In the world of luxury, Hermès is arguably the gold standard.
Its sales are growing double digits even as other luxury companies post declines or dramatically slower growth. Wealthy customers lucky enough to be anointed as Birkin-bag worthy can purchase a Birkin 25 for about $11,000 and flip it the same day for more than $23,000. Analysts predict Hermès could surpass Louis Vuitton in revenue within the next three years as the world’s largest luxury brand.
Hermès stock is up 13% this year, while LVMH shares are flat and Kering is down 18%.
There is one luxury company, however, that has raced past Hermès when it comes to growth and brand cache – Ferrari.
This year, Ferrari for the first time surpassed Hermès as the most valuable luxury company in the world as measured by stock multiple, which gauges growth and profit prospects. Ferrari’s stock now trades at 50 times earnings, compared with 48 for Hermès and 23 for LVMH.
The storied automaker, founded in 1947 by Enzo Ferrari as way to fund his race team, debuted on the New York Stock Exchange at $60 a share in 2015. It now trades at $410 a share.
The company is valued at more than $75 billion — roughly 1½ times the market cap of Ford or General Motors, which make millions of cars each year. Ferrari produced only 13,663 cars last year.
Ferrari is not a traditional luxury company, of course. It makes cars and has a race team, a merchandise company, a car-restoration company and many businesses that bear little resemblance to a maker of $1,300 scarves and $800 sandals.
Yet in a recent research report, Bernstein luxury analyst Luca Solca posits that Ferrari and Hermès are similar, since both “occupy the pinnacle of the pricing pyramid” in their categories and are “perfectly positioned” to benefit from the surge in the global wealthy.
To better understand what makes Ferrari a luxury brand, CNBC traveled to Ferrari headquarters in Maranello, Italy, to interview the company’s CEO, Benedetto Vigna.
Vigna is an unlikely luxury king. He spent most of his career at Geneva-based semiconductor maker STMicroelectronics, where he ran its micro-electromechanical systems and sensors group. He helped create the screen sensor technology used in iPhones, for example.
His appointment to the top job at Ferrari in 2021 was a sign that technology would be core to the supercar maker’s growth, and in a sense, the future of luxury.
In an interview at the company’s $200 million E-Building, Vigna talked about the upcoming electric Ferrari, its commitment to sustainability and current global demand for Ferraris.
The main topic of conversation, however, was on what makes Ferrari a leader in luxury, and what lessons other companies and executives serving wealthy clients could heed from its rise. Here are five main takeaways:
1. Play hard to get
Ferrari Purasangue SUV
Adam Jeffery | CNBC
As Solca points out in his research note, Ferrari and Hermès both “sell less than the market would take.” A lot less.
Based on orders, analysts estimate Ferrari could easily sell two or three times its current production. Ferrari’s allure was built on scarcity and exclusivity.
Even if you can afford a Ferrari, with an average price of $380,000, securing an order is nearly impossible.
The wait time for a Purosangue, Ferrari’s pseudo-SUV, and other hot models is now up to three years, the longest in its history. Ask any Ferrari dealer about their biggest problem, and they’ll say: “Not enough cars, too many frustrated clients.”
But CEO Vigna said the scarcity is part of Ferrari’s brand promise.
“We have to stay true to our founders strategy, which is to always sell one car less than the market demands.”
His strategy is to grow profit by making more on each car, rather than making more cars.
“We always want to push the quality of revenues over quantity,” he said.
Indeed, Ferrari’s production increases over the years have lagged far behind the growth of wealthy potential buyers. In 2010, it produced 6,573 cars, which means over the past 14 years, production has doubled. Over the same period, the global population of billionaires has more than tripled (and so has the population of those worth $30 million+ and $100 million+).
Vigna said seeing a Ferrari on the road should be like seeing a rare and exotic animal. The imbalance also gives Ferrari a unique position in the auto world: The cars usually appreciate in value over time.
Vigna said that if clients have to wait for one, all the better.
“Waiting is part of the experience,” he said.
During CNBC’s visit to the factory, a Ferrari customer took delivery of a new maroon 812 Superfast. He looked to be in his 70s or 80s. When he saw the car, and posed with it under the storied Ferrari entrance gates, his face lit up and he transformed into a 10-year-old on Christmas morning.
Ferraris are special, because they are still special.
2. Make emotion the driver
The Ferrari SP38 seen at Goodwood Festival of Speed 2022 on June 23rd in Chichester, England.
Martyn Lucy | Getty Images
Ask any Ferrari fan or owner what makes a Ferrari a Ferrari, and they might say the design, the engine sound, the handling, the power, the braking, or the 100 years of racing history behind that bright yellow badge.
Vigna says a true luxury product is defined by one chief characteristic: emotion.
“Ferrari is a luxury company because it’s a company that is delivering a unique product. It’s connecting with the most inner part of people, the emotional side,” he said. “A luxury company is a company that is using technology, innovation, storytelling, heritage, everything, with the ultimate goal to feed that emotional side that we all have.”
Vigna said Ferrari will never produce vehicles that people simply need for transportation.
“When I get invitations to talk to conferences, I won’t attend if I hear two words — utility or mobility. We don’t make a useful product. We make an emotional product,” he told CNBC.
It’s similar to what LVMH Chairman Bernard Arnault refers to as “desirability.” It’s not enough to make a high-quality product, or an expensive product or one with more features or functions. It has to tug at the heart.
3. The art of pricing
An in-progress Ferrari at the supercar maker’s E-Building in Maranello, Italy.
Crystal Lau | CNBC
Based on Ferrari’s soaring prices, you’d think pricing is based on profit demands and Wall Street’s obsession with margin growth.
Yet Vigna said the base price for each model is actually set about a month before its launch – in an unusual process.
“The way we define price in our company is very simple,” he said. “One month before the car is ready for the unveil, we go on the track — me and several people — and we drive it for a day or a day and a half. And then with fresh emotion in our body, we define the price. It’s me, the CMO and the CFO defining the price. We share the emotion.”
Clearly, those emotions are rising. The cheapest Ferrari in 2012 was the California, with a manufacturer’s suggested retail price of $195,000. Today’s entry-level Ferrari, the Roma, starts at $273,000, or 40% more.
Ferrari is launching more limited-edition and special-edition cars that command far higher prices: The SF90 XX Stradale starts at around $900,000, and all 799 coupes and open-top Spiders were sold out when it was unveiled. The SP3 Daytona, with only 599 units, starts at $2.3 million.
Perhaps the biggest boost to profits is personalization. Today’s Ferrari buyers increasingly want custom paint colors, leather, fabrics, stitching, exposed carbon-fiber and other personal details that make it their own. Those personal touches can add anywhere from $100,000 to $500,000 to the sale price.
Vigna said his “value over volume” strategy means Ferrari can grow profits in the double digits with only modest increases in cars made.
4. The road to VIP status
Ferrari would never admit it, but dealers will tell you that customers have to work their way up a costly commercial ladder to get access to new Ferraris and especially limited editions.
It’s similar to the path Rolex buyers have to follow to eventually get a new Daytona, or Hermès customers have to take to eventually get a Birkin.
In short, you start by buying a basic (and sometimes less popular) model. Then you can buy a slightly more desirable model, or two or three. If you attend Ferrari events, show support for the brand, even join a Ferrari racing program, you can eventually become eligible for more expensive and even limited-edition models.
Nearly three-quarters of all Ferraris are sold to existing customers. Which means starting at the bottom of the ladder is difficult.
“Ferrari and Hermès reserve their most desirable products for their most loyal customers,” Solca said. “This in effect ‘bundles’ access and amps up desirability.”
5. Happy employees means happier customers
Workers at the new Ferrari NV E-building factory in Maranello, Italy, on Friday, June 21, 2024. The site in Maranello, built over the past couple of years in near-total secrecy, will make Ferrari’s first EV from late 2025 alongside hybrid models and cars powered by combustion engines. Photographer: Francesca Volpi/Bloomberg via Getty Images
Francesca Volpi | Bloomberg | Getty Images
Luxury companies often mirror the rising inequality in the economy. Even well-paid and well-respected employees work every day to make products they will never be able to afford or experience.
Vigna has sought to bridge those two worlds.
Shortly after becoming CEO, he discovered that many Ferrari employees had never even driven in a Ferrari. The company brought employees to the test track to take a ride and get a first-hand appreciation of the importance of their work.
Last year, he also announced an employee stock ownership program, giving each employee the option to become a shareholder of Ferrari, receiving a one-off grant of shares, free of charge, worth up to about 2,065 euros ($2,229)
While common in the U.S., employee stock programs are rare in Europe. Vigna said he learned to appreciate employee stock plans – and the importance of having employees share the benefits of shareholders – while working in Silicon Valley.
“This proposal came from the team and it was approved right away, by me and the board,” he said. “The people are the center of the company. You need to motivate all of them. If you give shares, they all feel part of the company, like owners of the company. All companies have people. Only a few companies are made of people.”
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