The five secrets to Ferrari’s success as a luxury brand

In the world of luxury, Hermès is arguably the gold standard.

Its sales are growing double digits even as other luxury companies post declines or dramatically slower growth. Wealthy customers lucky enough to be anointed as Birkin-bag worthy can purchase a Birkin 25 for about $11,000 and flip it the same day for more than $23,000. Analysts predict Hermès could surpass Louis Vuitton in revenue within the next three years as the world’s largest luxury brand.

Hermès stock is up 13% this year, while LVMH shares are flat and Kering is down 18%.

There is one luxury company, however, that has raced past Hermès when it comes to growth and brand cache – Ferrari.

This year, Ferrari for the first time surpassed Hermès as the most valuable luxury company in the world as measured by stock multiple, which gauges growth and profit prospects. Ferrari’s stock now trades at 50 times earnings, compared with 48 for Hermès and 23 for LVMH.

The storied automaker, founded in 1947 by Enzo Ferrari as way to fund his race team, debuted on the New York Stock Exchange at $60 a share in 2015. It now trades at $410 a share.

The company is valued at more than $75 billion — roughly 1½ times the market cap of Ford or General Motors, which make millions of cars each year. Ferrari produced only 13,663 cars last year.

Ferrari is not a traditional luxury company, of course. It makes cars and has a race team, a merchandise company, a car-restoration company and many businesses that bear little resemblance to a maker of $1,300 scarves and $800 sandals.

Yet in a recent research report, Bernstein luxury analyst Luca Solca posits that Ferrari and Hermès are similar, since both “occupy the pinnacle of the pricing pyramid” in their categories and are “perfectly positioned” to benefit from the surge in the global wealthy.

To better understand what makes Ferrari a luxury brand, CNBC traveled to Ferrari headquarters in Maranello, Italy, to interview the company’s CEO, Benedetto Vigna.

Vigna is an unlikely luxury king. He spent most of his career at Geneva-based semiconductor maker STMicroelectronics, where he ran its micro-electromechanical systems and sensors group. He helped create the screen sensor technology used in iPhones, for example.

His appointment to the top job at Ferrari in 2021 was a sign that technology would be core to the supercar maker’s growth, and in a sense, the future of luxury.  

In an interview at the company’s $200 million E-Building, Vigna talked about the upcoming electric Ferrari, its commitment to sustainability and current global demand for Ferraris.

The main topic of conversation, however, was on what makes Ferrari a leader in luxury, and what lessons other companies and executives serving wealthy clients could heed from its rise. Here are five main takeaways:

The wait time for a Purosangue, Ferrari’s pseudo-SUV, and other hot models is now up to three years, the longest in its history. Ask any Ferrari dealer about their biggest problem, and they’ll say: “Not enough cars, too many frustrated clients.”

But CEO Vigna said the scarcity is part of Ferrari’s brand promise.

“We have to stay true to our founders strategy, which is to always sell one car less than the market demands.”

His strategy is to grow profit by making more on each car, rather than making more cars.

“We always want to push the quality of revenues over quantity,” he said.

Indeed, Ferrari’s production increases over the years have lagged far behind the growth of wealthy potential buyers. In 2010, it produced 6,573 cars, which means over the past 14 years, production has doubled. Over the same period, the global population of billionaires has more than tripled (and so has the population of those worth $30 million+ and $100 million+).

Vigna said seeing a Ferrari on the road should be like seeing a rare and exotic animal. The imbalance also gives Ferrari a unique position in the auto world: The cars usually appreciate in value over time.

Vigna said that if clients have to wait for one, all the better.

“Waiting is part of the experience,” he said.

During CNBC’s visit to the factory, a Ferrari customer took delivery of a new maroon 812 Superfast. He looked to be in his 70s or 80s. When he saw the car, and posed with it under the storied Ferrari entrance gates, his face lit up and he transformed into a 10-year-old on Christmas morning.

Ferraris are special, because they are still special. 

Vigna said Ferrari will never produce vehicles that people simply need for transportation.

“When I get invitations to talk to conferences, I won’t attend if I hear two words — utility or mobility. We don’t make a useful product. We make an emotional product,” he told CNBC. 

It’s similar to what LVMH Chairman Bernard Arnault refers to as “desirability.” It’s not enough to make a high-quality product, or an expensive product or one with more features or functions. It has to tug at the heart.

In short, you start by buying a basic (and sometimes less popular) model. Then you can buy a slightly more desirable model, or two or three. If you attend Ferrari events, show support for the brand, even join a Ferrari racing program, you can eventually become eligible for more expensive and even limited-edition models.

Nearly three-quarters of all Ferraris are sold to existing customers. Which means starting at the bottom of the ladder is difficult.

“Ferrari and Hermès reserve their most desirable products for their most loyal customers,” Solca said. “This in effect ‘bundles’ access and amps up desirability.”

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