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Morningstar | Moncler Should Continue Outgrowing Peers Near Term Through Store Expansion and Brand Traction

Moncler’s leadership position in a growing and conspicuous down jacket category, strong pricing power, and control over distribution will allow it to generate economic profits over the medium to long term, granting it a narrow moat rating.Since the acquisition of the company by Remo Ruffini in 2003, Moncler has established itself as a global luxury brand, with an over 200-store network in the main luxury markets. We believe the company contributed to the growth of the luxury down jacket category (which expanded from EUR 800 million to over EUR 2 billion during the past nine years, according to Bain research) by combining technical features of down outerwear, such as wind and rain-proofing, with stylish designs suitable for everyday use. We believe that high absolute pricing of Moncler’s products (EUR 1,100-EUR 1,600 on average for outerwear, in line with Burberry and Prada), relatively high brand awareness (80% aided), and recognisable designs and logos make products conspicuous, communicating the wearer’s economic status. Being a relatively small brand with EUR 1.4 billion in sales in 2018 (versus EUR 2.5 billion at Prada and EUR 3 billion at Burberry), we believe Moncler has scope for above-industry growth both through geographical expansion into new regions (although it has established a presence in the most important luxury markets) and through expanding its product offer into adjacent categories such as lighter outerwear (spring/summer collections) and soft accessories.However, growth is not without risks, given that own retail, while offering control over brand representation and pricing, comes at a significant fixed cost (rents and labour). Should the brand’s sales falter due to cyclical factors, consumer preferences change, or demand saturation occur (as outerwear comprises relatively rare purchase items, the company may enjoy fast growth while opening new markets, but see lower subsequent recurring demand), this would result in substantial operating deleverage. Also, while we see Moncler as well positioned to establish itself in adjacent categories, we see some of these (footwear and knitwear, for instance) as less conspicuous and more competitive.