Episode summary
Outperform the Market paying a Luxury Premium?
The Intrinsic Value Podcast
· · 1 hr 27 min · Hosts: Daniel Mahncke, Shawn O'Malley
Summary
Hermès is presented as the rare luxury business that has kept a true scarcity moat for generations, with the host arguing that its Birkin bags and broader brand power have allowed it to compound despite a valuation that already looks expensive. The episode contrasts Hermès with brands like LVMH, Gucci, and Rolex, saying Hermès sits at the highest tier because it does not try to maximize volume; it sells status, scarcity, and access, not just expensive products.
A large part of the case rests on the company’s operating model. The host emphasizes family control, apprenticeship-based training, French production, and a one-man, one-bag manufacturing process as barriers that make Hermès hard to copy. The discussion also argues that the brand’s sales methods, including waitlists and selective allocation, are not bugs but features that reinforce desirability and repeat purchasing.
The episode then turns to growth and risk. The host says Asia, especially China, is still crucial and remains Hermès’s most profitable region, though recent growth has slowed because of tougher comparisons and softer traffic. Even so, the argument is that Hermès has not shown the classic signs of brand dilution: pricing power remains strong, demand still exceeds supply, and the company has been able to grow even with a declining store count.
Key takeaways
- The host argues Hermès deserves a premium multiple because its scarcity and pricing power have outlasted cycles for decades.
- Hermès is said to manufacture about 80% of products fully in France, reinforcing the brand’s craftsmanship moat.
- The host says the Birkin allocation system functions as a gating mechanism that builds demand and repeat purchases.
- China remains crucial: the host says Asia, mostly China, accounts for about 50% of sales and is Hermès’s most profitable region.
- Despite a store count decline from 311 in 2019 to 293 last year, the host says revenue still compounded at roughly 17% over that period.
Notable quotes
“And the pitch is for Hermes”
“You want your product to be so hard to get and to some extent you just want to have control over who can buy it and who can't”
“They have to spend a decade in production before they can take an executive position”
“70% of shares are still controlled by the MS family”
How the episode opens
(00:00) MS is probably the most valuable brand in the world, but you also have to pay a hefty multiple to call yourself an owner of MS. And anyone who knows us knows that usually we stay away from stocks this expensive. (00:20) But I have never seen a company that was able to maintain such a high valuation multiple over so many years.
I guess it's telling that their popular Birkin bags literally outperformed the market in most other asset classes over the last few decades. But one stock they could outperform is MS itself. We are on the hunt for highquality companies here on this show.
(00:46) And I'm sure you could argue about the definition of high quality, but part of it certainly is these businesses that defy the laws of economics or business. And really, when a company makes outsized profits, what we would normally think is that competitors will come in and profit will normalize. Those profits will be eroded away.
(01:04) That's the idea typically of what you would learn in a textbook. Some companies have what Warren Buffett calls a moat. Something that protects them from competition and allows them to keep earning outsized profits.
(01:22) And companies that have done that successfully in the last decade or two have typically been the tech giants that we all know building these self-reinforcing ecosystems that just make it incredibly hard for competitors to come into the market and take share. But there is another group of company that has achieved the impossible and kept those moes for much much longer. Not just a decade or two, but for centuries at this point.
(01:42) And of course, some people will know I'm talking about luxury companies. And when I say that, again, we could probably debate, you know, what exactly qualifies as luxury?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- luxury brands
- brand moat
- scarcity and craftsmanship
- family-controlled business
- luxury investing returns
Companies and tickers mentioned
- HESAY
- Hermès
Watch the episode
Watch “Outperform the Market paying a Luxury Premium?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from The Intrinsic Value Podcast
-
Canadian Pacific Kansas City Limited (CP.TO): Irreplaceable Moat, Unproven Compounding -
Reddit (RDDT): Record Cash Flow, Collapsing Share Price -
McDonald's ($MCD): Generational Compounder in Historical Drawdown -
Mercado Libre ($MELI): We Doubled Down on Meli! -
Airbnb (ABNB) The Business Outgrew Its Peak, the Stock Hasn't -
GE Aerospace: The Ultimate Compounder?
The Intrinsic Value Podcast, this episode and its artwork belong to The Investor's Podcast Network. Octagon is not affiliated with the show; this page is an independent summary.
