What will people pay up for? What inspires customers to pay more for something that might cost the same amount to manufacture than something else?
We saw what the answer to that question is today: they will pay up for prestige.
Prestige like you get from buying products from Estee Lauder (EL) . Prestige like buying products from Ralph Lauren (RL) . Prestige like buying products from Apple (AAPL) .
Today we have one of the most amazing displays of prestige power than I have ever seen when we saw the stocks of Ralph Lauren, Estee Lauder and Apple explode higher, the first two on better-than-expected earnings, the latter on an endless parade of buying.
I have raved to you before about Estee Lauder and its amazing CEO Fabrizio Freda, who has just dazzled and dazzled with intellect, presence and innovation. Leave it to the seller of Clinique to put on a clinic today in his conference call. The stock of Estee Lauder jumped 15 points after a true blowout and guide-up.
I also want to introduce you to Patrice Jean Louis Louvet, Ralph Lauren's collaborative CEO, who has re-cracked the code for prestige wear and is running away with the crown. His hard work and the amazing, foolproof reputation of Ralph himself -- it is so important the founder always play a role no matter what -- got RL's stock up ten.
And there's Apple which puts out a product that may have the most prestige of any of the product line: the watch, which is crushing a $12 billion business with a product that not only looks great (have you seen that Hermes brand?), but saves lives, the latest I have read about, a piece in the New York Post this morning about a 67-year-old Norwegian who had a serious fall in his bathroom and his Apple Watch automatically contacted rescue personnel. That's useful prestige that people will pay up for, not to mention the new iPhones with picture quality that's equal to a $1,500 camera that makes you look darned great on Instagram, which is all that people want these days anyway, or at least the people who count, the generation X Y Z, etc. We need to add some letters. How about Gen Omega?
You know what these brands have going for them? First and foremost, they hold up in tougher times. I am going to quote from Fabrizio Freda's clinic for a moment because he's far more eloquent than I am about the topic: "I want to emphasize that, historically, prestige beauty is being less sensitive to economic downturns because it is an affordable luxury driven by repeated purchases and loyalty."
There is also a lasting universality to the brands Estee Lauder has. As Freda says, "Long term our industry has strong fundamentals, including favorable demographics that should drive solid growth for years to come."
I love the arc that Freda traces out: "A key strategy behind our brand success is creating a significant base of profitable repeat business from devoted consumers via attracting new users with compelling innovations in marketing and then, the quality of our products turn them into lifelong fans." Every single brand category in his major channels grew double digits because of these tenets.
While others struggle in China, Fabrizio is putting up huge numbers. I have heard many tales of woe, but have you heard anyone say this: "Luxury brands have been in high demand in China. And our sales mirrored that trend as they increased strongly." Freda knows that the consumers in Asia are online. It's been growing sharply in China and now accounts for more than a third of their sales.
It's an amazing story and so is Freda, who is fond of backing hero brands with more and more resources, doing what every good portfolio manager should be doing: putting his dollars on winners while letting losers go. I got to interview Freda this afternoon to help me teach you about his magic. What's behind his success. He says he is marrying data analytics with creativity to create prestige product and his marrying expertise of his experience brand managers with youth and creativity. Data, he says "is the new oil, but only when it is connected to creativity" does it pay off.
I think that's so important because many in Silicon Valley just think all you need is the data. That's why Freda's such an amazing teacher.
How about Ralph Lauren? I have been watching the way Patrice Louvet has been extending the tremendous brand power that Ralph Lauren has created and extended it to whole new generations who crave the prestige of what Ralph has created. Last spring Louvet traced out what I thought might be too difficult a course at his investor day but he was able to outperform the expectations on both the top and the bottom line.
Lots of execs trace out these ridiculously lofty precepts that tend to be unattainable but we forget about after they are presented. Not with Louvet. When he went over the future of the brand he presented the following goals: First, win over a new generation of consumers; second, energize core products and accelerate underdeveloped categories; third, drive targeted expansion in our regions and channels; fourth, lead with digital across all activities; and fifth, operate with discipline to fuel growth.
I know, I know, they sound like truisms, they sound like platitudes and business schoolisms that don't matter.
You know why they don't matter? Because most execs can't deliver them, that's why.
He's got a whole new fan base fawning over and preening in Ralph's merchandise. As he said on the call: one-third of the consumers who shopped the products from their recent holiday offerings were new to Ralph Lauren and a meaningful portion of these new consumers were under 35.
How do you do that? Celebrities and influencers, like Priyanka Chopra's marriage to Nick Jonas in India, where the bride was decked out in the first wedding dress that Ralph has designed outside of his own family.
I love the influencer list on this call: Nicole Kidman, Hugh Jackman, Alex Rodriguez, Gigi Hadid, Chance the Rapper, Chris Pine, Lady Gaga, Lupita Nyong'o, Emmy Rossum, Rachel Zoe, Cameron Dallas, Olivia Palermo and Lisa Detwiler. OK, I threw in the last one, my wife, because I needed to have someone I have heard of.
You marry those influencers with the classic products of Ralph with the right doors in the right places and you get what could be a multi-year move.
Apple? What can I say? Every day I have to remind people that they may think there is nothing innovative about Apple other than saving lives, like the watch. I come back and say, like Fabrizio, Apple has married data with creativity to produce prestige products we will pay up for. Sorry, there is nothing prestigious about Xiaomi or Huawei. Nothing. Nothing at all.
So, here's what I need you think about. Do you own stocks of companies whose products people will pay more for because they think they are prestigious, long-lasting and beloved by influencers? If you do, I think you can handle the vicissitudes this market throws at you and still make a ton of money over the long term.