TheChek News Flow

The clothing boss revamped the luxury brand to keep up with changing consumer demands

It was while walking down a street in Japan two years ago that Remo Ruffini, chairman and chief executive of luxury brand Moncler, decided he needed to change tack.

The entrepreneur and creative brains behind puffa jackets that can sell for $1,000 and more, who is a sailor and skier in his free time, walked into a Moncler store in Oyama “and it was empty”, he says.

“I thought ‘the world is changing. I need to find a way to attract new energy, new people and new generations.’ And from there the idea started,” he says, sitting in his office in downtown Milan.

The idea Mr Ruffini is talking about was to reboot Moncler for a second time, 14 years after this native of the northern Italian lakeside town Como bought a bankrupt French ski-jacket maker and turned it into a runway brand with a market value not far off €10bn.

But disruption from technology, millennials’ different purchasing habits and a changing climate, which meant people did not buy warm coats in the same way they used to, convinced Mr Ruffini he needed to shake up Moncler again — this time at a higher speed.

“We needed to speak to the consumer the way the consumer is demanding,” he says. “The consumer wants you to talk to them every day, through new products, through social media. So that is the project we brought to life.”

The project he created is called Genius and on the usual metrics of revenues and share price it has been a success. Since its launch, Moncler’s sales have risen 22 per cent and its stock price has jumped 74 per cent since the first week of April 2017.

The project involves a group of eight designers — the so-called House of Genius — creating limited-edition collections for Moncler, which are delivered to market on a month-by-month basis. The staggered release means the company’s products — and social media dialogue with its customers — are constantly refreshed.

Pierpaolo Piccioli, better known as Valentino’s designer, this season created for Moncler a collection of puffas worn as full body capes, while Hiroshi Fujiwara made streetwear-inflected bomber jackets. It is pricey stuff. A Fujiwara Trance jacket sells for $2,135.

In doing this, Mr Ruffini, who owns 27 per cent of the company, took the bold move of scrapping the label’s six-monthly runway shows and collections, the bulwarks of the fashion calendar since the 1980s.

But what consumers do not see was arguably the bigger challenge. “To get a supply chain that is used to doing things on a six-monthly basis to deliver to every shop in 60 countries at the same time on the same day every month is an enormous cultural change,” he says.

Mr Ruffini says he went “little by little” in convincing his colleagues of his plan. So as not to scare people, he gave the whole business — from supply chain to marketing, strategy and design — time to “work it through”.

“The principle thing was to convince the whole team,” he says. Using this approach, he reaped results faster than he anticipated. “I saw pretty quickly they were convinced of this new way of working,” he says, although he still admits, with a laugh: “Turning an oil tanker would have been easier.”

Boldness like this has built Mr Ruffini’s reputation and fortune. He has an estimated net worth of €2.4bn. He is now 57, so how does he keep close to the zeitgeist at a time when many of his contemporaries admit it is a struggle trying to keep up with social media-addicted millennials and Generation Z (those born after the mid-90s)?

He laughs again. “I have definitely the ability to read consumers and stay close to them,” he says. Looking at his smartphone he notes that he spends nearly five hours a day on social media and email. He checks Instagram hourly, and follows “etailers, people who do my job, new magazines that know how to talk to the new generation, people I like, real people on the street.” Not many influencers, though: “I am fed up with them.”

Still, Mr Ruffini has not given up on old-school ways and remains a traditional fashion flâneur. Last week he was in Manhattan and walked from 88th Street to 38th Street. “In 50 streets in New York you see a lot of changes in the way people are dressing. That helps a lot,” he explains.

Mr Ruffini first got the idea for revamping Moncler after watching people on transatlantic flights more than a decade ago. He saw the difficulty they had bundling heavy winter coats into the overhead locker spaces. He noted the frustration of leaving a freezing winter in New York and arriving in Rome with the wrong outer wear. He saw a market for lightweight puffa jackets, elegant and fashionable enough to go to a board meeting or a dinner party.

His target market today remains “the 18-year-old to the sophisticated older lady”. He chooses his Genius designers for their ability to appeal to several generations, even though most of Moncler’s customers buy basic blue and black puffas. But he says that China is going to be the future driver of the luxury industry to such an extent that brands’ main “problem” will be to remain on the radar of the Chinese.

The other big potential threat is Big Tech. “If Amazon enters the world of luxury it is clear they will do what they have done with all other sectors. They are far too strong for us small players to compete with,” he says.

He is often asked if he is planning on buying any other companies. He says he will not as he does not want to dilute Moncler’s focus on the Genius project. Instead, his family investment company has bought shares in Langosteria, a Milan seafood institution and online fashion brand Attico, tapping into two new frontiers of the luxury industry.

Has he thought of selling Moncler? Plenty of Italian entrepreneurs are selling up as the pressure of remaining independent and thriving in the digital age become too hard.

“No one has asked me to buy. We are in a good moment. I would like to see what happens in the next three, four years. It would seem to me a shame to be selling now. And anyway, I am not ready to retire,” he says. And emits that belly laugh again.

New cap on local tax deductions increases appeal of states like Florida

Brian Cushman, a Manhattan property agent who has built a business moving people into luxury Tribeca apartments, is developing a new sideline: shuttling wealthy New Yorkers to Florida.

Mr Cushman has relocated three in recent months — two bankers and an entrepreneur. He expects more to follow after the April 15 tax deadline makes clear the full impact on New Yorkers of the 2017 Trump tax reform.

That law lavished tax cuts on most Americans, as the president has repeatedly reminded voters. Yet one way it afforded those cuts was by setting a $10,000 limit on the amount of state and local taxes that households could deduct from their federal taxes. That cap on so-called Salt deductions threatens a hefty bill for many wealthy New Yorkers, who pay as much as 12.7 per cent in state and local taxes. Florida, by contrast, has no personal income tax.

“If I can save 13 per cent in city and state taxes, why not?” Mr Cushman explained, setting out his clients’ rationale for leaving. “With the amount of money they’re saving, it easily covers the kids’ private schools.”

A lawyer who represents hedge fund clients predicted many people would move after seeing their 2018 tax filings, saying: “People owe a lot more than they think they do.”

Just how many wealthy New Yorkers are fleeing due to Salt is debatable. Moody’s Investors Service recently reported it had found “no discernible signs yet” that the tax change was contributing to any outward migration.

Still, talk of an exodus to low-tax states is in full flight.

John Paulson, the hedge fund investor who made billions of dollars in the financial crisis, told the FT he planned to move from midtown Manhattan to the low-tax US commonwealth of Puerto Rico — and suggested others follow suit.

“Given the extremely high New York taxes, and the loss of deductibility, it makes sense for individuals in New York to look at other jurisdictions with no or much lower state taxes,” Mr Paulson told the Financial Times.

In February, Andrew Cuomo, the New York governor, blamed Salt-related departures for a $2.3bn revenue shortfall.

“I fear that Salt is already causing people to leave our state,” Mr Cuomo said, noting New York’s reliance on wealthy residents to fund its budget. “Less than 100,000 people pay half the taxes. They leave, we have a big problem very quickly.”

Real estate executives see Salt as a factor behind the city’s sagging luxury property market. Several cited it this month — alongside a glut of new developments — as they reported a drop in sales and forecast further declines ahead.

“The lack of tax deductibility has taken away one of the main incentives to home ownership,” said Pam Liebman, chief executive of Corcoran. “It doesn’t bode well for the future of buying in a lot of people’s minds.”

Meanwhile, Florida — famed for its beaches as well as its lack of an income tax — is increasingly a subject of cocktail conversation among the affluent.

“There is definitely more activity around that,” said Ken Correa, a wealth manager who oversees 140 UBS financial advisers in the New York area. Asked who was inquiring about such a move, he replied: “Lots of people.”

New York is not the only US state at risk of losing residents to high taxes. In 2016, billionaire hedge fund manager David Tepper, New Jersey’s single-largest taxpayer, left for Florida. Mr Tepper’s tax payments were said to be so large that the state’s governor, Chris Christie, was notified when his cheques arrived at the Treasury. Connecticut has in recent years lost hedge fund managers Paul Tudor Jones and Edward Lampert to Florida.

The fact that so many of the high-tax states, including California, are Democratic leaning has prompted Mr Cuomo to blast Mr Trump’s tax plan as a “declaration of an economic civil war.”

The issue is particularly salient in New York — and in New York City — because of its concentration of wealth and an intensifying debate over how to tax it. In discussions for the coming year’s budget, lawmakers considered an annual “pied-à-terre” tax on second homes in the city worth more than $5m. They backed off after an outcry from developers, but still targeted the rich by opting to raise taxes on the sale of homes worth $20m or more.

There may be more to come. What was supposed to be a temporary “millionaires tax” imposed in 2009, during the financial crisis, has been repeatedly extended by the state legislature. Meanwhile, Alexandria Ocasio-Cortez, the New York representative who has become a darling of progressives, has suggested soaking the rich by raising top federal tax rates to 70 per cent.

For all the panicked talk, many analysts reject Mr Cuomo’s attempt to tie a shortfall in projected tax revenue to Salt. A more likely culprit, they argued, was the Wall Street sell-off late last year.

They also question whether the wealthy will tax-shop — as Mr Paulson suggested — or instead constitute an “embedded elite” whose personal and professional ties keep them glued to a particular place, regardless of creeping tax rates. Not all New York bankers and entrepreneurs have the flexibility to base themselves elsewhere.

“Any impact is going to be marginal, take place over time, and be hard to detect amid all the other factors that generate cross-jurisdictional mobility,” said John Mollenkopf, director of the Center for Urban Research at the City University of New York, arguing that it would be years before census data could substantiate a flight of the wealthy.

In its report, Moody’s found that outward migration from New York and other high-tax states was lower than a decade ago. In many cases, those who did leave went to another high-tax state. “Jobs and demographic trends will continue to influence relocation patterns more than tax burdens,” Moody’s concluded.

Still, just because the statistics have not yet substantiated a march of tax refugees does not mean that one is not under way.

Edmund McMahon, research director of the Empire Center for Public Policy, worries that New York is facing a demographic challenge as baby boomers reach their mature years — a time when many typically leave the city.

“All things being equal, we’ve got a bulge of people getting ready to sail off to Boca Raton [in Florida],” Mr McMahon said.

The Salt reform was “another shove” to remind them that they would be better off elsewhere, he argued. At the same time, Salt and other escalating taxes threatened to dissuade younger professionals from replacing them in a city where many struggle with the cost of living.

At a recent New York dinner for young professionals, Mr McMahon said he was struck by how many said they planned to go elsewhere to start investment funds and other businesses.

“I do think this is a real danger,” he said, adding: “You’ll only know after it’s happened.”

Proxy adviser and activist warn against proposal

Vivendi shareholders will vote on Monday on a massive buyback plan that could allow Vincent Bolloré’s family holding company to take greater control of the media conglomerate, angering some investors.

A corporate governance specialist and a prominent activist investor have urged shareholders to vote against a resolution authorising a 25 per cent reduction in the company’s share capital, a proposal that Vivendi unveiled in February alongside its full-year results.

The Bolloré Group, the industrialist’s family holding company, already holds 28.51 per cent of the voting rights in Vivendi, whose assets include Universal Music Group, advertising company Havas, and video games publisher Gameloft.

“It is not in the interests of minority shareholders to authorise such a transaction,” said Loïc Dessaint, chief executive officer of Proxinvest, which provides proxy voting research for investors. “The problem is that it’s a way for Bolloré Group to control the company without launching a full takeover. The tactics of the Bolloré Group is always to try to take full control without paying the price.”

Vivendi did not respond to a request for comment.

Reducing the overall number of outstanding shares in Vivendi would mean that the Bolloré Group passively crossed the threshold of 30 per cent of the voting rights, which normally means that a company must make a mandatory takeover bid. However the Bolloré Group could ask the French markets regulator, the AMF, to waive this obligation. It was granted a similar waiver at Havas in 2012, when the AMF allowed the Bolloré Group to cross the 30 per cent threshold without making a full bid.

“This is classic Bolloré,” said Peter Schoenfeld, an activist investor who holds shares through his P. Schoenfeld Asset Management vehicle and has previously clashed with Mr Bolloré. “Every time he uses the same playbook. He could soon own more than 30 per cent of Vivendi without paying a premium.”

Mr Schoenfeld added: “If the Vivendi board wants to distribute cash they should do so through dividends and protect the rights of the existing majority. Shareholders should vote down the public offer unless Bolloré Group agrees to tender along with the public.”

However, the resolution proposes a maximum price for a buyback of €25 per share. On Friday Vivendi’s share price closed at €26.28. The buyback proposal boosted Vivendi’s share price when it was announced in February. “A share buyback at up to €25 is a clever way of creating a glass floor on Vivendi’s share price,” said Tom Singlehurst, an analyst at Citi.

At Vivendi’s annual general meeting on Monday investors will also be asked to vote for the appointment of Cyrille Bolloré to replace this father, Vincent Bolloré, on the group’s supervisory board. This would mark the latest step in succession planning by the elder Mr Bolloré. At Vivendi’s AGM last year he stepped down as its chairman and was replaced as chairman by another of his sons, Yannick Bolloré. A month earlier the elder Mr Bolloré was placed under formal investigation related to the alleged bribery of foreign officials in Africa. He has denied any wrongdoing.

In March, 33-year-old Cyrille Bolloré was named chief executive and chairman of the Bolloré Group. Proxinvest is recommending to investors that they oppose the appointment of Cyrille Bolloré to Vivendi’s supervisory board, citing concerns about board independence and his time commitments.

Vivendi’s AGM on Monday comes as the group is preparing to sell a stake in Universal, the company’s main profit engine, which banks are valuing up to $42bn. Citi’s Mr Singlehurst said: “Corporate governance concerns have moved into the background because right now the interests of the Bolloré family shareholders in Vivendi are fully aligned with the non-Bolloré family shareholders: it’s all about maximising the value of the UMG stake sale.” He added: “But I’m sceptical about the valuation of UMG and how long these shareholder interests will be aligned.”

This week, everyone will be talking about Gucci parent Kering's next move, fashion at Coachella and Allbirds entering China. Read our BoF Professional Cheat Sheet.

Kering Acquisition Chatter Ratchets Up

* Luxury conglomerate Kering reports first-quarter earnings on April 17

* Gucci generated 63 percent of revenue and about 80 percent of operating income for the group in 2018

* Kering is attempting to build Balenciaga and Alexander McQueen into billion-dollar brands alongside Saint Laurent

Every quarter, Kering reports Gucci's sales grew a little slower, and talk of the need for a major acquisition grows a little louder. To be sure, the brand is still running circles around most rivals, growing 28 percent in the fourth quarter. But Kering is a multi-brand conglomerate competing with the more-diversified LVMH. Saint Laurent, white-hot Balenciaga and McQueen may someday take the pressure off Gucci to perform, but a big acquisition would produce a new centre of value creation in a single stroke. Unfortunately for Kering, there are a limited number of targets — it would take a brand on the scale of Valentino, Prada or Chanel to move the needle, though the latter would be a big meal for the company to digest. There's also chief executive François-Henri Pinault’s aversion to bidding wars. It's unlikely for an offer to go uncontested, with so few independent luxury houses on the market and LVMH able to match Kering euro for euro. Plus a host of American, Chinese and Middle Eastern strategics and investment firms are potentially in the running.

Forget the race into space. The competition to be the first country to launch driverless cars has grabbed the attention of more nations than a new lunar landing.

The United Kingdom has emerged as the No. 1 location on earth to support autonomous vehicles, or AVs, in a new analysis conducted by the Society of Motor Manufacturers and Traders, or SMMT. The U.K. lobby group has calculated that it will generate an economic boost of 62 billion pounds sterling ($81.1 billion) per annum by 2030, which will boost the U.K. economy and a range of firms.

But how can investors benefit?

The key is to identify the sectors most likely to profit, and then some of the investible stars that lead the way in their fields.

The car makers are an obvious choice. The automotive giants with well-advanced AV programs are Daimler ’s (DAI.Germany) Mercedes-Benz, Volkswagen’s Audi (NSU.Germany), and BMW (BMW.Germany); Ford Motor (F) and Tesla (TSLA); Tata Motors ’ (TTM) Jaguar Land Rover; and Nissan Motor (7201.Japan).

Sajid Yacoob, head of global electric vehicles at Tata Consultancy Services, says that these stocks are well placed for growth because they are embracing change. “When you see established OEMs [original equipment manufacturers] focus on autonomous activities, you see a bump in share prices,” he says. “This is because the market is moving away from traditional operations to this value-added business model.”

But the sectors extend to a bunch of less obvious industries—think technology, telecoms, transport, infrastructure, insurance, and legal. Once driverless cars are built, the next two vital components are telecoms and power. AVs rely heavily on communications such as 4G and, eventually, 5G—the mobile connectivity that links them to the environment, such as intelligent traffic lights and road sensors.

Among these, Yacoob says, the strongest telecoms players are the U.K.’s Vodafone Group (VOD.UK) and EE, a joint venture between Germany’s Deutsche Telekom (DTE.Germany) and Orange (ORA.France), formerly France Télécom.

In terms of power, most of the auto makers are developing their own battery technology. Japan’s Nissan has built its own state-of-the-art battery plant in northern Britain. Next up are the firms developing the software and hardware that allow cars to “talk” to the roads around them. These are electronic gadgets that sit inside vehicles that use wireless internet to synchronize with similar boxes placed at traffic junctions and along highways.

Yacoob highlights Germany’s Continental (CON.Germany), a blue-chip stock on the benchmark DAX index that is probably best known for tires but is also a leader in electronics, as well as the privately owned engineering company Bosch.

In Europe, four countries, the U.K., the Netherlands, France, and Germany, are battling to be the first to deploy these autonomous robots on the roads. They believe that the technology will unlock economic growth, jobs, and wider improvements.

The rollout of the new infrastructure and new software and hardware will generate an estimated £18 billion for firms and create about 420,000 jobs, according to the SMMT. Investors could benefit from owning a piece of the firms delivering all of this.