah part of the policy.

I have to imagine a little the different experience in the french countryside as compared to shopping center. Yeah, I could see that. But back to the broken bag by two thousand and one IT becomes so widely known that there is a waiting list, a sort of almost secret, shrouded in mystery waiting list, to get one of these things, that IT is the main story line of a sex and the city episode. And Samantha figures out that there is a way to jump the I think they use the number five, five year weight list.

Well, the scene where he walks in the train by IT is just iconic. The sales responding to really like it's twelve thousand dollars or whatever like, uh, I know there is a waiting list.

of course, and SHE named dropped one of her clients, her celebrity clients, in order to say it's actually for them to try to move up the weight list. You know collab ity ensues. They actually figure out that it's for her, not the client.

I actually want to watched the episode, but this is a cultural touchstone for the broken going from something that is sort of whisper about in handbag circles and well known by the wealthy elite, to something that is now a very well known phenomenon, which is, good luck ever getting a broken bag. And you know, the crazy stories is about the most expensive one ever, selling for five hundred thousand dollars on the secondary market. Victoria become having a collection of over one hundred.

And you it's crazy. You know, IT has become the protect, fully note list of handbags. And people look at IT almost as a investment.

a way of coming up. What you're saying is the hard thing about buying a burden is not coming up with .

the money and which is crazy, right? It's starting at a twelve thousand dollar or handbag. And what you're saying is that actually not the constraint?

Yep, but also what you're talking about, you know, with echoes of our nike episode here, the minute that you are in possession of a broken bag, you could immediately sell IT for a lot more than what you paid for IT and .

your arms S A will not be very happy that you did that, because the point of buying one is to own one and use one and appreciate the craft and the work and the beauty that went into this product. And arms is not trying to sell IT to people that they are going to flip IT. They're trying to sell to valued customers who will be people who appreciate the arms dream for the rest of their life.

Yeah, that would be the last broken bag that you ever buy. Every bag, I think maybe even every item. Yes, that R, S, max has what M.

S. Called a blind stamp on IT. And this is a series of symbols and numbers.

There is one of my belt right now. You have .

someone I watch band right now that are stamped into the letter that uniquely identify that item. The year was made. And the crafts person who made IT.

And there are some very cool stories of people who are transitioning from a crafts person who makes goods to repairs them later in their career, and who receive an item back for a pair where they were the original creator of that handbag.

And that is the coolest, crazy st full circle ARM s moment for any armas trash person to see this thing that I made, that I really wanted to be durable and stand up in the world, how did IT actually perform, and to get IT back ten, twenty years later, and see IT has got ta be crazy. cool. yes.

So today, everything we're talking about here, the broken bag, the Kelly bag, these ten to hundred thousand dollar retail handbags, depending on the type of exotic leather and everything. And the scarcity are referred to as a category of vbl in goods. And so this is essentially the opposite of everything you learned in econ one or one.

as is everything about this company.

yes. So Normally, Price is where a supply meets demand. So as the Price of a good increases, demand for IT would go down.

A belin good is the opposite. As Price increases, people actually wanted more. So Price ends up being a signal that the item is desirable and thus stimulates demand.

Now interestingly, David, this is exactly what you were talking about before broken bags sell below the market clearing Price. Yes, that is another defining of microeconomics. Normally, things should be praised exactly at the intersection of supply me, demand.

I was just laughing as you are talking about building kids there. And I wiped out my copy of the luxury strategy and flip to anti love marketing. Number thirteen, raise your Prices as time goes on in order to increase demand.

So interesting. But one way to look at this is of its lost revenue. Their Prices aren't high enough because they can only make so many of them and they're selling them below the Price people are willing to pay. So there is money left on the table. But another way to look at IT is that it's an investment in the brand. So there's a very good sub stack writer, three, ten value that will linked to in the shown notes who observed the supply demand mismatch creates scarcity in these two bags and that scarcely likely creates more demand for the bags, elevates the overall status of their MaaS and creates demand for ams as other products, as customers, by mas other goods to build a relationship with the company in hopes of being allocated a bag at the below market retail Price. Yes.

this is the same dynamic, which I think a very different set of motivations as we talked about on the nike episode. I very firmly believe that nike could sell many of their shoes for two, three, four, five times the Price that they do, and i'll show up on go to stock ex all the time regularly at higher Prices than nike really system for.

I believe that the reason that they do this is to maintain goodwill with their customer base and maintain nike's image as a brand that is accessible to everyone. A mess is doing the opposite. They want this to happen in order to maintain the image of amazon, specifically the workings of males, as a brand and a product that is not accessible to everyone.

Yes, and it's not as simple as well. They just keep raising the Prices to make people keep wanting them more. You read that in the luxury strategy, and many luxury brands do that infections.

L has done in in record amounts the last couple years with the I think it's called the channel classic flap medium or something like that. But that has had this crazy appreciation over the last few years where chanel is just raising the Price. Armas doesn't do that.

We'll talk about this more later in the episode, but by my very back of the envelope calculations, they are raising their prizes on average across the entire line, seven percent per year for the last ten years.

So it's like five percent above four, five percent of the inflation yeah which is more.

but not an agree to a melt, right?

There was a study that found that the burke and thirty, which is one of the sizes in toga leather, didn't even equal the rate of inflation in the us. I've trying to figure what the motivation here is because it's a tremendous restraint. There is no so cash grab happening and maybe it's because what bad things would happen to M. S. If they decided, you know what, perkins are twenty now, not twelve.

right? They already viewed as the most expensive handbags in the world. So what harm done to go from twelve to twenty? right?

And they sell a lot of them. So like that actually would be a lot of profit dollars, right?

And for somebody who's gonna spend twelve thousand dollars on a handbag, are that many more of those people gonna be Price sensitive. That swing from twelve to twenty, like.

probably not right. The wall street journal estimated in twenty twenty that there's about one hundred and twenty thousand of the combined broken and Kelly created each year. So one hundred and twenty thousand bags a year. I think if you decide that you want to make another eight thousand of pure profit on each bag, that is tempting.

And I think that actually says a lot about air meses obsession with conservatism, that they don't meaningfully increase the Price like the Kelly is not far above its original one thousand and fifties Price inflation adjust that I think the broken bag, the retail Price was around two thousand dollars when he launched in one thousand nine hundred eighty four. So call IT maybe six thousand dollars inflation adjust that. So you know, you're looking at maybe twice the Price that IT launched out on an inflation adjusted basis.

So I guess the point i'm making here is I think we should keep in the back of our mind the rest of the episode. This question of why doesn't armas raised the Prices? They're already getting the benefit either way of the sort of trickle down of people participating in the M S. Ecosystem to hopefully get the call one day. So why not make IT even more expensive when you do get the call?

Then just let's come back to that later in the episode. Ah okay.

So for broken release doesn't sell well for the first five years, then IT becomes this cultural touchstone and gain steam every year after that.

And I was just thinking about that as we were chatting here. This makes sense to me that IT wouldn't be a hit right away because IT takes time to build the law. yes. And or around this bag, you can just drop a new product and have to become like this immediately in this category.

correct?

You're never gonna have like an iphone .

of luxury handbags. S correct? IT has to be like a Taylor swift concert in order to instantly you actually, because a reasonable comp elt, like her concert was a extremely scarce brand new product Price that an extreme premium that did sell right away because the product had so much of the brand and IT like you knew exactly what you were gonna get from going to the tailor concert because you're extremely familiar with the brand. But it's not necessarily well understood that the burden equals airm as in the way that the errors to our equals Taylor swift total.

It's also that the product was the errors tour. The product was not midnights. If they were like, oh, i'm going to go to tailors concert and listen to her play all the songs on the new album, of course a lot of people would still go, but I was like, no, i'm going to go to tailors concert in here. All of tailor.

all the amazing rs scarves from over the years released out of the volt.

Yes, that is me. Plus ve taken a different episode here. yeah. Okay, back to on the way. So this is how he does IT.

He does two incredible things to save the company when he repositions the brain in. This is just like, I can't believe he pulled this off. He pulls off not your mother's Tiffany without saying not your mother's Tiffany.

E and the cultivation of that is the broken bag and everything that that represents. And then to the internalization and discovering and running the same playbook that rac M A N at leva on by the end of zone Louis ten year in two thousand six. So couple of years after the famous sex in the city episode image has gone from, well, less than one hundred million dollars.

When he took over, the consultants were saying, you know, outsource, shut IT down, essentially, by the end of the decade of the eighties, he was just under half a billion dollars in revenue. And then in two thousand six, he's taken IT to two billion dollars in annual revenue. From, you know, nice family business to like this is a real, real thing. So one more .

time on those numbers.

So I don't know the exact revenue figure when he took over, but let's call IT fifty million dollars in anal revenue we know was well less than one hundred two two billion when he retires in two thousand and six.

So 4x and thirty years .

yeah 4x in under thirty years.

wow.

pretty good, pretty transformative for the family business well along the way as the company clearly becomes more and more valuable. You remember he is the family member who's running IT, but we're now on the fifth generation of the family were starting to bleed into the six generation of the family. They're now over eighty family members out there, eight, zero, many of whom are involved in the business, but many of whom aren't. And now this business that they all own is doing two billion dollars a year in revenue at very, very high margins. There starts to be some demand for liquidity here.

right? Every single one of those family members most valuable asset in their entire network is their privately held a restock that nobody can really put a Price tag on, but it's just sort of sitting there and everyone's mind of like IT sure would be easier to live my life if I knew that this ninety percent of my network actually worth something that I could access and an even split that's twenty five million dollars a person. I'm pretty it's the most valuable thing that any of them ones.

right? So in nineteen ninety three, joney lists armas on the paris stock exchange. Collectively, when the dust settles, the family has sold nineteen percent of her mez to the public.

They still owned eighty one percent. Now the public flow grows a little bit over the years as more family members sell, more generational transfer happens. But we know more less still. You know, seventy percent plus family owned and controlled IT would really take some sort of absolute financial genius to like come in and even consider, you know, we want over seventy percent of this business we're unavailable. Who on earth could possibly make a run at our company that .

would take a real wolf fa?

Which brings us to, you know, this has been so fun, I had so much fun with this episode. All this history is revel in the french connection, everything. This is a MaaS finest moment that we're about to talk about here through at all.

And it's interesting. It's not the product. No has nothing to do with the product. Yes, the fight with burner are no.

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It's been too long.

I've been wanting to hear the other side of the story.

I know, I know. okay. So for anybody who's listen to our l vie episode, as we talked about earlier, the climactic of the story is bern's fight with gucci in that episode.

And gucci is the one that gets away. Bernard isn't able to buy a right after the gucci fights. In the early two thousands, the same story plays up with their mess, I think, really in an even more dramatic fashion.

So in two thousand, one right after he lost, bernard quietly buys an initial stake in the miss of four point nine percent. And I believe that was just under the threshold that they would have to disclose IT under french security radio tions. And then here's what they do, that the R.

M. S. Families couldn't see coming, that only bernard could engineer. He continues buying for the next ten years using equity swap derivatives.

So IT looks like other entities are buying these shares on the open markets. But L, V, M. Have the rights to exercise options to go actually take those shares.

Now, this is a really harder member. I did triple check these numbers at this point time. R meza. Market cap is below twenty billion.

That's like eight, nine percent of .

what IT is today. And when bernards first starts buying in the early two thousands, it's below ten billion. Well, you can say lots of things about, and genius should be top of your list, but he is one of the best investors of all time.

I mean, to identify a maz at this point in time. And as we will see, he makes a incredible amount of money on these trains either today, or misses a two hundred and thirty billion dollar market cap company. And he starts buying a below ten.

which is interesting. You say he's spotted MaaS. IT wasn't hard to spot. The interesting thing is not that he realized IT was the crown dual of luxury IT was that he realized that the crowd jewel of luxury could be worth twenty to thirty times as much as he was already worth.

So he starts buying our mess shares. And x eli, think jokes about this in interview, like like bananas and buying your shares just because he wants to make an investment, he wants to have some fun like obviously he wants to own.

yes. And by the way, with David IO referencing these excel interviews, it's one interview. He's made a random appearance here in there, but he has done one long form on stage interview. And IT is fantastic.

Yes, it's great willink to IT in the car since you should go out IT. So why is banner doing this? Obviously, on the one hand, he sees the value here.

I mean, forgot sex. Sex in the city episode was just dedicated to the burden. There's a lot of value to be unlocked here.

So we say, in owning our ms, but it's not just that, I hope, on our L V M H. So this is some of the nuances that we paint IT about bernard. He's not just a corporate atr.

He actually is an Operator, and he is one of, if not the best, luxury Operator out there. So he sees two things in her MaaS, then maybe are in his obvious to the rest of world, and that he thinks actually are going to create an opportunity for him. One generational transfer is about to happen, john.

We can't live forever, and it's not immediately clear who the next successor is. Gna be so zondi sun pr. Alex, I takes over as artistic director.

P. R. Alexi went to amErica for college. He went to Brown university. interesting. And and if you have found this, he initially wanted to study computer science, a Brown, but he switched to art history, very fitting.

And he comes in and he joins them as right after graduation in one hundred eighty two. So he's being gm. But john, we wants to separate out the artistic director role and the C. E. O role.

They had been coupled before.

Yeah, he held both. So Robert held both. He was both. You are certainly both, right?

So that really illustrates the point you are making earlier that the creative in the business sides of the house are one .

side of the house. Yes, until this generation, IT was one person, there was no separation at all. So pier alexa is clearly the artistic air. There's not a clear C, O, A, and in fact, jonny's choice excel, who ultimately does become C, E O. He's not in the business yet.

right? He did that internship is sort of five year apprentice. But then he left.

right. yes. So the story is that X L really wanted to go work in china. And so he goes into investment back after undergrad because to on remembers on, we was his uncle, but his mother, who actually was not a family member, was the managing director for production for her mez.

X L has this sort of, you know, dinner table trading, in addition to the apprentice crash man trading. But he goes off into the investment banking world. He works first in china and then in new york for ban paid parry bus wow.

so he is a an expert in corporate structure up and he's an expert on this pretty interesting luxury market in the next twenty years. China, yes.

and amErica too, huh? But he doesn't join the business until two thousand, three when john the we tap him. And again, on the one here, there's we're talking about this is that statistics business.

On the other hand, they're not gonna just give him the sea right. He needs to com Epace d ues. He starts in the finance department in two thousand three, and then in two thousand and six. When on the we retires, excel takes over running the jewelry meta S C of jewelry, which listeners .

you should know jewelery is not an important part of the M S. business. It's one of the sixteen meta. They don't even break IT out in earnings.

IT probably rolls up under other airs sectors because I don't think it's under watches and I don't think it's under ready to wear accessories. Ies all of other is twelve percent. So i'm going to guess this thing is like one to three percent.

So he does there for two years and then two thousand eight, he goes and takes over the leather goods and salary business.

So the big one, which that's forty three percent of the business, and I think at the time was closer to fifty percent.

Yes, so bernard sees, okay, we got a generational transfer opening here. And in fact, when on lui retire in two thousand and six, he promotes his sort of C O O righthand person, a Patrick Thomas, to be the first non family member CEO running the business side of the house alongside pr. Alex I on the .

artistic side. And at least in retrospect, they try to make this seem like not a big deal that a non family member took over a CEO. They sort of ability as well. They needed someone to look after the business in the interim period before the family was would have ready to have the next air.

I think there's as much chance is not that, that was right. But at a minimum, I think this shows the sort of ignorance, you know, I don't want to say, lack a basic illness of the family here because it's certainly not that but maybe sort of ignorance or not be that, hey, you're now a public company and there are people like banner or no out there. You can't just feel like, oh yeah, we're gna do public company.

C, E, O, transition in this way and take your time. You can, but you're opening the door for, right? You're vulnerable. There are no of the world. So that's one thing that bernas es the other.

And I really think this is a testament to his vision, despite all of the strength with in our mess and everything that gently we did, they actually are showing some cracks. And this we had to kind of piece together a little bit and talking to folks in the industry helped us out here. But like there's no questioning our mess, financial results and sort of, on the surface, brand value at this point in time in the two thousands early twenty tens.

But there are a few things that are just kind of starting to slip as they scale. And I think actually the best story that illustrates this is one that the family members themselves do not tell, but that you'll hear out there in the law about her. Ms, which is that in, I believe I was in japan, they had a product, a bag. Oh yeah, this is so interesting.

Listeners, if you listen to other coverage of our MaaS, you will hear this story.

And you never hear from the perspective that we're about to tell you. okay. So here's how the story goes.

It's called IT. The late two thousands, early twenty tens and arms is selling a canvas beach bag in japan. And IT is flying off the shelves, selling like a cake. It's like a equivalent i've called one hundred and fifty dollar canvas tote bag, beach bag.

And this obviously gets to the attention of management and the company that this is happening and they decide that they are going to in true or as fashion because they selling so well, they are going to not only stop selling the product, they're going to take all their supply of IT and destroy IT. And they come into a board meeting the family members, management, they sort of announced this, and that is met what they stand novation from the family. This is upholding what arms is, which is we don't sell beach.

begs the family. And the board is so aligned that no one even asked a question about this. They just stood and gave applause. And here's how this went on a metal level. Listeners, I heard this story, David heard this story, and David text me.

A one point was like, isn't this an odd story that I was like, what you mean and we sort of realized or this is not ever told by any of the family members or company executives anywhere. It's just sort of out there. And the company is not secretive.

They love telling this legendary or my stories is.

yeah and they've got a six hundred page document they released once every year that clearly lays out their entire strategy. They produce documents, aries interviewing their artisan's, showing videos of their factories. So IT rings a little bit odd as like OK, why are they not telling the story, given how often it's planted about?

So then you think about a little bit, you like, wait a minute, why the f did this happen in the first place?

Exactly a canvas beach bag in japan for one hundred .

and fifty dollars.

and they're making enough of IT that is flying off the shelves.

What color is this? How on earth did this happen? This story here is not a heroic one. If we destroy the supply, this is a tragic one.

It's almost like when I was sitting there watching wonderful and eighty four, and I was just so appalled when I was watching that on this metal level, occurred to me like the story here isn't the plot of this movie. The story here is, how do you have such a process failure at Warner brothers, where this thing was let out the door? That is a failure of creative leadership, and that is what you have going on with a hundred and fifty dollar canvas tote bag after one hundred and seventy five years of successful air max brand stewardship.

right? And building up the burden. The Kelly, I mean, for god, six, the scarves self like five hundred dollars.

yeah. So okay. That, I think, is the most visceral illustration of this. Two other things that I saw in the research, and I think bernard probably saw here too, towards the end of zones tenure, he enemies started buying and investing in other companies. But why is their means doing this?

right? This is like the weird stuff going on at nike when they were buying. You know, converse was a good example, but starter and IT was almost like they didn't realize or we should be concentrating our firepower behind our one hero brand. And they were trying to create the conStellation of weak brands.

The best image could ever hope for by doing this is they're gna be a subscale like they're not even gonna a responder caring.

Now one argument, you know bootmaker, john lab and all these other companies that they were bought in hole or in part IT became important for them to their key supplier relationships. yes. Those I think we're .

probably strategic acquisitions yeah especially in .

watches is where they actually fairly recently took a twenty five percent position and the company that makes the movements to make sure that they have enough supply coming to them. But that wasn't all of what they were doing. They were also buying other brands.

Yeah, did you find the biggest disaster? Red, this is good in your warehouse. H, I don't know.

I wondering if I could. Stumpy, with this. They bought, I believe, a thirty thirty five percent stake. They were the largest shareholder in the german company that makes what is really a piece of technology and old piece of technology, but not something that should be a luxury brand is very much in the performance end of the spectrum. They became the largest shareholders in liga the camera is really yeah huh which you know i've sort of the motivation like oh you know they're beautiful and they're like luxurious cameras and they have leather on them and we can put there .

on the like a cameras yeah if they made a airms addition like a camera with what they did, I should private .

about but okay, you're talk IT about a very narrow target market here and it's just, you know, it's a technology product. I will get into this without all in a minute, but I didn't go. Well, let's put IT that way. They ended up devastated stake.

He reminds me of when the new york times did all of this with all the T, V stations in the nineties. Two, it's always like every company that it's a good idea to start buying up other brands is wrong .

yeah unless that is the core strategy of what you are doing like L, V, mate, yes. yeah. The third thing that they do, they incubate and create a new luxury brand and company in china called shang sha.

Believe on pronouncing their pe in two thousand nine, is when they launch IT. IT literally means up, down, or like past, present. And the idea is that the chinese market is so big and so important as they're going to lend the M. S. Brand to this new brand that is gonna have arms principles, but take traditional chinese craft man, of which there's a long multi thousand year history.

Yep, I actually like the strategy.

Well, yeah, I mean, that sounds a good on paper, right? But here's the problem. Like we were talking about earlier, nothing compares to french culture as an export. And when you are buying luxury, and this is a great experiment to run, sure. But the reality is that for probably most countries in the world, when you're talking about spending twenty thousand dollars on a piece of weather, you know, you want that to be from a mess and you want that to be from france, right? And I think this is especially true in china.

Yeah, that's such a good point. It's funny. I have a playbook theme called selling a sense of place to those outside IT.

The numbers bind. This are crazy today. Seventy six percent of their production is in france, and eighty five percent is sold outside of france. The first of all, seventy six percent of production. France is kind of incredible, the fact that they do this with all these different workshops that are sort scattered around the country. But yeah, the incredible french history that is encapsulated by the brand and the french nobility and the french sense of place IT really is just an intangible connection to the culture that is lusted after everywhere in the world. Why on earth would you throw that away when that IT really is the essence of your .

core asset right now? Easy first to ARM a courter back here. Like obviously, if I didn't work, they end up selling IT off actually, pretty recently to the and yell from italy, which is the family behind feat.

Now look, certainly that one, the like, a thing of the combination of all these and the beach bag incident. Bernard sees all this. Here's what he says in the press at the time.

I would never diminish the quality MaaS or mez can be an even rarer and greater quality business if they ever wanted to work with us. And I think he's genuine about that. Yeah, the family obviously circles the way and like mouths there, like they are like the rebel alliance here. You don't mounting their defense against the empire.

which I think is quite impressive. absolutely. The fact that they were able to link arms like this and say, in the face of someone trying to make you and all your relatives collectively a multibillionaire. E in liquid cash, it's kind of incredible till link arms and managed to rebuff IT totally will tell the story .

here and it's amazing. But I think this is like a really important point that I want to land this. I don't think or no was wrong.

I think he had a point. And I think the company at the time didn't get IT. They certainly do now. So okay, what's the story? What happens finally in october of twenty ten are no his patient.

He spent nine years.

nine plus years yeah that he's just building mistake being patient in october twenty ten, LV image exercises its options on the equity swap that IT owns and announced that he had now controls fourteen point two percent of her mez shares.

And regard of the division says, I had to do IT because other luxury groups were also talking about making a run eder mez, and I didn't want this crown dual of france to beyond haven, forbid, maybe by non french. The organza quote here, I could not sit by and allow a competitor or another investor to take a stake. Undermist, he's good.

He's so good. I love IT. In response to this is the famous or information, if you will quit from patron Thomas, then C O ms, which we're not going to say the full thing here on air.

You can go google IT. But the response, this is an official press conference to do with investor relations people. He says, if you want to reduce the beautiful woman, or man is being the beautiful women here, you don't start in the fashion that burn artist.

And he doesn't use those words. This is allais. This is amazing. That makes, of course, a huge splash in the french and international press. The drama here is delicious.

Carl logger fell is asked his thoughts on what's going on here. Logger fell rose. He's a legend. He's the long time creative director of channel. He comments publicly, well, if you don't want to be taken over, don't put your business on the public market.

which, hey, game, recognize game.

That's a great point.

He's got a point. If you want liquidity, I mean, this is the trade off you make.

Now, of course, lagger fell, yes, famously, is the creative director of channel. But he was an exclusively the creative director of channel, who is he also working for at this point in time? He is also, I believe, the menswear creative director for fd, which is owned by by L V M.

L V M H. He's on the, he's on of this continues on for months in the public markets and in the press. By december of twenty eleven, the elva mistake has grown to twenty two point six percent.

Now the family owned seventy three percent of the company at this point. So berna now owns almost the entire public float of ms. There's what like three and a half percent .

of our MaaS that's publicly floated. He doesn't know .

ah MaaS is like in danger of being delisted from the .

stock crazy.

Now this is what's so brilliant. You might ask, why does this matter? The family on seventy three percent, I can do anything. Prices are function of supply and demand.

So as berardi shrinking the float of this company, the shares that are available for trade on the public markets, well, what happens to the stock Price skyrocket? IT goes through the roof. So now you've got eighty family members, and they already thought they were really wealthy, and they already wanted liquidity and now very ards coming to them.

And this is a strategy. Just go pick off individual fAiling members one by one, keep increasing mistake and saying, like, yeah, i'll pay you the markets which is now incredibly inflated for this company. great. Happy to pay you many hundreds of .

millions of dollars. crazy. So what happens?

You know, this is why I think this really was the family and the companee finest moment. That temptation, I must have been extreme. And that's just the externally identifiable motivations. You know, i'm sure burner and other people at L, V, H. And everybody else in the industry is doing everything they can to convince family members to sell.

right? And all that takes us one week link or probably a few week links because the ownership is so divided, the tiny chunks by this point of six generations, and it's pretty pan bottle around. But still.

I think also just from a psychological perspective, a couple domino is fall here. And then as a family member, you start looking around and being like, do I want to be the last one? It's kind of like a crowded theatre. You are running for the exits right at the time you're thinking about like, holy crap.

this is the best is ever going to get.

I may never see another opportunity to get liquid at this Price ever. And a minute that other family members started selling, that goes down supply and events.

the Price goes down, right? I cannot be the last. And IT would kind of suck to be the secular of the third right.

So in twenty eleven, the family comes together, and over fifty of the eighty family members collectively contribute fifty point two percent of the equity in the company into a new co Operative vehicle that's called h 11。 As in fifty one percent of her mess, as in this vehicle will have majority control of the company.

When they contribute their equity into this vehicle, they contractually agree that, that equity will be locked up and cannot be sold for at least twenty years. So they're basically saying the bernard, no matter what you do, you could pick off anybody else after this for a minimum of twenty years with potential to extend beyond that. You will never, never, never you, anybody else so bad as do you and .

I should contribute. We should make an fifty one, even though it's completely unnecessary. IT just feels right for required. You know, like, I think you and I can each maintain twenty four and a half percent stakes, but eight, fifty one really should.

I love you. I love IT. Well, hey, you know, we haven't floated our business on the public markets yet, so we're taking our logger file advice.

We don't need to legal fees around doing that vehicle was in, is still headed by one of the family members, usually grown, who was an investment banker at ross child. So SHE leaves and full time becomes head of the defense. I assume alongst side XL, who obviously comes from the banking world too.

is so interesting. I wonder if you actually can structure articles of incorporation to say, under no circumstances can this entity sell what IT owns because Normally what you would do is say, like IT requires a vote of unanimous ous from the board of directors, ba blaw blaw. But that leaves you vulnerable to the board of directors getting lobbied and convinced. And so I wonder exactly, I mean, this is not a public document, and so we can't really know. But I wonder how air type can you really make something and how .

irreversible? I don't believe these documents are public, but my understanding from comments that family, family members and excel make about them. And spoiler, recently, they've renewed the term of this for another ten years. So it's into the mid twenty four years.

They're like, but not you will be dead with this expire. That's exactly what that is.

But I believe it's pretty guy in class that these .

shares cannot be sold. wow.

So in addition to that, two of the push brothers, petr on and Nicholas nicolas is the one that there's the gardener drama about right now.

which we should say listeners, in case you don't know, there's a lot of stories flown around in the press right now that Nicholas puisse is going to give half of his stick in arms, which represent something like a little under three percent to his gardener or like his x gardener who's now like fifty one. Nobody knows his name.

Nicless does not have children or ears or other ears.

right? So there's a press story right now that joshi of three percent of air max could be given to the family gardener anyway.

The two post brothers, they do not contribute their shares to eight fifty one, but they give eight fifty one a right of first refusal on their shares so they could sell their shares. But at whatever Price, they agree to the rest of the family as a roofer on purchasing them. Oh, interesting. So that's another probably ten to fifteen percent over me as right there.

wow. Okay, that's significant. I wonder how this gardener things going to play out.

Yeah, right. And those shares would be, I believe, subject to that river, assuming that, that has stayed in place anyway. This is really just an incredible coordination. Guess it's a family. They're all family, but there's .

eighty people here. The fact that they actually read this offer and that bernard sold down his stake is crazy.

Well, let's get him to what happens with protists because famously has domino to sola, he said in the press at the end of the gucci affair, even when he loses, he still wins, and bernd still wins here. So this effectively ends to take over bid when eight one is put in place. But meanwhile, there all starts of lawsuits going on, particularly around how L V H A mass this stake in secret with the equity swap.

He was based illegal, right?

Well, in twenty thirteen, the french court rules that this was illegal. L V M H has to pay a fine, I believe, like a ten fifteen million dollar fine for having done this pennies. Yeah, right? As will sit, truly pennies.

And they also Mandate that L V M H needs to distribute out that a mistake to its own shareholders. L V M H can no longer hold the stake. Well, who's the largest shareholder and L V A mate, it's group or no, which is, but I don't know, his family office.

So they get eight percent of arms personally into his family office entity, which this is a brilliant of bernard. They take that value, which is call IT on the order of five billion dollars. And remember, when they started buying, the whole company was trading at a market cap below ten billion dollars.

So massively appreciated stock. They basically created value that I nowhere here. This billions of dollars later begin bernards personal bank account. He has created that money out of nowhere.

He has unlocked shareholder value for shore even in the absence of A H change of control transaction. So back when bernards was engineering his takeover of L V M H, one of the financial instruments that he used to do, IT, was he IPO a twenty five percent stake in dr. He already owned dr, that he had got not a bankruptcy from. Bruce c.

that's right. He had this russian doll structure where he owned a slim majority of an entity that owned a slim majority of an entity that that own a slim majority. And so he was able to generate a bunch of liquid cash from all minority shares that he sold off. But he still got to control D R L V M H group or are no, because he was technically the majority owner of each of them.

He and L V M H didn't on this twenty five percent minority stake in the, or he takes the arm's shares and does a share swap. So swap that value directly with the twenty five percent of the order that he doesn't known to bring that first in the group. I know his family office and then he trades that into L V M H.

So L V M H. Now finally, as a result of this is able to take one hundred percent control of dr and in exchange for group are no trading this asset into dr. Bern's ownership of elva image goes from thirty six percent up to forty six percent.

So he gets an extra ten percent of L V. image. And here's the most incredible aspect of this. Not a single dollar in tax is paid on all of this because it's all share swap basically burnt. Just gets ten percent more of his own company as a result of this.

which would then go on to appreciate .

call IT four five hundred percent over the next five six years.

Five, six sense. Twenty seventeen.

yeah. wow.

Even when he loses, he wins.

unbelievable. Now this is a situation where everybody wins. I don't think there are any losers here. And arman's families absolutely are not losers. And you could even say they sort of have the last laugh here because, yes, berna gets to benefit from, you know, an extra four to five x appreciation in l via market cap here from, let's call the real beginning of when L V M H publicly announced their stake in our maz. So twenty ten r mazes market cap is up sixteen .

x it's crazy. And the reason why no one's a loser here and everyone's a winner is because air max truly is the crown jewels. IT is such an unassailable exceptional business.

The last twelve months, IT did fourteen billion in revenue, five point seven billion and Operating income. They have a seventy one percent gross margin. A forty four percent Operating margin is a software business that doesn't need an E, R, N, D.

Tech companies go like, I don't know what is color to call IT, but some color with envy over this. But there is one more chapter of the story that we have to tell because that wouldn't have just happened IT wasn't just the bernard affair in enough itself that LED to the sixteen next market cap increase. He was right.

Like I was saying earlier, there were, I think, some real problems in the business. And that is the story of the next generation of P. C. And XL, who I think have certainly fixed those problems but have really made a mess the business and the company into a whole new era.

Yes, that is absolutely right. There is a quote that I want to start with for the XL duma era, which is possibly the best articulation that i've ever heard of business strategy anywhere. And he did IT in the interview that we were talking about.

So he says every decision that we make has got some reverse effect, which I think is slack of french translation for trade off. So every decision we make has got some trade off. There's something I really like about strategy in micropower.

Strategy is accepting that you are doing something Better than the other and the other is doing something Better than you. You have to pick your fight. I'm always a little bit disappointed when I see someone on my team say that we do everything at the same time.

great. That doesn't happen in real life. You have to pick your fight and arms picks their fights Better than anyone.

And what they've done over the last ten years since the bernard fight is that they have figured out how to scale hand crafted artisan production. Yes, on the surface, they are completely like oxymoronic terms. Those are completely diametrically opposed.

This is a dead art in the world. And image managers to crank out hundreds of thousands of products that otherwise would only be created by individual makers with no infrastructure and no brand and be really hard to discover that. And Frankly, they were all just got a business. Most of them got a business anyway. totally.

What was the stuff that you said a little while ago that there are one hundred and twenty thousand perkins and Kelly produced every year? Yeah, exactly. yeah.

If they were still making these things on the third floor at the foreboding, no way, no way. And this was kind of the problem. And what the consultants were saying at the start of the ten years of like, hey, you need outside production, you need to scale production.

You need to make this more accessible, right? You have a global brand now, like you need to figure out how to serve the demand for your brand.

yep. So the Patrick Thomas quote that I want to start with is so great, the luxury industry is built on a paradox. The more desirable brand becomes, the more IT sells.

But the more IT sells, the less desirable IT becomes. We've been talking about this, however, but then he continues, I believe a mezze vision provides a solution to this dilema. And this is what the current generation has found the solution. So today, I think we reference this earlier in the epo de armas employees, seven thousand master crafts people artisan's.

Most of the story that we've been telling thus far, you know, until one thousand ninety two, all of the crafts people in the company, more or less were working in the photog, in this one relatively small building on the roof bog diston array in paris. In one thousand and eighty two, they move production to panta in the suburbs of paris. That building is amazing, but only houses about two hundred and fifty, three hundred grasps people. And actually still, to this day, ax ell talks about this a lot. Any one of their production sites does not have more than two hundred and fifty to three hundred grass people.

Yes, they believe that every single person should know each other by name, and they think that three hundred is the natural limit on that. And excel, evan says, if you have more than three hundred, that is not a workshop, it's a factory.

and they are not in the business of factories. At the same time, he and the company have stated as an explicit goal that they will ramp up production capacity by seven percent every year. Well, as the company gets larger and larger today, that means adding five hundred artisans every year.

And when excell started at the company all the way back in the eighties, there were two hundred and fifty craft man period, and they hired two per year, two craft men per year, in the lads. Right now.

Here's the issue though, how on earth you're gna do this? Like you're saying this is a dead art. Nobody else does this .

little maker with a workshop in service to go, or a workshop in paris. But like, how are you even going to find them.

right? And those people, you know, to be a traces here esco their entrepreneurs, go back to joining your house, because they all came from her most in the first place. How you gona hire five hundred a year? It's not like they can go hire from their competitors.

They're not doing this, right. Their competitors of all outsource production and embrace assembly .

lines so they do the only thing that you can do. They build the pipeline of training mastercraftsman artisans s entirely themselves. They build schools.

They build training centres. They go to parts of france that are in rural areas that have high unemployment. They go to those areas and they open trade schools.

And they say, we're going to train you. They have one hundred percent graduation rates. They like where I going to give up on you.

We're going to make sure you learn this trade that you graduate. You may not come work for A M S. When you graduate, but we're going to give you this skill. And then we're going na offer you a job as a master classroom.

It's crazy.

It's unbelievable. So back in the you know even through the january, the fifth generation beaches was the anomaly as a woman. These were all like old men that we're doing this stuff.

Yes, today the average age of the arms artisan workforce is thirty years old, and eighty percent are women wild. It's a wholesale transformation, and they are training them. They actually just opened in twenty twenty one, their first official french governmental sanction degree granting program, the ecole miss the severe affair. This is the savva affair that pops up in the year report. You know, one hundred, whatever times.

Let's name a school .

after IT too. Yeah, yeah, yeah. They are getting into L A government policy here. They are preserving and growing this art form in front.

Yeah, they're not Francis largest export because they have a very constrained way that they can create the products. But they may be Francis finest export. So IT d behoves the french government to try to figure out how to make this last another hundred years.

yeah. So today there are thirty one ms, ati, az. You know, art is in manufacturing facilities all throughout the country, each with no more than, you know, two hundred fifty three people in the right.

It's the cloud competing idea of scaling .

horizontally totally. This is A W S. This is the point of getting to.

They are building data centers.

They were amazed and they added A, W, S, and they are adding to the four of those every year.

So funny, you had that thought to don't believe. And it's all people I mean, it's all sticking to the thing that got them here, which is every product, or at least every leather goods product, every handbag made, end end by one artisan. Yep, trained in the early twenty a century way.

So this is an insane idea that let the goods, which is forty three percent of the business amaze, did, what, eleven point six billion euros in revenue last year, they're on track to probably do call IT fourteen billion in euros yeah.

Last twelve month is fourteen .

billion yeah. That six billion of that is going to be hand crafted items where one artisan makes one item at a time. And they are sold around the world like six billion year s worth of that every year, growing at fifteen twenty percent a year. Yeah, wild.

This is a really important thing to understand the company. They firmly believe that only two hundred and fifty three hundred crash man can work in a building. So that's one.

Two IT takes two plus years for someone to learn the craft. And apprentice and three, that every one of these things must be created by one individual, by hand. And if you believe all those three things, for sure, then IT forces a very specific constraint on your business, and you must work backward from that.

You can only train so fast, you can only produce so fast, which then, of course means that IT affects your products and IT affects the availability and IT affects the Price, which, of course, means that IT affects the customer set. So there's a weight of you hair mess, which is they want the very highest and customer with zero Price sensitivity, and they do whatever they need to serve that master. But I think there's another very real way to look at IT, which is how the company describes themselves.

That starts with the constraints of the craft. When you hold true to that ethos at its most extreme, you end up with the company's brand and pasture that you have today as the only logical end point. They can only hire three, four, five hundred clasper year.

They can only do this other stuff. Good luck getting a broken bag. I mean that it's just one of these things where you can say the artificially constraining .

supply all you want as long as they do things this way, this is the max, right?

But and so they would have to change something. They I would have to say, hey, there are some new fancy subtle stitching machine that IT turns out makes us just as high equality product in every classman because, you know, twice as effective or something like that. But until they fold on one of these constraints that we've decided are stakes in the ground, the result is the scarcity. That's not the goal. That's the .

result you the amazon comparison is so apter eez has this incredible, unassailable fly wheel, but IT Operates in the exact opposite way of the amazon fly. Well, it's not about maximizing the cycles is slowing. It's minimizing it's a intentionally rate limited fly wal and at all work together.

At the end of the day, IT is probably true that neither one is the starting place and neither one is the ending place. And the two things that are referring to here are the method of crash manship and the Price and scarcity. They just work harmoniously together.

One is not driving. The other IT is that they both want the brand posture that they have and they want the constraint that they have. And so IT works together perfectly, but a cynical person could be like, oh, that hand crafted mumbo jumbo only exists because that's how you justify the year of brand pricing and availability that they put in place. But I think IT all works in concert totally.

I really like we have told the whole episode, and i'm taking back to what the interest told me when I asked her why, if a master craft person made this thing by hand, IT has a soul. And if a machine made IT in a assembly line.

IT does not. right? Maybe, but sure, in an assembly line with crappy ingredients s blah, blah law, sure can crashed. Men use Better tools, yes.

And will arms continue to embrace tools that make crafts and more efficient at some point that they use? Sharper knives then were previously available in the past, they totally did. And so will they use things that make the needle go little faster, maybe totally?

Let's take a step back here. We got to consider the exact opposite case study of this, which is one hundred percent happening to great success. Which is a lot ways, is the same thing that the consultants told join the way back in the day. Look at the rest of the industry. Leva in which, as we talked about, has the same of heritage in history as a maz.

Yes, I could have air MaaS gravity if IT wanted to, but instead you can buy a checker board cotton switcher with a hundred and twenty yellow on IT, right?

They are having the same level of success. The same march is working like a ARM.

but it's less durable.

Well, I think that sort of the question is IT or or is IT just these are different markets are different strategies. Now here is the crash ate that. We've also been teasing on the episode that I think now is the time to come back to this thing that i'm wearing on my rist mm, the apple watch partnership .

outlet field. Very surprising, very odd for the brand to do this.

I have a lot of complicated feelings about the thing on my risk, including primarily that I love IT. Okay, here's the story twenty fifteen. And apple launches the apple watch.

Supposedly the story goes the john y. ive. And the watch, I think, was really Johnny kinda pet project as his last, her ob before a leaving apple. He had all these quotes at the time of the swiss watch industry. Better watch out were coming for the, which was true.

I have a different market, but it's by far the best selling watch in the world.

yes. But as far from being the death nell of the swiss watch industry.

right? Yeah, the swiss watch industry has done just fine since the apple watch came out .

on the high end. Yes, mark newson was consulting for apple specifically on the water, and Jenny asked mark to introduce him to pr. Alex I, an exelon to armeth. Apple was looking for a luxury fashion brand. Remember, there is the apple watch edition in the beginning that was like the gold apple watch and all that.

A man, ten thousand dollars for something that was going to be absolutely the year crazy.

That clearly didn't work.

but is beautiful.

Yes, totally beautiful. But they needed a luxe brand. They needed a brand that was not deeply in bed with the traditional swiss watch industry, which some of these luxury groups are.

How it's funny hadn't actually made that connection that that's why it's im s and .

not what I think there's two reasons. That's one reason. The other reason is they needed a brand that was going to appeal to pretty much everybody yeah for everything we've talked about with li von and how successful that's been, it's polarizing totally.

And apple also needed to go to the very top of whatever they were gna grab. But like, that's the thing about our meses whenever they make.

Nobody is ever going to say .

that erma's makes crap, right? They make the most fully realized version of whatever they're making. If they have an idea, they want to a release the best possible, most extreme, exquisite version of that thing.

And that's very apple. I mean, apple has to make compromises for the scale at their at. But if apple had partnered with someone that was more opinion, let's say they were Better in some ways, but worse than others. IT kind of doesn't play for apple's brand. They need to partner with someone excel in peer.

Like you talk about this all the time when they're asked about, oh, X Y Z, flashy celebrity, you know is Carrying a broken bag, baba aba. They like, look, we don't judge. We never judge.

Here at M. S, our clients, our clients, whether it's Grace Kelly or you know kim gardner, ian, yeah, and that's what apple needed. So x ell Green quote on this.

He says we had an incredible talk with JoNathan. I've and there was a lot of mutual admiration and common values from that, we said, wouldn't IT be nice to have something combining our classroom, our vision. IT was about trying to make a contemporary, elegant object.

IT was not a master plan of global domination. Okay, this thing on my rest is exactly what excel is saying there. IT is a contemporary, elegant object that is beautiful leather. And the reason I bought IT is for my life and modern life. This thing is, on my rest, twenty three hours a day, I sleep with that .

one hundred percent. I love the arms slimed to L, M. S. watch. I, like looked at that thing I don't know, five times during research, lasting after IT and ultimately closed the browser tab, being like I wear an apple watch all day, every day. There's is no world where like that actually makes sense for me to own a different watch, right?

I mean, even more than my phone. This thing is part of me when I was looking at the research for the episode and buy a bit of the arm's dream. I couldn't imagine anything more appropriate to be closer to me than literally it's on my rest twenty three hours a day, right at the same time, I find IT absolutely terrifying from the perspective of what that means.

Very amazing, the s future, not because I think the apple and technology is gna take over the world, but I think there's some serious problems with this product along the lines of the issues that bernard identified in the company when he was making his run. Let's start with the Price. I bought the deployment buckle version of the strap because I thought I looked amazing. IT is the most expensive version of the band that R, S, cells as such. And IT cost five hundred and forty dollars.

which is expensive for an apple watch band. But it's sort of like in the ballpark of apple accessories ies, or at at least maybe twice as much as Normal apple accessory.

This is among the cheapest leather products that are most cells as a comparison. If you wanted, go buy a ms luggage tag, six hundred and forty dollars, let's move out of, let the goods. Second, if you want to go buy an erma over two thousand dollars, if you wanna buy under ms.

Piece of furniture, and they make incredibly beautiful furniture, forty thousand dollars, minimum five hundred and forty dollars for this thing. It's not Price rate for an image product. Yeah.

it's too low. It's somehow bridging the gap between an apple product and an image product. yes.

And maybe that's because it's also sold in apple stores at sea, sea. But related to that, you start to think that they like way. Why is the Price solo? Nowhere on the exquisite orange packaging and box that this thing came in, nowhere on IT nor on the product page on the website does IT say that .

I was handmade. So ae r mz belt, and I believe their apple watches, and there are other things, are machine zone.

And this to me is like, wow, you know, would I have spent two thousand dollars on a hand made apple watch? Has been maybe, maybe not. Like, I don't know whether I would have is irrelevant. Our men should be selling two thousand dollar hand made apple watch band.

even if people are buying them. That sort of the question I agree with you, because what I think this does is IT defines how I think of their mess, which is whatever they're going to do, they're going to do IT. At the logical extreme, they're not going to compromise.

They're not going to figure out how to address a lower market. They're going to sell the same expensive scarf that they sold their grammar to you, but they're onna have a different way to advertise. And this is weird.

It's weird. It's a .

compromise. I think the same thing about their belts, by the way. I think the same thing about anything that is machine zone. So IT can be mass produced and have availability in every store. Like IT feels like they don't promise that everything they make is handsome, but IT feels like a mild violation .

of the brand promise, right? yeah. So I don't know.

On the one hand, I love IT. I don't want any other apple watch strap. IT is an arms product, is beautiful. On the other hand, yeah, that feels like a profanity.

You're right. IT does feel like a profound ity. I mean, apple is the you know most valuable brand in the world, but the most common brand in the world. And for air means to associate with such a common brand feels odd. Yeah, apple is the definition of mass market at this point.

Well, I think that is certain. Ly, part of IT. The thing that is really just kind of head scratching to me about that is why do they not sell these things for four times as much and make them by hand?

Yeah.

what are they getting out of selling a machine mates strap for five hundred and forty?

Maybe you're now in our best customer and over the next fifty years, you're on a journey with them.

I think that's true. I mean, i'm going back tomorrow.

What are you getting tomorrow?

I don't want to spoil Jenny birthday valentine surprise. I'm actually getting two things, but I will talk about this on the future episode sounds good, the live lifer. So just to put some numbers and finish out the story, by twenty eight, revenue has grown from call IT three and a half four billion euro when XL took over in twenty thirteen.

By twenty eighteen, that six billion euros, twenty thousand and seven billion IT depth a bit during twenty twenty with the pandemic, but then nine billion in twenty twenty one last year, eleven point six. And like we said, on track for call IT fourteen billion heroes in twenty twenty three. This is absolutely resenting success.

As we've said, what X, L and pale xi in the generation of the family has, like all the generations before them, has been nothing short of amazing, remarkable. Starting with the defense against bernard incredible. I don't want to fully judge or leave a negative mark on the company solely because of the apple watch thing. But I just want to say you, we've seen with a few times here in these generations that the seeds of the next chAllenge are so in the current generation. And I wonder if this is IT here.

Her mess is always thrived by figuring out how to be above IT all and to be counter position to the rest of luxury. It's an open question, I think, of whether the apple partnership helps that or hurts that.

yeah.

okay. A few more stats on the business today before we move into analysis. That's a good David. great. great. Well, I thought one fascinating thing was excell saying that with the four point three billion and net income that they do, they always split IT roughly the same way one third to the dividend, one third gets reinvested in capex and one third in cash. And what's pretty interesting is they have a reasonably low reinvestment rate.

They're divided, ending out a lot of cash and they're holding on to a lot of cash, two thirds of IT. And so what's obvious there in the numbers that we ve talked about, a more objective way is the heavy, limited ability to actually reinvest in the business. It's much like costco.

They're constrained by factors other than capital. You give them more money, they can do anything with IT, which I just find fascinating. They can only train the crafts people so fast.

And Frankly, at some point, they'll saturate the market too. If they're going to address the whole world, they're gna have to change what they sell. And the apple watch may be the first little version of that.

They grew what? Twenty twenty five percent last year. They can't keep growing at twenty five percent without changing what arms stands for. And so even if they could train these crap people as fast as possible, they have another governor, which is scarcity product image Price. At some point, they'll bump up against the walls of that, and no additional crafts people and no additional money can help them grow anymore.

That's such a good point. And that's the counter point to my impassion concern in a minute ago. Okay, great, David.

Everything you are just saying that translates to a mesa museum. And is not a museum, right? And IT has to meet its clients where they are. And like I said, where this thing twenty three hours a day, I couldn't imagine buying any other product from them.

And i'm sure there are some members of the family that want to walk around with their nose in the air and B, M, museum and say, M, S is pure and I wanted go my whole life and then die with our MaaS remaining pure. And there are other members of the family. They are like, can we serve customers and grow this business? My god. And that apple watch represents the second faction.

yep.

totally next to their cash position. They've ten billion dollars in cash. And that is after materially increasing the dividend for the first time in a decade, they've recently just started dividend ding out more cash, which again is emblematic of the same area of money is not our strain, which is pretty new for the business.

That's a decade or two old problem that never existed over the first hundred and seventy years. And so that's kind of an interesting thing to know about our businesses that was always run under the constraints of even if we see growth opportunities, we don't have enough cash to pursue all of them. Now they actually do. And so it's interesting to see how management sort of response in this opportunity for abundance that they have and figures out how to treat certain elements of the business as a scarce resource even though they don't have to you.

Now certainly, there is an element to to the divided that is part of making the family shareholding lock up an easier pelt, a swallow.

yes, quite possible. The segments of the business letter gds and saturday is forty three percent. That's the big guy.

We didn't talk about this much on the episode. But ready to wear and accessories ies is twenty seven percent. That's a big chunk. That's the second largest chunk of the business is clothing effectively. And I sort of have an open question of whether they should be including isn't IT kind of a antha themal? I mean, certainly, it's odd to see them in the fashion world and they do these runway shows and they do cator, but IT feels weird and somehow feels antha themal in some way yeah.

they're not a fashion bryant and yet they participate in IT.

Yep, next largest segment after that is silk and textile les. So a remarkable how small scarf business has become of their overall mix, given that I used to be. What close half the business after that is perfuming beauty at four percent and watches at four percent.

And then there's a couple categories of others, which I think it's really interesting to look at perfume beauty as another glimpse of what's to come. They make hundred dollar bottles of perfume and they sell them at department stores. Yep.

and they launched the beauty in twenty twenty with lipstick you.

which I think is very china focused. It's very interesting to me that they are trying to appeal especially to a Younger demographic with a lot of their recent perfumes and selling in department stores. Again, IT feels antithetical to arms as this sort of pure brand, but on the other hand, is a continuation of the apple watch strategy even further.

There's one more elephant in the room to me that we haven't addressed to be at the story, which is that the business is a global business for sure. But really today, this business is in asia business.

Yeah so here's some stats. In two thousand and six, france was already down to fifty percent of sales. I mean, IT started at one hundred percent of sales.

So that's why I say down to fifty percent two thousand six years a while ago were almost twenty years ago. At that point in time, japan represented twenty seven percent of sales. So there's all this talk about china and luxury today.

Japan was that in the early two thousands. So crazy, right? Japan was one and a half times france in terms of sales as well.

Today, france is downed just nine percent of sales. So let's flash back to two thousand and six again. So we talked about japan being twenty seven percent of sales. Asia pacific outside of japan was only seventeen percent.

Japan was .

almost one and a half times as large as rest of asia. Well, today, rest of asia is forty eight percent. Half of air messes business is asia excluding japan.

OK china? exactly.

That's crazy. And I think russia accounted for a decent amt of that.

interesting. The japan story actually, I think is still significant. Japan today is what like ten percent of revenue yeah.

Japan's larger than france. It's nine percent in france, ten percent in japan, right?

So I actually looked into that was like, huh? Yes, the rest of the asia in a china forty percent of the business, but on a per capital basis, japan buys twice as much as as as china. That's interesting.

still. Japan is, I believe, around the tenth of the size of china and is ten percent of our most sales versus forty eight percent for restoration. Uh for a small country kind of like france is still very, very significant for the business.

Yeah, I will say that you listen to a management commentary. Arms is very excited about china's midd class, and they have done a really good job skewing Younger there. Eighty percent of clients in china are below forty.

wow. And you know, again, this is a huge unique success for arms. China's been big for the whole luxury industry over the last decade plus. But the past few years, particularly the last two years, china has been real tough for the lexing industry, and yet A S still growing there. You employee count.

So they have twenty one thousand total employees, seven thousand or artisans. Sixty two percent of employees work in france, so they really have stayed french. They have have not outsourced.

They are fifty four production sites in france, or they call workshops and the manufacturer seventy six percent of the objects that they sell on their stores in their own exclusive workshops. So they do still have these partnerships with other companies that they own. Part of virtues have a partnership with a distribution deal with usually what IT means is, is sold as an airms product, but it's made by another manufacturer.

And over the years, they've done this with shoes and umbrellas and leather jackets and raincoats and silver wear and gloves like theyve had all these independent crash man that they sort of contracted with of these really small, really small Operations. Don't know the brand reach that arms does, but they make arms products that are actually made by those people. So it's interesting. I think they're sort of decreasing that when I give the number that at this point, seventy six percent of objects are made in its own workshops. But IT is more correct than not to think about our mess as they control everything from design to production to brand to retail today.

Yep, I don't think a lot of those like there's a silver Smith and table wear manufacturer that they are large stakes into. So it's like a related party.

Yeah exactly. They live over three hundred stores in forty five countries. David, as I mentioned earlier in twenty twenty, the wall street journal estimated that about one hundred and twenty thousand and and Kelly bags were made in that year. That's about twenty five to thirty percent of total revenue coming from just those two bags, which again, you can buy and also you can even see, yeah.

they're not on display in the stores.

I went to a few em stores over the last year. A, because I love the brand. B, because I was thinking we might do the episode at some point.

I saw zero broken or Kelly bags even on display. This is the thing that they generate all their buz about and make thirty percent of their revenue from. And you can't see IT in a store. You crazy.

crazy.

I need if you just do some nap in math at twenty five hours per bag. That's fifteen hundred crafts man just making birkin and Kelly all day long sounds about right? They have sixteen metis and one in particular that I want to talk about is petite h.

This is one of my favorite air mess things, period. So I started in twenty ten, is a very interesting idea for other leather brands. You typically see them trying to use the second best leather cut in some of their bags, but at arms, they'll never do that. There is no bag that ever produce with any imperfections or any part of the other that they think is any less than than the best.

So what did they do with all that left over material? Well, for years they were just storing IT, and this is everything from the leathers to the felts to the silks, all this extra material where they were just like there's a tiny little bit that's usable but not enough to actually make another bag to our standards. So into the closet, IT goes.

And in twenty ten, they launched pete h. And what they basically do is they collaborate with other artists for tiny little goods that can be cut from the scraps. They are super wimco, super fun.

Think luggage tags that are cute little animals, but it's just enough of a shape to know that it's a bull or a bear or a cat. And you look at, you look out that's really clever. And what they call IT is creation in reverse.

You start designing with the materials, not the end product in mind, and it's kind of the opposite of everything else that rs has ever done, which is think about what's the perfect good we can create to solve this problem for a customer. This was like, now we've got to watch a scraps. What's fun stuff we can do.

And that is that winsey coming through? yes. One thing that I want to say about the luxury bubble cooling is that earlier I sort of chalked IT up to, well, arman's has the most exclusive brand posture, so they have the least Price sensitive customers, so they're gna feel the pulled back less than everyone else.

And that is true. But there are other parts of IT too. Air misses obsession with responsible growth, limiting production and slower pry appreciation also plays into the desirability and the durability of their goods.

If they were out there cranking the Prices of broken bags, you might think less of them. yeah. If they were out there trying to produce more of them to meet demand, you'd certainly think less of them if they were out servicing production anyway. So it's how they conduct business that has caused them to sort of be in a Better position than the rest of the luxury industry right now in this pullback.

I'm glad you reminded me to bring this up when we were talking earlier about the question of the secondary market and why are they leaving pricing power on the table?

Or essentially, there's consumer surplus and economic terms.

right? And I said I think they increase Prices across the product range by about seven percent per year. So where I got that from is if you look at the compounded annual revenue growth rate over as for the last ten years, you know the six generation era.

It's fifteen percent revenues grown, fifteen percent compounded annually. Since X L took over in twenty thirteen, they've increased production seven percent per year. That's their stated goal. So if you say like okay, of the fifteen percent revenue growth, take out the seven percent production growth, that leaves seventy eight percent of that's gotta attribute with the Price increases, uh, which I think this is the answer now. Is that the right strategy probably IT is the right strategy if you're thinking about, hey, this is a generational business where on the six generation, we want to ensure its around for the twelve generation. Yes, we're leaving consumers surplus on the table here because we don't want to be seen as that brand that you know is like hundred thousand dol handbag even though they are hundred thousand dollars and bags right?

Yeah there's a fine line go.

right? exactly.

They need to have a Price that high enough to signal this is something really, really special. And we are more unique than every other luxury brand who's trying to make similar products and have similar positioning. But also, it's not so expensive that it's gosh, and I think the latter part, it's not actually about the dollar amount, it's about the Price difference because if it's three times as message that was a decade ago, it's harder to trust the intrinsic value of the good. If it's fluctuating over the place.

there probably is an element of, like I want to see almost defense that they can fall back upon of, well, yes, we sell these things for twelve thousand dollars, twenty thousand dollars, whatever. But the moment you take possession, you can turn around and sale or more.

Oh, this is an intentional strategy of a rolex. They increase Prices a certain amount per year and they wanna show a track record of that so that if you buy one, you can rest assure that it's going to increase in value over time. And that is a good investment because counterintuitively, by increasing the Price more than the rate of inflation every year, or especially more than the rate of five to seven percent stock market return IT spur s people to buy that otherwise wouldn't have bought because they feel more safe making the purchase.

This concept landed for me doing a porch episode, working with dug to miro. There's a class of almost every car that you would ever buy. You know, the old age is true that the day you drive IT off the law, it's worth twenty percent less than IT was the day when you bought t IT.

Yep, for, I don't know what the right word is, luxury cars, collectors cars, you know, rare cars at sea. The opposite is true. These are investment vehicles. If you buy a career G T, you're gna spend a million dollars for IT. But you can also be confident that you're not gonna lose money on that purchase, right?

It's an investment, right? Then there's a business unit that we didn't talk about yet called irma's horizons.

yes, which is not a official mattea, right?

IT is not A A, T, A. They break IT out under other products. They have four categories of other products.

There's internet things, which is apple watch. There is tories and precious leathers. There is metal parts, which is A J 3l subsidy that I think literally makes the .

classes and like that might bugle。

And then there is M S. horizons. This is so great.

M. S. Horizons is perfectly named. What IT basically .

says is if you have a private jet, yes, and you wanted outfitted with EMS seats.

we don't make IT.

We've got the .

division for you.

We will make you seats. Yes, there is an amazing quote from an article. Finally, ten fifteen years old, the person who was run this division said, is something like we get a lot of clients who come in here and they want a big age on whatever IT is they want us to make. And we have to have a discussion with those clients that if that's what you want, we are not the place for you.

Yes, so great.

Maybe one day be a erma's, horizon's customers.

Maybe let's see well.

its transition officially to analysis and start with power as we always do hamels to help more seven powers and listener .

is this is the question of what enables a given business to achieve persistent differential returns or to be more profitable than their closest competitor on a sustainable basis. And the seven that hamilton has identified, our counter positioning scale economies, switching costs, network economies, process power, branding and cornered resource. And the question we asked David on the L.

V. H. Episode was, for luxury brands, is there anything else other than branding power? Because the definition of branding power is, if I present you two identical objects and one of them is branded and one of them is unbranded, IT is literally quantified as the premium that you are willing to pay me for the brand. Now in arms s case, IT may not actually be branded, but you might still know IT is arms and be willing to .

pay more for IT. Yeah if you know you know, yes.

again, we're growing a lot of attention to quiet luxury here. Air mass is not as quiet luxury as they wants to work. So I think it's safe to say I would have an h or a horse or woven age into the fabric or something like that if presented to you here. But obviously, there's a tremendous amount of branding power now on the L.

V. H. Episode we talked a lot about, and I think this truly was maybe the most brilliant thing that bernard are no did was he realized when nobody else did, that there were scale economies in luxury to a good group of luxury brands.

There is the opposite of scale economies to an individual luxury brand. But at the group level there is power, and specifically scale economies, power that does not exist at the brain level. Clearly not. Of that is happening here. You.

okay, I have two cases to make for non brand powers that come in to play. O okay, good cornered resource. Yes, agree.

They literally have all the craft man agree, except for the ones that are opening their own independent shop. And those ones don't have brand power. An as classman can make a wallet.

Independent craft men can make a wallet. You're to pay a lot more for the arms one. In fact, you're never even going to be aware that the independent classman exists. If someone else wanted to go compete with their meas, it'd be hard because they don't have the brand, they don't have the history, but also, you literally can't find a new more classman. So you'd have to train them yourselves.

Well, if even the other luxuries and out there, most of them probably do, you have some crafts men, yes, some stuff that done by hand, some components of some products done by hand. But nobody does what arms does. And arms is all the classes, so accorded resource pressure.

yeah. The other one that is love is wisher. Are they counter position to other luxury brands by basically saying, hey, we don't have to serve as many customers as you so we actually can handcraft each im individually?

Levon has no ability .

to switch gears and say, oh, it's important to compete on the vector of handcrafted there .

a lot of t shirts out there, right?

They have to serve too many customers. But and as doesn't right.

it's kind of films counter positioning. H no, I like that. Actually it's rare to have counter positioning at scale as hamilton would put IT. Counter positioning is usually take off phase power.

I think there's no men of that you could dissect how much of that particular element is actually part of the arm's brand verses, counter positioning and of itself. But I buy IT. I did get the end of the day though I may we spent, however, along the episode will be in the chips recounting the myth of the brand here and the power.

Yeah, brand is the power, yes. Okay, playbook. I call a David earlier this week and I said we have a problem.

There's this really good part of the L V M H episode and we're onna need to repeat at point for point on the airs episode. And that is why handbags are just the best freaking product to sell ever as a business. And David played at the seat with me.

Perhaps it's actually gonna a pretty different point once we really tell the whole story. And David, you are right. So the point that was made on the alpha h episode, our handbags are the best product ever because they are super easy to cl versus clothing.

They don't require you trying anything on or sizing. You look at IT, if you like, that you buy IT done much Better than a fashion product. They're easier to create and produce than perfumes, which is another common luxury category.

The profit margin is a standing for most luxury brands. The profit is between ten and twelve times. The cost to make them at leve a time is something like thirteen times.

So there's this ease of creation. There's high volume, according to annual consumer surveys, that coach does the average american woman purchase two new handbags in two thousand. And by two thousand and four, that number was more than four.

So it's this high volume product. And at leiva tons, immense four floor global store in tokyo, forty percent of all cells are made in the first room, which cells only monogrammed handbags, wallets and other leather goods. Basically, none of these are true for hair, as the business is not high volume or not nearly as high volume as they could be. In fact, they don't even show you handbags in their stores. So certainly not in that first room.

It's amazing. You know at least in the palo alto erma's, which is no i've most recently been in, you walk in and you would think this is a homework res company. Yes, there is a lot of table where and there is a lot of furniture .

and there's clothing there's ready .

to wear at this clothing and there's some leather goods, the scarboro, you would really think, well, i'm in the most expensive I ever.

Such a body way to describe IT in terms of trying on the handbags. When you do get your moment in the sun and you have your ninety minute appointment and your glass of champagne, and you have the opportunity to buy one of the two or three bags that they have in store.

you can say, no, you have already accepted.

right? And IT doesn't have the benefit of saving square footage the way that you know, I mentioned. No, you don't need to try on handbags.

There's nothing to impede your velocity. L, M, S. Is impeding your velocity. And they're taking up score footage with these private rooms for you to go and spend time. And so they don't take advantage of that benefit either.

I mean, the only thing that IT hasn't common are these goods are sold at a phenomenal margin just like have a ton. But I sort of came around to this idea that actually we're not making any of the same points at all. They managed to sell the same exact product category, totally different. They've constructed an entirely different business model around the same products.

yes. And I think that's really the story. Yes, there are other brands, chanel, gucci. This is I don't want to say that those luxury brands and those handbag brands are not incredible. They are, but there's a mess and is levitan on. And they're both connected all the way back to imprecision 你 and france and the nobility and all of that。 And it's so interesting that they have such different strategies, and they are the two pedicle.

right? This is a good moment to bring up this idea that L M S likes to a spouse that they have no marketing department.

Yes, this is a wim sc element of me .

as that I kind of love. Yes, so they make the point that every one of the company is responsible for barkeep, which is wonderful. What a great comment. But there's some truth to IT. There's obviously a lot of P, R and events and stuff that they do, but it's worth looking at some of the numbers.

They spend twenty three percent of their revenue on sales and marketing costs, but just a small fraction of that is actually on marketing or what they call communication. It's just four and a half percent of their revenue. And if you compare that to L V M H, which spends over one third of their revenue on sales marketing combined, so that's twenty three percent for sales and marketing in our MaaS compared to thirty three percent at L V A H.

I mean, that's a huge difference when you compare apples to apples just on marketing. L, V, M, H says they spent twelve percent of total sales on advertising and promotion. Air mez spends four point five percent on communication. I think that is actually apples to .

apples yeah that's the media spend of army as I believe it's .

still not right though. Oh, it's all marketing that four point five percent versus twelve percent. But member, you pointed out to me earlier before recording, two thirds of armas communication is actually events. So if you look at the remaining third IT might be as low as one and a half percent of their sales are actually spent on media bias for marketing compared to lvs twelve percent.

This is really cool. I saw a very large splashing media by from armas very recently, and I was shocked when I saw I didn't expect IT. But then now doing all the research, understanding the strategy that makes total sense to me.

IT was at the ballet here in separatist A S F B at the program for mere models, which was, as I talked about on the episode, we went to see the opening latest, incredible, incredible peace, you know, allegory for pinos box and A I and bali in modern world here. Take this scope. The back of the program was a full page, or md.

And I was like, wow, I think I take to do you a year, I M is buying right full page marking ads. But no, no, no, this is in the program at the ballet. This is not on the back of there is .

a difference, right? This is in some .

ways events spend. Yes.

it's much closer to that. They also go really hard when they're gone to spend money. They don't blank at the world.

They decide these concentrated ways that they want to do something really unique and special. And that's how they spend there. Media.

also their events spend, you might say, I C. How do they spend twice as much on events they do on media? You haven't read of out our meas events yeah even just appear marketing events like a store launch or product launch. They'll spend a million dollars on a party.

right? Another place that they save a lot of money is that they don't do celebrity endorsements, unlike virtually every other luxury brand. And this gets back to control, control, control.

IT is the master of its own image. And these other companies, celebrities do dum stuff all the time. And IT reflects on the company. You have to change your spokesperson. I mean, you look at kyi, you have to just decide to stick with them and tough IT out.

The nike has done this a number of times to sort to say like we think we're going to come out the other side and we think they're going na get through this arms. No, we control our own image. No one else reflects on us.

And who need celebrity endorses. When you make your products so desirable and so expensive, the celebrities will just buy them anyway, and they want to be seen in IT. So their celebrities running around who get paid to endorse other brands, who will pay full Price to wear L, M, S.

Out about it's part of the status is getting the ability to buy one, getting the appointment with U. S. A, spending the money that's .

part of the status not only is that revenue generating and cost saving, but is also more powerful than a paid endorsement because it's authentic. IT is what the celebrity is choosing to do with their dollars.

I'm pretty sure that Grace Kelly bought .

her sc to pesh. unbelievable. At the end of the day, the arms brand really has a tremendous amount of word of mouth from people who are big fans of IT.

And the brand is built through the law around the products, and they just don't need to do that much media because they have a community. They have slowly, organically built this, at this point, large number of people around the world that aspire to biomass. And honestly, they just don't need to do that much marketing.

This is going to a sound absurd on the surface, but I think is true. That audience is incredibly diverse. That audience is lots of customers in the middle east, yep.

That audience is forty plus percent china. That audience is still french people with the professor in their names, I E old nobility. That audience is the wealthiest people in america. That audience is cardy b and Megan .

the stallion, as we talked about earlier, somehow there's something about the french heritage that everyone else is willing to, as as wise, look up to and want to participate in.

P, I don't think we want to go down this rabbit hole, but there is a whole tiktok and instagram culture of ms sales, associate appointments and broken appointments and reveals and all that and like you know, it's huge, millions of millions of people that watch this.

Yeah okay. One thing that we did not talk about is how they merchandise the stores. And this is another thing that sets R M S apart from other brands. They have a pull model versus a push model for all. You often are.

Engineers out there, basically, they embrace the idea that every store is for the local client tell and that store managers know their clients the best, so therefore, storm manager should get to pick what is in each store and headquarters does not dictate what every store stocks, which is super different than every other brand. You open retail stores in order to just get your product out that the point is distribution. Whatever sales people we hire to work at those stores, you're going to sell the same iphones and ipad that we have everywhere else at every other store that is not air mess. So at podium every year, which is this event that they have every six months, where they show off all the new references, here's all the new designs for all the new products. Each storm manager gets a budget and they have the freedom to buy coral by basically stock and get allocations of whatever they want at their store under the constraint that you can ask for under and twenty thousand broken bags at your one store.

I believe there's also uh, regulation that every story needs to Carry at least one item for each ma.

No, that's cool. I didn't realize that I like that.

but yet this Operates like a retail buying event. It's bizarre, but awesome.

Even though they're wholly owned, they get the benefit of not being holy owned, you know.

right? The market signals .

cool thing about a retailer that's decoupled from the manufacturer is that the retailer can kind of stock whatever cool stuff they want. You know, as long as the meta are all producing a diverse set of references, then you actually do get this diversity of different things that are stocked at that store for that region. So IT leads to this cool thing that no two stores are identical.

It's kind of fun to see what this M. S. Shop has versus at em s shop whenever you travel.

is like a costco treasure hunt to IT.

Yes, exactly. I will tell you, I was in the exam prom store, and someone came in and said I wanted buy this particular item and the storm minister, so we don't have IT and they have a policy against anyone sort of calling ahead to know what's where. And he was asking, what can you call the other store that I think was in mercy or something like that and see if they have IT there.

And he said, no, we don't do that. You can go there and you can find out. And I think this person was trying to like buy something and flip IT. And so they were sort of on to that. He was also trying to take pictures of things in the store and they said, you can't do that, sir. Like, you can't take photos of what we have in stock because they don't want people standing up websites to say, tip, go by this here because you can flip IT online for that much. But I love IT they have pretty tight controls are on that.

I love IT like very strategy, anti love marketing. Number six, dominate the client.

Dominate the client. You their e commer strategy is just pretty funny in go online and buy a broken bag, but there's not even a product detail page with like a sold out button. There's just this educational page about what broken bags are all about and how need the designs are and what the category is.

But there's no buy button. It's also for a different audience. Interestingly, seventy percent of buyers online for all the stuff that you can buy online were new to air means.

So that's a great strategy for them, for e commerce that you say, look, the special things of the special things. But for people who we want to come, experiences the brand for the first time. great. We've got a website for you, and I think you didn't sort of tell that internally their torn since that's not the full arms experience like you don't get the experiential part of being in the store. But they also do a lot of volume through IT, and it's a way to region new audience.

and it's kind of an expectation at this point. This is a really unique ly armies thing and is related to their airport strategy too. Oh yeah.

And I experienced this too. When I went to palo alto. I just walked into this. I was pretty intimidated as a first time buyer, and you don't have A N S A S associate relationship.

IT can feel very intimidating, like especially knowing what I know about the company in the brand, you know, the weight of history, like walking into this store. It's not like walking into an idea you this is very intentional. The e commerce strategy and then the airport strategy is, hey, nobody feels intimated in an airport. Obviously, you don't have to have an appointment to walk into the airport A S store. It's a way to get first time buyers into the fold, establish the relationship with them, get them more comfortable in this buying experience, which is holy unique diamonds.

Yeah in some ways that seems wholly unarmed, but in other ways, kind of like the apple watch thing that they do with the perfume, they are looking for ways to be more approach able, right? Another one worth mentioning is employee turnover. So the employees, especially the craft man, basically stay forever.

As we've been saying, there's really no other game in town. And if thermos wasn't there, are these people probably wouldn't been trained because as man in the first place. So what does that look like? Numerically, there is six percent, and you will turn over. And only four point five percent leave of their own desire. Four point five percent of their entire workforce every year leaves of their own desire.

So that translate tes to a longer than twenty year average, ten year. This isn't a costco level employment retention.

It's funny you say that so costco o is seven percent a year, but costco cheats a little bit that the state is after the first year, whether arms attrition of six percent includes the first year. wow. yeah.

So just compare this with all industries. In the U. S. That's a three point four percent monthly turned over. So in the united states, across all industries. And thanks to germy diamond in the slack for pointing this out, one third of the entire workforce turns on average every year. So when you're trying to figure out jesus, six percent good, six percent is unbelievable because the benchmark is thirty three percent.

especially in the context of think about the two areas that are the bulk of M S. employees. It's crafts people, you and sales associate.

which if you are to use different language, is manufacturing and retail, which are super high turn categories, right? That's the point i'm making. I mean, even software developers turn at fifteen to twenty percent per year, and that's just the voluntary numbers.

This is much Better than software engineers who get paid hundreds of thousands of dollars to have a very cushy job. So finally, let's go real apples to apples. Let's compare this L V H.

While L V M H is total turnover in twenty twenty two was twenty four percent versus R S S. Six percent. So arms may be obsessed with this whole save welfare and transmission of craft in their annual report. But IT is totally real, mean the entire thing works because of the knowledge and .

craft of their people. Incredible youtube videos and documentary they put out like your reference. You go to see these people and like you really get to feel like factors you know they're not factors these at tell you is are something truly unique yeah and they're .

only getting more obsessed with control, I mean controlling everything in the end. M S. Used to have fifty six percent of retail locations that were company owned. This is back in two thousand and three or twenty years ago, little over half company owned. That's now seventy four percent.

So they are getting rid of what they refer to as the concession areas, which are essentially franchise stores and closing them in favor of the holy owned businesses. So this is, again, they're just trying to figure out how do we control more of our production of our everything soup to nuts. They describe this strategy as having three pillars.

This is like three pillars for their entire business. This is like the strategy at the top of the in your report creation craft, manship and exclusive distribution network. And that's probably the way to sum up im s are IT.

So to close playbook, I just have one more, which is really this idea of. What is the jo B2Be don e by arm as? And I had this great conversation with direct guy.

He's sort of clock ally, known on twitter as the men's, where guy die, workwear as his handle. And he has some amazing threads they're very worth reading about if you're interested in ironing pants or why suits don't fit the way they used to. But he point out out this really interesting thing to me, which is the value propositions of arms are essentially a bundle. And that bundle is exclusivity, service craft, manship shopping experience and a great brand. And you basically can't get that bundle anywhere else that doesn't have competitors.

You you can get individual elements of that bundle elsewhere.

absolutely.

But by nature, given what this is in the luxury industry, you can assemble this experience, the M S. Experience, out of separate components .

and that used to exist in sort of a pre war early, a twenty a century era, you could, but airmen's was the only one that sort of chose to keep doing things the old way and scale. And everyone else kind of went out of business or changed their methodology to scale. So for example, you know, something has the branding.

They have exclusivity, but the classman ship isn't there. They don't make things in that early twenty a century way supreme can offer you exclusivity and brand. But again, there's no real classman ship there.

And then you've got all these individual artisans, you know a crafts person and A A little workshop somewhere in paris, making the highest quality arms, quality things. But there's no brand. Would you buy that? Would you pay even half the Price for that?

I think a lot of people who are buying your mess are buying IT because they are mess and they want the brand, right? And you know there's lot of things are missing from that too. There's no shopping experience.

Service is unknown because you don't know how long that maker is going to be around. You know for a fact that fifty years from now you can get your ms thing service. So there's some great makers like a chester mox or April in paris or I heard great things about milloy toe. These are like exceptional craft man hand making items in the same way, but it's a different bundle of value propositions.

You completely different product to me.

What sums up the analysis is that the magic of what erma's has done is managed to scale the old way with the complete bundle.

Yep, totally good. Nothing more bad.

thanks. Early art.

Should we do value creation, value capture? And then we've got a new wait to wrap up episodes here.

yes. Well, this section was originally created by us five years ago or something to basically assess of the value created in the world. How much does the company actually capture of IT? So canonically craggs less creates a tone of value.

Wikipedia creates a ton of value, captures very little of IT. But you look at, on the other hand, google, they create a lot of value. You can find stuff on the internet.

They're pretty damn good to capture IT. They've built a huge business on that. So there, I think, is a reasonable entitled to make that many of you will want to make on all of luxury and say it's just access. They don't actually create value in the world and then they capture a tremendous amount of value because they just have a brain that allows people to social signal and all luxury as access. And that's a reasonable viewpoint. However, I think there's an interesting way to look at air ms in particular, which is if what you desire is the highest quality craft they offer at a extreme Price is guarantee to be able to get that super high quality craft. And that's different than every other luxury brand that is no longer about Christman ship, but is kind of about hype and low grants.

Yeah, let's bring up brand and fashion.

yes. So I would say I M. S. Has figured out that there actually is a pretty big niche for crafting ship, or at least people who desire the brand of crash manship and their exceptional value capture around that.

Well, it's interesting, yes, but the secondary market is this very direct if you're talking purely about economic value creation, value capture, very direct data point that like no, they are leaving a lot of circus s on the table for the consumers.

Another element to value creation, value captures is what they're doing good for the world period of regardless of what they're able to capture. Anybody who's doing things with exotic leathers, you may have a problem with farmed crocodile in mass quantities in order to create the himalaya print broken bags.

There is actually a brief period where jane birkin boycotted arms bags.

And do you know how that gots solved? Like why is he called that? Now I could be wrong.

but I believe this is when a maz took the rocket farming in house and improved a lot of the animal welfare standards.

So for everyone who's slide, you know, it's absolutely cruel to do this to crocodile, to make handbags. Erma's doesn't really have like a counterpoint. They don't have like a well, they live good lives. That's not a part of their defense, their defenses purely around sustainable farming, which is, hey, these are endangered species in many scenarios with these exotic leathers. And so what we do is for the ones that we far m, we also release a bunch into the wild to try to replenish the population, even though we're not actually taking away from the population in the wild because of not hunting. We are trying to sort of almost like an eye e and eyes way say, look, we're creating onto crocodile and so we're releasing a bunch fun at in nature also and I don't know IT sits medium with me yeah.

it's not a great response, right?

Similarly, you see piles and piles and piles of cow hydes for the leather production, and the responses will look, these are beef cows. And so we're basically doing a good thing by making sure that we use the whole animal, since we are going to use IT anyway, for sustained somewhere else in humanity.

To me, that is a Better argument than we farmed the crocodile right further skins. It's funny actually doing the nova dest capacity de give me a new perspective on this with the animal products and obviously intel and doesn't come from animals anymore. It's genetically engineered but had a lot of pigs and cows went into producing into in for many, many, many decades.

That's a new perspective to look at things because people would have died otherwise. Yeah, he's that. What's everything here with the absolutely.

I mean, other brands channel, carl liger fell mulberry, a bunch of our banning exotic leathers in their products. So I think I S has played around with mushroom leather, but do I think I S is gonna go all the again anytime soon? Absolutely not, just not happening.

The last thing that you can definitely be mad about if you are in the animal welfare is the fact that arms care so deeply about their brand, that they burn in perfect products so they never see the late day. That's a opper. I understand air resistance size of not wanting these bags to get out there and have their brand on eden.

You know, people realized like, oh, some broken bags. Look on a crappy but if you're destroying product that could otherwise have utility, especially when it's made for animals, bomber, a good. So they spend a lot of time in their annual report talking about how much more than getting efficient there, manufacturing processes, how the rates of this are going down.

They don't specifically call out burning bags, but how they're able to use more and more of the raw material and have everything that goes in the top of the fun l kind of get used in products all the way at the bottom fun l. So the company is taken a lot to heat for and over the years, and it's something that they spend a lot of time working on. yep.

All right, David. I think that brings us to the question, which is what is your big take away from the episode? What is something it's like a big idea you're obsessed with? After spending all this time with our mess.

we've kind of been struggling for a while with how do we end of these episodes. These like books .

that we are right now, when I get them the way that we used to grade.

right, that doesn't make sense. That was always kind of hockey anyway. And we've done bare case, both case and like, again, are we gonna that Better than a equity research journalists? Like, I don't know.

Well, in importantly, bare case bulcke has to take into account what are people's current expectations. So you sort of have to dissect the stock Price.

what isn't really the required right?

And we figured by the time you get to this point of the episode, you cannot already have a bare case in a bullet case in your head. It's not like we're going to sit here in paint. Well, if people keep being excited about .

luxury goods is an incredible new inside that i'll change your perspective. So you know, we've been casting about for honestly a while here of like how do we land the plane on these episodes. So what we're trying here for the first time and let us know what you think if you like IT in a very ARM as like way.

We dedicate really among the plus of our life to each of these episode. It's like this is all we're doing for certainly the last four weeks. Every day we've been getting up.

We've been study this company. We've been ready. You is sort of insein. It's craft, we joke, but it's craft. And really like you said in this episode started a year ago when we did the LV a episode, and it's been percussion and percussion and percussion and last four weeks, it's been every waking moment for us.

And so I think a fun way to try to edit the episode is when we wake up in the middle the night and our meses undermind, what are the aspects of our measure? why? And IT ends up being personal for us, like what resonates for us from having told this story and done this work and what reason needs for required honestly.

And for me, we've tested on this a little bit throughout the episode, kind of with the wimsey and the during element of mez. But there's something also to this company that I think is deeply interconnected with the fact that it's on the sixth generation of the family. Are you ask yourself, how is that possible? How six generations later is this company stronger than ever, and the family members are more committed than ever to running up.

And I think it's because they have fun. And again, this comes through in the wimsey. This comes through in the annual reports. This comes through when you watch the interviews with XL and p alexi, and when you read the articles and hear people talk like just about they are really having fun doing what they're doing.

It's an amazing culture and it's kind of hard to have in an environment where you are also, I think, the forty seventh largest market cap company in the world. I think about other companies like it's about winning, right? You think about a professional sports team.

I like I think if my mind goes to like the new england Peter, I I like obi sly goes till like benchmark in the coa, like the best bench capital firms out there. These are organizations that are one hundred percent dedicated to winning. And it's not that our miss isn't dedicated to winning, but they're kind of even more so dedicated till like having fun and enjoying themselves. Yeah.

there's a fun and they're staying true to their identity. And both of those things are more important than winning some numerical game, right?

So for me, that's the splinter in my mind over the last set of months with their mess is honestly, is what acquired is for me and for us. IMAX could go out tomorrow, and they could follow the consultants, they could borrow a page from the L V M H. Playbook, and they could vastly increase their sales and profitability overnight. And if they were solely focused on winning, that might be what they do. But they are never gonna that.

But if they do that, it's still only a short term right thing to do.

right? So I think it's kind of tied into this short term, long term perspective thing. The reason I say it's fun is the family wants to keep doing this. And so if I weren't fun, they would probably maximize value and they would hit the short term. But they would sell bernards, but they don't.

Yep, I love that. The splinter in my mind is that you can sell what on the face of IT seems like the same type of products as someone else, but build two entirely different businesses and leave a on and arms on the face of IT, do the same thing. And as soon as you start digin, you realize that these companies could not be more different.

And all of the puzzle pieces that fit together to create a mess is an entirely different puzzle than the pieces that fit together to create LV a on. It's a great reminder that just because you are in the same product category as someone else, you don't have to build a similar business and you might not even be competing with them. There's a large number of people for whom lu von and armies are not actually in a consideration set together ever. And I think that's fascinating.

right? These are mutually exclusive brands for a lot of people. Yeah certainly not. But a lot of people. I was thinking about that too a little bit in the context of often times in the market. The best way to compete with your best competitor is to do the exact opposite of them do is not to compete with .

them or at least be open to a we don't have to do anything like open to that idea. right?

This is android and IOS, right? Well, are IT. That's our landing of the M.

S. play. Let us know what you think. I just love to this. what? This is one of the most, enjoy all experiences for me. I mean, all of our episodes I event like I just really love this one.

Well, sometimes we get to learn about an industry that's interesting to know things about like health care or something we're a fan of like the n fell episode, but sometimes we do an episode like our MaaS and IT really teaches us how to run our own business.

Again, acquired is not luxury, but we do create a product that has real scarcity, both on the listener front because we only have an episode month and on the sponsor front because we only have three sponsors. The season there is so much to learn, studying the purity of arms when you run a business that's predicated on scarcely, yes. So this one was extra indulgent for you. And I.

yes, yes, to, okay, come, let's do IT what you get.

I have three.

oh, fun.

And one of them are a vision pro, even though the vision pro is sitting next to be on my desk. And the reason is not because I can't recommend IT, but because this is acquired and we can't possibly do anything that's too current, I need more time to evaluate.

There are less of budgets. I did.

okay. First one, the anchor prime charger. I'll give you the model number because anchor products are impossible to figure out what what this is.

The eight, two, three, four, three model IT is a one hundred watt charger that has two U, S, B, C. Ports and one USB a port. And IT is tiny.

It's light weight. It's dense. You'll pick up up and be like, oh my god, this is really heavy, but its light weight compared to large bricks.

And here's the important thing in those diagonal al airline charging seats, you can plug IT in and IT doesn't fall out. And so it's a hundred watts you can super fast charge phone, laptop, whatever. There's two ports, tube USB ports and one U S, B, A. And IT works on airlines. So it's the only thing that I travel with now and it's the new gallied and charging technology, which I think is totally game changing.

nice. I've got a um sixty one anger that you know the same concept and yet totally only thing I travel .

with is IT galam.

I tried few years old. Okay, yeah.

I don't understand why I nobody y's talking about IT because IT feels like IT completely revolutionized charges. IT makes everything fifty percent the size, even though IT has super high power delivery.

I might need up, great, my travel set up. Maybe I need in a mess.

let a case for IT might need to do IT right at the showing. Tes, two more. Or apps, or websites, or web services.

I don't know where supposed called these days. The first one is an APP called matter, which I have replaced for years. I used in the paper and IT was great, but I just hasn't been touched in forever.

And matter is instead aper. But Better IT is also an amazing way to listen to things that you save in a very realistic voice. So longtime listeners know I don't absorb stuff very well .

by reading. I absorb IT really well .

by listening. And so much of the reasons new letter to you, you can use the bookmark lid on the website have read to you. So it's sort of bungles in text to speech and podcast and email newsletters and read IT later type services into one APP.

I an united a half the research for this by taking long things to read, including PDF. IT has an ability to pass PDF now and like listening, well running, or my son was a sleep in a Carrier and I like walking around the house. I am in a dark room somewhere on the treatment in the garage.

So I really like matter. The team behind IT is awesome. They actually were kind enough to reach out and have dave denied collaborate with them on a couple of gas blog posts for their words that matter.

Series of some of our favorite readings and writings of all time. The team was great, which was my entre into IT. But the product has succeeded. expectations.

Okay, I haven actually tried the p yet. Love this guys.

Now I got ta try the APP. awesome. My third one is another thing that dramatically has helped to my research, which is perplexity AI.

哦， yeah, if I could .

stop using google, I would, because perplexity is Better for everything that I used to google, period.

Oh, wow. okay. We got to have relaxed on a cut or something like more to come on. This is all of the good .

things about ChatGPT and all the good things about google, and none of the bad things of either reliable IT links to sources. IT has good U. I I trust IT because i've fact checked at so many times, and that just keeps being right.

IT makes IT easy to fact check. Accessing information is one of these things that if it's ninety seven percent good, it's bad. So IT needs to be always good.

Also, this is why I don't use chat P, T. For acquired work, I feel like we need to be a hundred .

percent all the time. Here's the best use case for city. The other day, I couldn't find something on google, and I went over to perplexity, and I asked at the question, and IT said the answer to this is unknown on the internet. And I was like, that is amazing. You just gave me confidence.

Oh, getting that answer. Otherwise you can spend google trying to find that. Yes.

that's yes. So was both time saving and confidence inducing.

I love IT. okay. I've heard from so many people about perplexity. I gotto give IT to go next episode search phone.

I am so disappointed in myself, but also just the reality of my life right now. I become like the, you know, middle of the belt curve technology adapter. I used to be the bleeding edge to early adapter.

Just I get nodes hard. Joana stern had a cover quote about this, the wall street journal, would. He was interviewed by bentos.

And recently SHE said, like, man, I wish I had the access that I have. Now, when I was Younger, I would be unstopped polin all nighters. I be using IT to its full degree, and I don't have the energy.

Now, like, I got kids. So like, I don't know. Like, man.

I feel that that's the paradox. You often do your best work when you get older, even though you have less time, because you're wiser, your information Better, your access everything. Yeah, you've ve gotten Better at your craft, and you can never have both, but you live your life anyway. You'll make IT .

through what's the dune quote? Life is not a problem to solve, but a reality to experience.

Oh yeah.

I think that is that they go. Okay, my car about, we are recording this. By the time the episodes es out, the super boy will have been played.

And one by somebody but mad. I am bored up. Go nine, seven.

Franco, forty nine. Brock party, hilo of chatting in my inner G T O. Sullivan, I could youtube channel here. I'm so excited. Brock stories, amazing. So I try to think I K, I can have, like the diners in the super bulb in my car vote.

especially if this air, after they lose.

we're leaving IT in, especially they lose, right? But what I can have as my car ball, and is perfect for required. Years ago I read bill walsh is book.

Bill walsh was the legendary coach of the forty nine years during the montana Young era. He invented the west coast office, and he wrote this book called the score takes care of itself. And it's so good.

It's just like a great leadership book. But you know, the title says at all, it's related with it's a related acquire. It's that the spinner in the mind.

Everything we've been talking about IT includes some ideas like scripting. This is now so common place in the nfl, in football everywhere. But everybody scripts out your first set of, you know, five, ten, twenty place.

It's set a bill walsh invented that and likely do the same thing on a quiet. We have script, like I was script either. You have a script, and obviously the episode doesn't follow .

the script any more than an fell game. But you need a way to start that predictable, or at least something .

you thought through, right? Obviously invent that idea. Large, but he invented IT for the N. F L. There's also some really good stuff in there about when to persist with doing something different and continued to do IT versus stop doing IT.

And like what are the right reasons to do IT like is missing the early days when it's working or not working? Like talking about launching the birkin and all that. Anyway, it's a great book. Bill loss was a legendary figure and a go ines hell yeah.

you go wishing you the best of luck and listeners know happened what.

Either way, i'm celebrating because either the nine is one or we're going to see a lot of the swift travis calcium. So i'm thrilled .

I waited this that Taylor plus the nfl is literally the perfect bundle because they have both fully saturated their markets that Taylor is america's musical cultural icon of this moment. There's no one who could be a tailor superfan that's not already a Taylor superfan. And the nfl, similarly, has had close to one hundred year history.

And IT is the fullest realization of itself. Already the nfl is amErica sport, and so they've already got all the super fans onna get. And so by bungling together.

this is so awful. Now, this is the ultimate labb.

Yes, they can address each other. Sort of casual fans who wouldn't have tuned specifically for one of the other tailor .

is one hundred percent thing on that thing. She's dating travis because of this, but Taylor is one of the smartest st. C.

E. O in the world writ large, period by na. And like, of course, he is thinking about this.

Yes, what's the phrase that SHE use? The marginal turn contribution? There are people who will not turn off the super bowl who otherwise would have because there might be another tailor viewing.

Jennie has negative interest in football, but she's telling me about, like, what Taylor is wearing, you know, whether she's going to be able to make IT back from japan.

from the safer will see right listeners. We have a bunch of thank you, a huge thank you to dominico dissolve the former C. E.

O of gucci and the cofounder of tom ford with tom ford dominico. Your conversation was just invaluable in preparing for this episode and obviously, yes, a legend. Adam prick, good friend of the show, is the cofounder of assembled brands and the company.

Kate, which is in the fashion luxury space, and Adams, super kind and huge, contributed to this episode, just like he was L V H to Derek guy, who is at die ork wear on twitter for teaching me about subtle stitching and what makes them a special. And a bunch of the other brands that we mentioned that to do tik letter goods and for putting April in paris on my rather, that was very helpful. Regional gene demand, or rj, which is sort of funny pen name, he wrote up a called swan songs, souvenir of paris elegance.

He's a obsessed for black, a Better phrase with parian luxury and the history of IT. And so I was really educational to talk with him about this. In fact, check a lot of ma, M.

S. history. And finally, there is a lot written about the company. I do think the best way to understand their M S.

Just to go right to the source there, five hundred and eighty six page annual report. They just lay out the whole strategy. So if you curious about the company, that's an amazing place to work.

It's what you know we did not talk to anyone at the company. We usually never do when we're making an episode award. Ah just talk we didn't need you right there. They were done everything.

And David, I know you a couple cool conversations yeah well.

speaking of April in paris on blood difference s actual form s this personal stories of joni in the family, they really gave me a sense of just have special, the family is, they are, the company is, and the worth that they do. Then I also have to think, learn sherman. Learn is, I think, pretty much barn ne, the very best business of fashion and business of luxury reporter out there.

He was at the business of fashion for a long time. She's now at puck. She's pucks fashion corresponded to launched the fashion vertical for puck lawn is awesome.

I chatted with her for a long time. SHE gave me a lot of great perspective on armas within the industry. really. There are a few journalists out there i'm thinking of like bread stone and Emily chain a bloomberg and care sweeter, obviously. But they're incredible journalists and they really, really understand the business and the industry that they are covering and learn is one of those. And IT was super great to get to travel out there.

Well, you can sign up for notification tions on when new episodes drop at a quired df m slash email can also get little tidbits at what next episode will be and play the guessin game with the rest of the community at acquire data F M slash slack will also be including listener corrections in acquired df m slash email. Subscribe to A C Q two in any podcast player. We've got some great ones coming. And after you finish this episode, come get some of that sweet. Acquired, merged that everyone is talking about .

had acquired dm slash store red lab one day.

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