Brunello Cucinelli CEO on reducing luxury: Don’t be jealous

COPENHAGEN, Denmark – On the day of its IPO in 2012, Brunello Cucinelli issued an unusual conclusion to investors: if they are looking for short-term profit achieved by harming the environment or harming people, they should not invest.

In stark contrast to an industry full of low sales, the Italian luxury house known as the “King of Cashmere” is now bucking the trend, reporting a 14% increase in revenue in the first three months of the year.

Meanwhile, other major luxury houses such as Gucci and Louis Vuitton are facing a severe downturn, not recording any growth at all.

Brunello Cucinelli’s success in making luxury clothes, including diamond-encrusted knitwear and $1,000 T-shirts, is tied to his philosophy of choosing long-term integrity over chasing short-term profit, Co-CEO Riccardo Stefanelli told CNBC.

“You don’t have to be greedy,” he said on the sidelines of the Global Fashion Summit in Copenhagen. “If you’re greedy, then you’re taking value from the supply chain and you’re killing someone.”

Dressed in white, matching Brunello Cucinelli’s “Solomeo in White” collection, the 45-year-old CEO explained how the company grows without losing its soul: it works consciously on low margins to maintain a healthy supply chain and what it calls “graceful” growth.

Its focus on ethical practice is based on the experience of its founder, Brunello Cucinelli, and today it has evolved into what the company calls “humanistic capitalism.”

It’s about how you deliver your profits, how you reach targets, and how you respect the value chain by trying to recover before pocketing higher returns, says Stefanelli.

To protect its philosophy, the Cucinelli family retains 51% ownership of the business.

“It makes a difference. We have control,” Stefanelli, who is now the founder’s son-in-law. “We have to think long term instead of the short term imposed by the stock exchange.”

Brunello Cucinelli has maintained a strict pricing policy, keeping the retail price 7-8 times the factory production cost.

This formula distinguishes it from most of the industry’s behavior during the Covid-19 comfort period, which ends in 2022. Many brands aggressively raised prices, achieving revenue growth of up to 30%, but without a noticeable increase in quality, they alienated customers.

The new CEO of Gucci-owner Kering, Luca de Meo, recently said the price hike “has gone too far.”

“We hope to still maintain a balance between the actual value and the retail price,” Stefanelli said. “If you miss that, you have a problem, like two years ago, where customers understand, or maybe they didn’t understand, why the price increase was not linked to the actual increase. [value].”

“I am also grateful for the success of LVMHof Kering. I respect them,” said Stefanelli. “We’re doing another job.”

The luxury market is currently experiencing a sharp polarization: generalist conglomerates catering to aspiring consumers are struggling, while exclusive labels are thriving.

The narrow focus of having only one product, and the company’s relatively small size, allows the company to target a stable, controlled annual growth rate of between 10% and 12%, which keeps volume growth modest in order to preserve product uniqueness.

Brunello Cucinelli has a market capitalization of about 6 billion euros ($7 billion) and recorded 1.4 billion euros in revenue by 2025 – much smaller than its peers.

By eschewing mass market expansion and focusing strictly on what he calls “total luxury,” Brunello Cucinelli seems to have avoided the luxury fatigue that plagues many of his peers.

And while Stefanelli recognizes that Asia in particular offers significant room for growth, the brand refuses to change its DNA to chase trends, even if it means missing out on opportunities.

“What we cannot change is our recognition at home, our home environment, our Italian attitude,” he said. “We listen to the market, but if the market asks for something that doesn’t belong to you, we shouldn’t produce it.”

Some of our competitors have tried to capture a larger, higher-margin customer base, but that means “you’ll never get back to the top of the pyramid,” Stefanelli said.

After the company’s quarterly publication in April, Jefferies analysts said it confirmed “the high staying power of affluent affluent buyers.”

However, maintaining this premium image has not come without market turmoil.

In September of last year, short seller Morpheus Research alleged that Brunello Cucinelli was misleading investors about its operations in Russia, evading international sanctions.

The stock fell more than 17% on the allegations, marking the biggest daily decline in history. Although the company has strongly denied the claims, the stock has not fully recovered from the losses.

Italian luxury brands have also been rocked by recent investigations into labor exploitation and poor factory conditions that threaten the prestigious “Made in Italy” image.

Stefanelli stressed that the solution is simple: pay workers more.

Higher wages are also important in encouraging the next generation to enter crafts such as sewing and spinning, where there is a shortage of workers. Parents are less likely to guide their children into these career paths without the promise of decent compensation, Stefanelli said.

“If you believe that a company should exist for the next 50 years, you plan like we do,” Stefanelli said. “It’s a cost for sure, but it’s a choice.”