Ten Luxury Brands Worth Investing In

Pascal-Emmanuel Gobry is a startup advisor and writer based in Paris. He really, really likes luxury and fashion. And sorry ladies, he’s married. You

Pascal-Emmanuel Gobry is a startup advisor and writer based in Paris. He really, really likes luxury and fashion. And sorry ladies, he’s married. You can follow him on Twitter though, at @pegobry.

From an economic perspective, luxury is a sector as fraught with peril as it is with reward. The rewards are immense: The best luxury brands are able to command premium prices and show astounding net margins and return on investment--i.e. they make tons and tons of cash for their owners. But the risk is also immense, because success--or failure--is based on that elusive, irrational, unpredictable, intangible asset: the brand.

Investing in a brand is often sort of like picnicking in April: everything will be sunny for a while, but an inexplicable and sudden downpour will ruin everything.

But like the wonder that is a perfect spring picnic, the allure of a luxury brand’s success will still draw investors despite the perils.

The following is a list of eleven luxury brands that I would love to invest in if I had the chance to create my own mini-LVMH.

1. The Best Brand: Hermès This one’s just a no-brainer. Hermès is just the greatest luxury brand on the planet. All of its designs are both timeless and modern. The quality of the flagship product categories--leather and silk--is simply the best in the world. The brand is just beautifully led. And they manage very skillfully the key asset of every luxury brand: scarcity. Hermès products are scarce, which means they’re valuable.

Hermès is publicly traded in Paris but is still controlled by the founding family. Bernard Arnault of LVMH is said to desperately want to acquire the company, and the brand’s future is uncertain because of differences among the various branches of the family. Some analysts suspect that under LVMH, Hermès could easily triple its sales. Which I’m sure is true, and is exactly the reason why LVMH must never buy Hermès. I pray to every luxury god in the pantheon, from Pierre Fabergé to Yves Saint-Laurent, that Russian call girls everywhere will keep Louis Vuitton bags hanging from their shoulders and not replace them with Kelly bags. And so as its new owner I would keep Hermès humming just as it is. Its moat--the quality that makes a brand unique--sheer excellence.

I would only recommend that in perfumes and watches, sectors where it has less legitimacy, it would pursue more timeless products and focus less on seeming contemporary. In watches in particular, the example of Chanel, which went from a brand that just slapped its logo on top of crappy watches that watch aficionados disdained, to one which is now taken seriously in the luxury watch world, is inspiring.

2. The Lifestyle Brand: Monocle Monocle is, dare I say, the most exciting luxury brand of the past ten years. And probably of the next ten years as well. Tyler Brûlé, Wallpaper* founder and international man of mystery, played a little trick on us! He led us to believe he was starting a magazine, when he’s really building a lifestyle luxury brand.

The magazine, described as “Foreign Policy meets Vanity Fair,” serves as a “loss leader” (albeit a very expensive one) to sell all sorts of luxury products, from watches to clothes to furniture, bearing the Monocle brand. Paradoxically, the magazine is both a loss leader and a moat. The best brands are the ones that have the richest, deepest content--history, emotion, ideas--attached to them. And of course, a smart, innovative, beautiful magazine is the absolute best way to build a very powerful brand, by conveying a message about a certain lifestyle – a lifestyle that Monocle products, conveniently advertised in the middle of the magazine, happen to embody. Some brands have “magazines,” but these are crappy multipage ads built as afterthoughts. Monocle is a truly great magazine very much worth buying in and of itself.

The Monocle business model is tremendous, and we’re in love with it:

* Putting very little content online and charging more for a subscription than it would cost to buy all the issues on the premise that a subscription also gives you access to backstories on the website. What a ballsy pricing strategy! * Starting a new magazine on the eve of the financial crisis, paradoxically fantastic timing as it allowed Brûlé to snap up tremendous talent that was getting laid off elsewhere. * Betting on paper in the internet age, making a beautiful magazine with beautiful paper, beautiful photos, and great content, and betting that people will pay top prices for that – which is actually correct. * Opening Monocle shops – again a very ballsy move, but one fully consistent with an uncompromising brand strategy. * Partnering with smaller brands on each of its products outside the magazine. This is smart in several ways. First of all, it allows Monocle to keep being referred to as a magazine and not a lifestyle luxury brand, even though that’s what they are. Second of all, it allows them to have a rich portfolio of great products right out of the gate, without risking brand dilution since they partner with much smaller, boutique brands.

Monocle is an amazing concept, beautifully executed. I for one would like a slightly less messy page design and slightly more in-depth stories, but it’s still a tremendous creation.

3. The Watch Brand: Linde Werdelin To pick a select watch brand for my mini-LVMH, I could have easily gone with any one of the “holy trinity” of luxury watchmaking: Patek Philippe, Audemars Piguet or Vacheron Constantin. But I decided to go with something more daring, and more original.

Linde Werdelin is a very young brand of luxury sports watches, and one which has already reinvented the concept. Here’s the basic idea: LW makes not only distinctive-looking mechanical sports watches, but also devices, called Instruments, which clip on top of the watch for various activities. One Instrument will be a diving computer, and another will help you with climbing mountains, and so forth. So the luxury sports watch now becomes both a cool accessory and a useful, practical object. And from a business perspective, it’s a virtuous cycle: people buy a LW watch for the Instruments, and once they have an Instrument, when they buy a new watch odds will be high it’s a LW so they can clip on the Instrument. Nice moat.

As befits a young, innovative company, their brand communication strategy is pretty forward-looking. They’re the only luxury watch brand that I’m aware of to have a blog--and a good one, at that. (What would be even cooler: a Tumblr of pictures, videos and stories from proud LW owners. Think about it.) And, blissfully, they’ve eschewed the horrible flashy websites that most luxury brand seem to favor.

As they should, they are building a “universe” around their brand, and they’re doing that through several comicbook series which they will cleverly put under the eyes of their target audience.

Rightly, all LW watches are limited editions. Some watches are impressive, such as the “SpidoLite” (awful name, though), which was made from titanium with all non-essential elements hollowed out, at the request of a professional mountain climber who wanted an extra-light watch to climb the Everest, or their “Oktopus Moonphase” diving watch which features a photorealistic moon phase complication.

Linde Werdelin seems to do everything right and they have amazing, innovative products. I would be proud to be an investor.

By the way: No two brands are more overdue for a partnership than Monocle and LW. Monocle’s watch, in partnership with Japanese retailer Beams was, frankly, underwhelming. The two brands are young, complementary, and have the same target audience. I’d suggest a “World Time” type watch, in subtle all-black. Messrs Brûlé, Linde and Werdelin, if you’re reading me--get on it.

Check out what it’s like to use a Linde Werdelin watch and Instrument thanks to this video courtesy of luxury watch blog Hodinkee:

Hodinkee Goes Skiing with Linde Werdelin from Hodinkee on Vimeo.

4. The Women’s Brand: Lacroix “Lacroix, darling! Lacroix!” To be a fan of Absolutely Fabulous, the cult British sitcom, is to remember that catchphrase. Well, I love Lacroix every bit as much as Edina and Patsy. I think Christian Lacroix is one of the, if not the greatest couturier of the 20th and 21st century. Unlike many designers--*cough*Lagerfeld*cough--he doesn’t just view women as coat-hangers for beautiful creations, but as women. His designs have the perfect mix of elegance, audacity and whimsy.

This would be a “turnaround”-type investment: while Lacroix is one of the greatest creative minds of his generation, he was never a great businessman, and his house went bankrupt in the wake of the financial crisis. What a tremendous opportunity!

With the right amount of capital and business savvy, with Lacroix’s creative spirit, his name could become one of the world’s top women’s luxury brands, on par with Chanel. The Lacroix house would rise like a phoenix from its ashes, first with amazing couture shows, then with high end luxury retail shops, and then the assortment of celebrity endorsements, amazing ads, perfumes and accessories that are a luxury brand’s bread and butter. What an amazing ride that would be.

5. The Men’s Brand: Ozwald Boateng Ozwald Boateng is one of the most innovative and perhaps the savviest of the thirtysomething generation of Savile Row tailors. You might have seen his creations in Miami Vice, which featured the best-dressed male characters since, well, the last Michael Mann movie. His designs are elegant as only Savile Row designs can be, and are both modern and timeless. He has built a nice little brand around his name and his bespoke suits, and a great couture line. He has sought to capitalize on that with women’s fragrances and his one-time creative directorship at Givenchy Homme--moves which I would abolish if I owned the brand.

Boateng needs to be the creative director for Boateng. He clearly has the skills to become a new Tom Ford or even a new Giorgio Armani, and he should pursue this under his own name, and without the brand dilution of the latter (hotels? chocolates? seriously?), and he needs to pursue this by focusing exclusively on men. Very few brands have the strength to appeal to both sexes without diluting themselves – Hermès is one which has done this beautifully – and the risk is not worth the reward, at least not at this juncture.

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Boateng could expand his reach through e.g. a partnership with (yes, again) Monocle for luxury casual wear, or Shiseido for a good men’s skin care line. He should think carefully about putting out one or two men’s fragrances which would be high-end blockbusters but only once the rest of the brand is solidified.

By bringing back the Savile Row tradition to men’s luxury clothing while modernizing it and smartly spreading the brand’s core asset to other product lines, Boateng could easily become one of the world’s top men’s fashion brands.

6. The Perfume Brand: Guerlain Guerlain is the oldest perfume house in France and, dare I say, the greatest perfume house in the world. It is the only perfume house in the world which still retains a full-time “nez”, the handful of world-class fragrance experts who design our perfumes and colognes. Practically every fragrance you can buy has been created by a small number of nez, who often work freelance for brands who commission them. Guerlain is the only brand to retain its own in-house team for this work.

Guerlain is therefore an incredibly powerful, storied brand in the very competitive – but very lucrative – world of perfume. I was brought up on Guerlain: before it was ignominiously canceled, I was a diehard user of the Petit Guerlain line of grooming products and cologne for kids. I now splash on a bit of Habit Rouge every morning, to my wife’s delight.

Since it was acquired by LVMH, however, the brand has been a bit rudderless. To be sure, it got some things right. It took its distribution channels in-house in its big markets, opening a few select stores in Paris instead of going through Sephora (another amazing brand, by the way) and the like. It is currently going through its incredible and unique backlog of historic fragrances and reissuing them.

But, precisely because Guerlain is a brand with such a storied tradition, its management is--in a painfully obvious way – afraid to be outmoded, to seem stodgy and old. This is a wholly understandable concern: it is a common trap for brands to realize too late that time and the market have passed them by, and that what once seemed timeless now just seems old. In fashion, this almost killed Burberry’s. But Guerlain’s response is haphazard and unfit. Even though Guerlain has several fragrances with amazing weight and history – Vetiver and Habit Rouge for men, Shalimar and L’Heure Bleue for women, to name a few –, it seems to put out a new fragrance every other day.

There’s nothing technically wrong with these products and their marketing, except that there’s little to differentiate them from every other fragrance that seeks to appeal to young women who read women’s magazines, which is a startling lack of ambition and focus for a brand which such tremendous assets. Much better to trim the line down and focus on the fantastic fragrances that have decades, sometimes centuries of history and success behind them, while rejuvenating their packaging and marketing. In my mini-LVMH, a trio of “Lacroix by Guerlain” women’s fragrances would be an absolute blockbuster.

7. The Car Brand: Morgan Motor Company Not many people can say their mother is a former racecar driver; and so I’ve had an interest in great sports cars since I was a little boy. I’ve always preferred British sports cars, which are so elegant, without the flashiness of the Italians or the strictness of the Germans. What’s more, most of today’s sports cars make no sense in our contemporary urban landscape, highways, and speed-limited country roads. A Bugatti is a wonder of engineering, but it’s impossible to get anything out of it outside the race track.

British sports cars, by contrast, were always more about agility and nerve than raw power, which makes them the perfect sports cars for the 21st century urban landscape. A small, snappy British sports car will delight you through the stops and starts of city driving, and through narrow, winding country roads. Meanwhile a Ferrari or a Porsche will moan painfully from being limited to a fraction of its true potential. These big flashy cars say more about their owners’ insecurities and excess disposable income than anything else.

No company embodied those ideals more than Lotus, whose legendary founder Colin Chapman focused mono-maniacally not on adding horsepower, but on reducing weight. The Lotus Super Seven, made iconic by the opening credits of the best television series ever, The Prisoner, will have difficulty pushing 180 kph – but it accelerates faster than a Porsche from a stop start.

Lotus is a wonderful brand, but to me, no brand incarnates the timeless ideals of great carmaking, while remaining relevant, as well as the Morgan Motor Company. In many ways, the company hasn’t changed since its early 20th century days. All of the cars are hand-built. All of the cars’ frames are made of wood. Their design is positively retro – and yet few cars look as modern as the company’s latest model, the Aero 8.

Morgans are special, unique cars. They’re not for everyone, which is precisely the source of their appeal. Morgan owners are a fanatic niche of proud men and women (anecdotally, Morgans appeal more to women than most sports cars). The waiting list for a Morgan car is often measured in years.

Unlike Hermès, I feel that Morgan could easily triple in size without hurting its brand, if the brand’s key attributes are safely guarded, in part because it’s going from such a small size. As an investor, I would love to boost its iconic, unique status.

8. The Wine Brand: Clos-Vougeot I was born in Burgundy and love Burgundy wine. Tasting wine and loving wine is a great tradition in my family. And so I’ve always been a bit miffed to see how much bigger and more recognized Bordeaux wines are on the export market than Burgundy wines, even though the great Burgundies are clearly more than a match for the best Bordeaux.

Part of it is understandable: Bordeaux produces more wine and has larger domains, which therefore are better equipped to go after the export markets. The greatest Bordeaux wines have benefited from investment from savvy managers, such as the Rothschilds in the 19th and 20th century and now Bernard Arnault’s LVMH, who could see and realize the potential of those great wines – Margaux, Yquem – as international brands. And the Aquitaine region, with Bordeaux as its center, has historically attracted more tourism from England, which gave it a leg up in recognition in the English speaking world.

But therein lies the opportunity for the best Burgundy wines to catch up and finally grow to the international stature that their intrinsic quality so clearly entitles them to. Clos-Vougeot is traditionally recognized as the best among the best Burgundy reds. It has other great things going for it. It is the smallest wine domain in Burgundy, increasing its scarcity and therefore its value. It is also the home of the Chevaliers du Tastevin, the ancient brotherhood order of Burgundy wine makers and enthusiasts.

Clos-Vougeot is already a great product and a great brand, simply lacking in visibility. With the right amount of capital and the right savvy, it can go global and take its rightful place among the world’s top wine brands. In time it could expand into other spirits, such as Marc de Bourgogne and Fine de Bourgogne, putting those excellent spirits on the map on par with Armagnac and Cognac.

9. The Cuisine Brand: Ferran Adrià Oh, how it hurts for a Frenchman to recognize a Spaniard as the world’s greatest chef! To be sure, people like Joel Robuchon, Marc Veyrat, and the dean of haute cuisine, Paul Bocuse, can give him a hell of a run for his money.

But while, at this level of excellence, skills are subjective, it must be acknowledged that Ferran Adrià has been the most innovative. Adrià is famous for his restaurant El Bulli, widely hailed as the best in the world, but the secret behind El Bulli’s success is that Adrià built a research lab to come up with innovative new food concepts. Along with pioneer Hervé This, Adrià is one of the leaders of the “molecular cuisine” trend, which uses science and chemistry to come up with totally new and awesome flavors. This innovative research lab is a hell of a moat.

Adrià’s success comes on the backdrop of another trend: the decline of the Michelin-starred restaurant. To get a high Michelin rating, Old World luxury restaurants need to straitjacket themselves into a very specific set of formal rules that hampers creativity, and ends up with restaurants that are too straitlaced, too small, too exclusive.

The most prominent chef to have bucked this trend is Joel Robuchon with his “L’Atelier” restaurant, which he refused to submit to the Michelin guide’s inspection. While a very luxurious establishment, L’Atelier is also a more relaxed and homely. One can have lunch there every now and again with friends, without busting their wallet and feeling like they have to stick something up their ass.

I can picture one or two L’Atelier-style restaurants, backed by Adrià’s name and pathbreaking culinary innovations, in every major global city. That’s something I would definitely invest in.

10. The Hedge Brand: Gilt Groupe Last but not least, my mini-LVMH would be very lucky to own Gilt Groupe. I’m sure readers here will be familiar with what Gilt does: private flash sales of high-end fashion.

Gilt Groupe may not be a luxury brand per se, although it is certainly a great brand and it sells luxury items. Outside of the fact that it is a great business and a great brand, the main reason why I would add this to my luxury conglomerate would be economic. Luxury can be a great business, but as we’ve seen in the recession, luxury is what economists call a pro-cyclical sector: when the economy does well, it does really well, but when the economy goes south, it does really badly.

Discount sales businesses like Gilt, on the other hand, are counter-cyclical: when the economy does badly, they do even better, for obvious reasons – selling stuff 45cheaper wins.

As I’ve said, Gilt is a great brand, and also has a great “moat” in being bigger than most of its competitors, at least in the US, and with exclusive relationships with partner brands. But most importantly, it would protect my mini-LVMH from economic downturns by being countercyclical.

So Gilt is not just a great business but a great part of my dream luxury conglomerate.

Just a quick word about some of the criteria I’ve used to pick these brands. They’re really the same criteria as investment in any business. Warren Buffett has only a handful of rules for investing, and he’s the most successful investor in history, including in the world’s greatest luxury brand, so I follow similar rules.

What Buffett looks for--and what every luxury brand should haveis a moat. A moat is what insulates the brand or the company from its competitors. For a brand, that may be its history, or its position in the market.