How well do you know luxury goods?

LVMH is one of the biggest luxury brand in the world. Under its stable, you’ll find the likes of Louis Vuitton, Rimowa, Loro Piana, DFS and Sephora. In 2016, it had annual sales of €37.6bn and as I write this its market cap stood at €122bn.

Today, I came across its 3Q results and it was interesting.

To see if you know luxury as well as you thought, take the following quiz. The answers are posted after the various photos. Don’t peak.

1. Which region contributes the most to LVMH’s revenues through the first nine months of 2017?

  • A) Asia,
  • B) Europe,
  • C) US,
  • D) Others

2. Which region had the strongest revenue growth rate in 3Q 2017?

  • A) Asia ex Japan,
  • B) Japan,
  • C) Europe and
  • D) US

3. Rank the revenue contribution by product segment from largest to smallest?

  • A) Wine and Spirits,
  • B) Fashion and Leather Goods,
  • C) Perfume and Cosmetics,
  • D) Watches and Jewellery and
  • E) Selective Retailing (i.e. DFS and Sephora)

4. Among the various product segments, which one recorded the strongest revenue growth in 9M 2017?

  • A) Wine and Spirits,
  • B) Fashion and Leather Goods,
  • C) Perfume and Cosmetics,
  • D) Watches and Jewellery and
  • E) Selective Retailing (i.e. DFS and Sephora)
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Which region contributes the most to LVMH’s revenues through the first nine months of 2017?

  • The answer is Asia. Combining Asia ex-Japan (29%) and Japan (7%), Asia contributed 36% to LVMH’s overall revenues in 9M 2017. Europe was the second largest region with 27% of sales (9% France and 18% Europe ex-France). The US was the third largest region at 25%.

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Which region had the strongest revenue growth rate in 3Q 2017?

  • The surprising answer was Japan and Asia ex-Japan. Both regions saw top line sales growth of 21% in 3Q 2017. For the year-to-date, Asia ex-Japan was still stronger at 19% while Japan is only at 11%. However, given all the talk about Japan still struggling with its lost decades, a 21% YoY growth was most unexpected.

chart (44)

Rank the revenue contribution by product segment from largest to smallest?

  • This question should be the easiest one. I’m pretty sure that 90% of you knew that Fashion and Leather Goods would be the biggest category (at 35.5%) but how many knew that Selective Retailing (i.e. DFS and Sephora, etc) would be the second largest category at 30.6%. Perfume and Cosmetics was third at 13.3% while the Moet-Hennessy part of LVMH was only fourth largest at 11.5% of revenues. Watches and Jewellery was the smallest segment at 9.1%.

chart (43)

Among the various product segments, which one recorded the strongest revenue growth in 9M 2017?

For the first nine months of 2017, LVMH’s largest segment was also its fastest growing. The Fashion and Leather Goods segment (35.5% of sales) grew 14% YoY in 9M 2017. AS Perfume and Cosmetics also grew 14% (with 17% YoY growth in 3Q 2017), this suggest that luxury branding is very strong. On the flip side, although wine and spirits grew 8% YoY, 3Q growth of 4% YoY made it the slowest growing segment in the group.

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Key Takeaways – Japan and Asia might be getting its Mojo back

As a generalist data point gatherer, the most interesting takeaways were:

1) The very strong performance out of Japan and Asia ex-Japan. Japan was supposed to be struggling to show inflation while Asia was supposed to be still dealing with the anti-corruption curbs. For both regions to show 21% YoY growth in 3Q and 11% and 19% YoY growth in 9M 2017 suggest that Asian consumers seems to have found their mojo and are back to their happy spending ways.

2) Branding remains effective. Usually with the law of the large numbers, as sales reach a certain critical mass, growth would inevitably slow. However, in the case of LVMH, although Fashion and Leather Goods is its largest segment at 35.5%, it growth has remained the strongest among the categories. Further, as many perfumes and cosmetics are branded along the same lines, the strong growth in those two categories suggest that consumers still love the luxury brands.

On point 1), if Japanese and Asian consumers have indeed gotten their mojo back, then the recent catch up of Japanese equities might have more room to go.

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Source: Yahoo Finance




Happy Anniversary – Make time to celebrate your success

Over the weekend, I was at my son’s basketball lesson. It’s just something to help the kids learn about the game, work on some drills and have some fun. At the end of each class, the coaches give out a medal for the game’s MVP. Sometimes, this recognises the most skilful player but more often than not, it recognises the child that has worked the hardest and demonstrated the best attitude.

Well, this past weekend, my son got the MVP. I was super excited for him and I couldn’t wait to give him a high five but I noticed that he looked a bit odd. I think he wasn’t used to the attention. We talked afterwards and discussed that it is important to celebrate our success. When you or your teammate score a basket, give each other a high five or a pat on the back, you guys deserve it.

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As I thought about this scene over the weekend, it occurred to me that in our daily lives, we don’t celebrate our successes often enough.

While we frequently conduct post-mortem reviews of things that have gone wrong in order to guard against future mistakes, we don’t celebrate enough. We worry that complacency may set in and we move on too quickly from our successes.

With that in mind, I am giving myself a quite pat on the back.

Happy Six Month Anniversary

Six months ago, I wrote my first blog here. It was a short piece entitled “For better or for worse“. Here are some key stats since that first post.

  • Published 33 articles in total
  • By category, I have written the most on the “Postcard” and “Mass consumption” topics, both with five notes each
  • The most popular post so far has been our “Postcard from London” followed by “Going once, going twice, SOLD“.
  • Our readership is mostly from Hong Kong but I also appreciate the one page view from Madagascar.

Thank you to all those who have Like’d the various articles. Looking ahead, I will try to schedule posts at more regular times, say every Thursday or Friday.

Until the next random idea. Here are two quotes that I like on celebrating successes

Celebrate your success, find some humour in your failures – Sam Walton

The more you praise and celebrate your life, the more there is in life to celebrate – Oprah Winfrey

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Postcards from the car dealer – how the middleman makes money in the internet age

We are selling our seven-seater. With the internet and the various online marketplace, selling your used car should be a cinch, right? While the internet has greatly boosted transparency in the used car market, is there still a role for the middleman? The answer is Yes. From talking with the middleman, I reckon the internet has reduced his margin from 22% to only 4%-10%.

I’m selling my car. We have been debating for some time whether we still needed our seven-seater. That’s the back story but what I really wanted to share about was the selling process. Specifically, how the economics for the middle man has changed as everything now goes online.

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Everything’s online, is there still a role for the middle man?

I am not an expert on cars but even I know that trading in your car to the dealer gets you worst price when you are trying to sell your car.

With the proliferation of online marketplaces, there are now many car trading sites. Positively, these have really increased the transparency of the used car market. Once you key in the make and model year, the search results will give you a pretty good idea how much your car should go for.

In my case, my 7-seater should go for something between HK$198,000 to HK$258,000. Armed with that information, I posted my ad near the top of the range. Our car was well maintained, the mileage was a bit on the high side but I also expected a bit of bargaining.

And so I waited. A few days passed. There were no bites except for one joker who wanted to barter and exchange his RAV4 for my car. Nope.

“Are you a private seller or a car dealer?”

I guessed that my price was too high and lowered the price to the middle of the advertised range. This seems to do the trick. My phone started ringing and people called to get more details. One question that always came up was whether I was a private seller or a car dealer. Most people seemed to be wary of car dealers, fearing that they would mess around with rolling back the mileage or other funny business.

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After much back and forth, a serious buyer emerged. As it turned out, the caller works for a garage and is reaching out on behalf of a prospective buyer. In other words, he was a middle-man. To make a long story short, I brought my car to his garage, he checked it out, done deal.

The Economics of the Middleman

But during the process, he was kind enough to share with me his economics.

Here are the headline numbers.

  • I sold my car to the middleman for HK$218,000 ($10,000 lower than my list price).
  • The prospective buyer is going to pay him HK$250,000.
  • At the headline level, the middleman’s take is HK$32,000 or 12.8%.

However, as they need to redo the leather seats and put on some new tires, this costs of HK$13,200 is part of the HK$250,000 that the prospective buyer is paying for. Taking a 50% haircut on this number, I reckon the middleman’s margin is actually closer to HK$25,400 (HK$32,000 less HK$6,600) or 10.2%.

There’s more. Since the prospective buyer is trading in his 2007 sedan, the middleman is offering him a trade-in value of HK$40,000. According to the middleman, if the prospective buyer did not agree to buy my 7-seater, the price would have been HK$20,000. The middleman expects to sell the 2007 sedan for HK$25,000-35,000.

So, if you factor in middle man’s effective HK$5,000-15,000 loss on the 2007 sedan, the middleman’s real margin would have been reduced from HK$25,400 to something around HK$10,400 to HK$19,400 (a margin of only 4.2% or 7.8%).

At this point, we want to ask a couple of questions:

  • Did I sell my car for too cheap?
  • Why didn’t the prospective buyer approach me directly?

Did I sell my car for too cheap?

On the surface, it would seem that way since the prospective buyer was willing to pay HK$243,400 (HK$250,000 price less HK$6,600 for leather seats/tires). However, in the old days before the internet, the dealers would probably have lifted my car for HK$190,000.

Takeaway #1 – The internet has reduced the middleman’s margin reduced from 22% to 10.4%

So the first takeaway here is that the increased transparency of the internet has reduced the bid-ask spread. Whereas, before the middleman’s margin would have been HK$53,400 (HK$243,400 – HK$190,000), this has now been reduced to HK$25,400 (HK$243,400 – HK$218,000). In margin terms, the online market place has brought down the middleman’s margin from 22% to 10.4%.

Why didn’t the prospective buyer approach me directly?

But why does the middleman still exist? Shouldn’t the online marketplace had connected buyers and sellers directly? If the prospective buyer had approached me directly, we could have split the bid-ask spread and we would both be better off.

I think it has to do with information asymmetry. As the seller, I know that my 7-seater is in perfectly good condition. But from the buyer’s perspective, he cannot tell whether my car is pristine or has suffered serious water damage.

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To guard against being cheated, the buyer needs professional help from someone who he can trust. This is where the middle man comes in. Not only does the middle man help to vet the car’s condition, he also provides the prospective buyer with some recourse. If things go badly, there is a least a store front (in this case a garage) that he can go to protest.

Takeaway #2 – Information asymmetry and recourse sustains the middleman – for now

But what about me, the seller? I suppose if I have more time and more patience to deal with the various callers, I could have waited until the right price came along. However, for the service of matching me up against the buyer, the middleman’s fair wages is now 4-10%.

I suppose it is possible for someone to AirBnB or Uber this type of service but given that most people only change cars every five to seven years, there probably isn’t the volume to scale this business.

As a side note, the middleman also explained why a professional dealer would low ball at HK$190,000. The answer is rent. At the used car exhibition centres, dealers are required to rent at least six spaces and each space costs several thousand dollars.  Given the significant rental costs, it takes the used car dealer three cars to breakeven and he only makes money on the fourth car.

Man Vs. Food – Insights on planning, preparation and patience

Have you seen the show “Man Vs. Food” on the Travel Channel. It was a fun show where the hosts takes on these food challenges like hot wings, giant steaks and massive burgers. Well, last night I watched some interviews that the host Adam Richman did some years back and I was amazed by the planning, preparation and discipline that he put in around the show. Some key takeaways that I got from the interviews were (1) the importance of establishing a baseline, (2) balancing the in’s and out’s and (3) being patient in sticking to a plan. While these were discussed in the context of food and weight loss, I think these could easily also apply to investments and spending as well.

In keeping with recent posts, we are going to keep things light for Friday. Today we are going to talk about weight loss, being patient and the hard work that goes on behind the scenes.

Man Vs. Food – What goes on before and after the show

I used to love this show called “Man Vs. Food” on the Travel Channel. The premise of the show was straight forward, the host goes around America, visit some well-known eateries and take on these food challenge. These included things like the hot wing challenge, a 7.5lb hamburger challenge, a 4.5lb steak challenge to name a few.

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But what I did not realise was the amount of work and preparation that occurred behind the scenes until a saw a series of interviews on YouTube where the host Adam Richman explained some of the preparation and sacrifices that he did before and after the show.

Establishing a baseline – The first point was that he knew that he would have to eat a lot on the show. So, before he even started the series, he made an effort to see all of the medical specialists in order to establish what his health baseline is. This way, in case his health started to take a toll from the “huge” meals that he was eating, he would at least know where he needed to work back towards.

Balancing the in’s and out’s – The second notable from the interview was what he ate before and after filming. Much of weight management is about ensuring that your input and output are not out of balance. Given how many calories he was taking in during the challenges, this meant very light meals when he was not on camera. For breakfast, it was just oatmeal. And for dinner, it would just be a salad with chicken breast. Furthermore, during the show, he also did a minimum of 45 mins of cardio every day. And from a planning perspective, he had it written into his contract that the hotels he stays at must have a gym.

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So while, we only see the fun side of the food challenges, behind the scenes, there was a lot of planning and discipline to make sure that long-term health is not comprised. I think outside of the food and nutritional aspect, this also applies to other things like our investments and spending.

Four weeks, Eight weeks and Twelve weeks

The second interesting thing was the story behind his weight loss. After the show was concluded, the host actually went on to lose 70lbs. The weight loss itself was impressive but what I found far more interesting was what triggered it.

He mentioned in the interview that his decision to lose weight was triggered by a quote that for meaningful weight loss, it would take four weeks for you to notice it, eight weeks for friends and family to see a difference and twelve weeks for everyone else. So he thought, if it was only going to take three months, he might as well give it try.

As anyone who has dieted before, losing weight is easy, the harder part is actually keeping it off which requires a complete lifestyle change. But that is besides the point. The message that resonated with me was that you have to be patient to see results and often times it would take even longer for those results to be validated by others.

About five months ago, I started a new venture (not dieting related, that was actually many years ago where I lost 26% of my body weight with a 5% rebound since). While my new venture has yielded some initial green shoots, it has been slow at times and occasionally I wonder whether I should stay the course. However, I am reminded that my initial plan was to give this new thing 12-24 months to see where it takes me. So hearing the four, eight, twelve week quote above reminded me to stay the course. Hopefully, at the five, ten, 15 month timeframe, the impact would be bigger.

So to sum up, the lessons learnt from this episode of Man Vs. Food.

(1) Beyond the fun highlights, there is always a massive amount of planning and preparation. More specifically, (a) it is important to establish a baseline for performance and (b) be disciplined in balancing the in’s and out’s whether it is with investment and spending or caloric intake.

(2) Be patient with your plan. Given the proximity effect, you will probably see the difference first while others may not. But as time progresses, the impact becomes more pronounced and it could become a virtuous cycle where positive feedback reinforces the right behaviour.

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The two times when indifference might be good

Indifference and apathy are almost always bad. They show that there is no longer any emotional attachment. At least when someone is mad at you, they still care. While indifference in relationships is almost always bad, there are two times when indifference is good – marking the bottom and tops of markets.

I know your deeds, that you are neither cold nor hot. I wish you were either one or the other! So, because you are lukewarm—neither hot nor cold—I am about to spit you out of my mouth. – Revelations 3:15-16

Doesn’t matter. Whatever. I’m indifferent.

I hate those words. In fact, recently, I took away a week of screen time from my daughter because she gave me a “Whatever”.

The reason why I dislike indifference is that it adds no value. Now, there are times when we might be asked a question that we feel that we are not qualified to answer, such as “Which router is better?”, in which case, rather than say “It doesn’t matter”, the better response might be “I don’t know”.

Indifference and apathy are the two worst feelings

The other reason why I hate the idea of indifference and apathy is that it shows there is no longer any emotional attachment. Back in my previous career when I used to work for a bank, we used to all work towards the day that bonus came out. I have been on both sides of the desk (the one receiving the bonus and the one giving out the bonus). If the number was good, the recipient can’t help but crack a smile. If the number was bad, then there could be shouting or even some tears. But the worst response to a bad bonus number was indifference, a “meh!” This told me that the person has mentally and emotionally moved on and we are likely to lose the staff (Note: sometimes the poor bonus number has nothing to do with the individual’s performance, it was just a case of poor performance by the bank, hence no money to pay).

I think the same can be said of relationships. If your spouse is mad at you, there is still something that you can do about it. But if that feeling turns to disappointment, then watch out, you might be just a few steps away from apathy and indifference and the severing of the emotional cords.

Indifference to mark the bottom and top of markets

With that said, I think “indifference” can be useful in identifying market bottoms and tops. Over the past years, I have witnessed a couple of industries and stocks that have almost blown up. When times are good, the market bakes in high growth expectations into record high earnings and apply peak earnings multiple. But once the market turns, the reverse is true. At market bottoms, not only have earnings hit a trough but the market continues to project further decline and use trough valuation multiple to justify why a certain stocks should continue to fall.

Whether it is Macau gaming or Solar business or Off-shore Oil servicing, the swing from euphoria to despair can be spectacular with drops of approaching 95%.

Source: Yahoo finance

But something funny happens after a stock has dropped 95%. At some point, it stops reacting to bad news. It might announce terrible earnings or there might be a bad macro event but the stock doesn’t fall. There is a very simple reason for this. There are no more sellers.

Arguably, when a stock drops 20%, there are still investors who might hope it will bounce. With a 50% drop, some might still hope that the stock could double and they can still make money. But when a stock has dropped 90%, it needs to become a ten bagger just to break even. After a 95% decline, one would argue that either the stock is going bankrupt and going to zero or more likely, the next move is up.

In other words, when one cannot get more negative and becomes indifferent, this might actually mark the bottom. On the other hand, if a certain tech stocks report earnings that have shot the lights out but instead of rising 5-10%, it only eeks out a 1-2% gain for the day, then watch out. Perhaps the indifference is showing that everyone who wants to buy has already bought and there are no buyers left.

With that in mind, this is looking very interesting, provided it doesn’t go bust.

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Source: Yahoo finance



Care to share some toilet paper?

A short funny story for a Friday afternoon. After the amusing stories about umbrella sharing, this week, I bring you toilet paper. No, toilet paper sharing is not the latest fad in China. Instead, this story is about how facial recognition is changing toilet paper usage in China. Happy Friday!

A short funny one for a Friday afternoon.

For those that have been following my blog, I have been quite amused by some of the “silly” ideas that have popped up in China’s sharing economy. I had written about “Care to share an umbrella?” and “Care to return an umbrella?”

Well, this week I bring to you toilet paper.

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No, there isn’t an app for people to share toilet paper but there is a machine in China’s toilet which regulate how toilet paper is dispensed in public toilets.

How many squares is fair?

This story is from today’s HKEJ. For those of you that have visited China and had to go to the bathroom, you would have noticed that the way that toilet paper is dispensed is a bit different.

Rather than putting a roll within each stall, they have a central dispenser outside near where you wash hands. So, if you need to use the toilet, you take a few or a lot of squares and then go and do your business inside the stalls.

The problem was that some individuals took too many squares. Rather than taking what they needed, they just grab a lot, perhaps to save for later or use somewhere else.

In order to combat against wastage and improper use, someone came up with a technological solution – Facial recognition.

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In order to obtain toilet paper from the central dispenser, you need to look into the facial recognition camera. At that point, the machine will spit out a few squares for your use. However, let’s say you’ve eaten something bad and need a few more squares. In that case, you’ll have to hold it for nine minutes longer as the machine knows you have just taken some toilet paper and won’t dispense more to the same person until nine minutes have passed.

Did it work?

Yes. According to the story, the city government found that on average the number of toilet paper rolls used declined from 6-8 rolls to about 3 rolls.

Now, if someone can do a similar tally to see if the usage of hand soap has also seen a corresponding increase, that would be fun. Hope you’re not reading this as you are eating.

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Happy Friday!


Postcards from the supermarket – Which is more expensive? Buy-side Vs. Sell-side

Greetings from the produce section of your local supermarket. As I was meeting an old friend for lunch today, I came across some novelty melons. When I thought about how much they costs, the question of value came to mind. In this case, I would argue that their value could be totally different if one were to take a sell-side versus a buy-side perspective. Answer key at the bottom of the post, no peaking.

Greetings from the Produce section of your local supermarket.

Yesterday afternoon, my daughter said she was hungry. So, I made her a strawberry jam sandwich. She was still hungry, so I asked her to go to the supermarket next door to buy some fruit. She came back with a melon and said we got the most expensive one.

I freaked out!


Because I thought she got one of those Japanese musk melon that costs hundreds of dollars. What a relief it was when I found out that it only costs HK$60 (around US$7.50).

The biggest watermelon I have ever seen

That brings us to today. As I was getting ready to meet an old friend for lunch, I passed by a high end supermarket in the centre of town and I saw the biggest watermelon in my life. If you can see the label below, it was called a Japanese Jumbo Watermelon. What was even bigger was the price tag. I won’t reveal it yet, but it costs an arm and a leg.

FullSizeRender 4Given the previous day’s experience, I proceeded to check out the prices of some of the other types of melons.

Here is one of a Korean musk melon.

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Then, some Japanese varieties. Here is a Japan Shizuoka Melon.

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And here is a Japan Heart Shape Melon.

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Which one is most expensive?

This got me thinking…would my kids be able to guess which one is more expensive? If I asked you to rank them from the cheapest to the most expensive, my guess is that 95% of you would get it right. The answer is at the end of this post but try not to jump to the end just yet.

When we think about price, most of us probably approach this question from the “Buy” side perspective (i.e. the consumer perspective).

Buy side Vs. Sell side – Value can be very different

But as I wondered who would fork out such a huge sum for these novelty produce, I started to think about which one is more expensive from seller’s perspective.

I guess there’s probably the odd fellow who shells out thousands of dollars for a heart shaped melon to impress a new girlfriend but in most cases, these fruits probably just sit there. At the end, when they start to spoil and the owner or the staff probably crack the melons open and eat it themselves so it doesn’t go to waste.

So from the seller’s perspective, these novelty melons’ value is really just as a sales gimmick. From a marketing perspective, they help to draw in the crowds but in terms of their actual sales value, in most cases, it is zero (i.e they don’t sell). Conversely, although the regular fruits sells for much cheaper, their higher volume means they offer much greater value to the seller.

So if one had to rank the fruits from cheapest to most expensive, it does really depend on whose perspective you take. Now you can scroll to the bottom to reveal the actual prices of the melons. Did you get it right?

Buy side perspective – From cheapest to most expensive

Sell side perspective – From cheapest to most expensive






Answer – Actual price of the produce

  • Korean Musk Melon – HK$80 (around US$10)
  • Japan Shizuoka Melon – HK$498 (around US$64)
  • Japan Heart Shaped Melon – HK$1,388 (around US$180)
  • Japan Jumbo Watermelon – HK$2,988 (around US$385)