The Legacy of Family Control in Luxury Business

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Hermes stands as a quintessential example of a family-owned and controlled business, having operated under this model since its inception in 1837 for over 187 years. This legacy of family ownership is critical, surpassing other attributes like quality and craftsmanship in importance. Currently led by Axel Dumas, a sixth-generation family member, alongside his cousin Pierre, who oversees product quality, the company's leadership structure underscores the influence of family ties. The rarity of sixth-generation family businesses is highlighted by statistical data, which shows that only 3% of family businesses reach the fourth generation and the odds of sustaining a sixth generation are 500 to 1. This longevity contributes to a distinctive operational ethos linked to the founder's mentality, characterized by an insurgent mission, an owner's mindset, and a deep focus on frontline activities. According to research, companies embodying these traits can offer returns to shareholders that are three times greater than those of traditional companies. Hermes benefits from this family-centric operational model, which preserves its heritage and competitive edge within the luxury sector, controlled by the three branches of the founding Dumas family.

On today’s episode, Clay is joined by Shree Viswanathan for a stock deep dive on Hermès. Hermès is a luxury goods manufacturer renowned for its high-quality craftsmanship. The brand is known for its iconic products, such as the Birkin and Kelly bags, silk scarves, and equestrian-inspired items.

Since the IPO in 1993, shares of Hermès have compounded at 20.6% (excluding dividends), while the S&P 500 had a total return of just 10.4%.

Shree Viswanathan is the founder and portfolio manager of SVN Capital.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

02:38 - A business overview of Hermès.

10:28 - Examples of Hermès thinking exceptionally long-term in their business strategy.

30:16 - The attempted takeover of Bernard Arnault.

37:59 - The strength of Hermès’ moat.

56:01 - The growth opportunities ahead for Hermès and the luxury industry more broadly.

01:03:22 - How Hermès approaches capital allocation.

01:14:15 - Shree’s thoughts on Hermès’ valuation.

01:29:51 - Risks that investors should monitor for Hermès.

And so much more!

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Shree’s fund: SVN Capital.
Follow Shree on Twitter.
Best Anchor Stocks write-ups on Hermès.
Books mentioned: 100 Baggers, The Founder’s Mentality, The Luxury Strategy.
Stewart Brand’s seminar on long-term thinking.
Howard Marks’ podcast with Morgan House.
Related Episode: WSB585: Concentrated Value Investing w/ Shree Viswanathan.
Mentioned Episode: WSB645: The King of Luxury w/ Christian Billinger.
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