LONDON, United Kingdom — Over the past few years, Moncler has consistently outperformed the luxury sector. While overall sales of personal luxury goods remained flat last year, Moncler's revenue grew by 18 percent in 2016, hitting €1 billion on the strength of its down jackets.
However the company’s dominance in the luxury outerwear market may be over, argues Luca Solca, head of luxury goods at Exane BNP Paribas, who has downgraded the company from a “neutral” rating to “underperform.”
Solca believes Moncler’s growth may slow at least in the medium term, as other players in the sector begin to challenge its market share.
“Moncler is trying to tackle the medium-term threats posed by dependence on a narrow product range, the risk of fading brand momentum, and the need to sustain high margins,” said Solca in an analyst note.
“It would be naive to expect any brand to sustain growth above the market average forever. In addition, Moncler should cease to be a top performer on earnings before interest and taxes growth, as some self-help stories in the sector are poised to deliver more. This could trigger further de-rating or underperformance in the soft luxury sector.”
It would be naive to expect any brand to sustain growth above the market average forever.
Certainly, Moncler’s store network contributes to those high margins, and will continue to expand. The company aims to open 10 to 15 stores a year in new markets like Dubai, Melbourne and Stockholm, as well as expanding some existing locations in Milan and Hong Kong.
And while the product range remains narrow (goose down coats account for 75 to 80 percent of sales), the brand has seen some success with diversification into categories like knitwear, shoes and soft accessories. “The other categories are growing and they are growing fast,” chief executive Remo Ruffini told BoF in March. “With knitwear, we see a lot of interesting numbers and I think in the future, we can have the possibility to do the same with soft accessories. People ask for gloves, hats, scarves. I think it could be a very interesting number for us in the near future.”
For now, Solca believes the fundamentals in the market for luxury down jackets remain positive. Between 2009 and 2016, the sector grew from €500 million to €2 billion at a compounded annual growth rate of 22 percent, according to a report from the Boston Consulting Group and Fondazione Altagamma.
“We believe that the luxury down jacket segment is in a sweet spot,” said Solca. “Two-thirds of ‘true luxury consumers’ increasingly favour casualwear over formalwear, with those who are older facing wardrobe saturation and those who are younger finding casualwear more appealing.”
But Moncler may become a victim of its own success, as it has attracted new players to the market like Mr & Mrs Italy, Moose Knuckles and Perfect Moment to name a few, that threaten to challenge its dominance in the luxury outerwear sector.
“Moncler has many areas of excellence,” acknowledged Solca, listing its profitability, retail productivity and communication as attractive. “With retail equivalent sales more than double those of its nearest rival, Moncler is the undisputed leader in an attractive niche where high growth is supported by the luxury casualisation wave.
“[But] Moncler’s high growth rates and profitability have attracted newcomers as well as existing brands operating in contiguous business segments,” he added. “While still dominant, Moncler’s market share is declining.”