Ferrari repositions for a one-horse race in ultra-luxury stakes; By creating a cult of exclusivity for their most expensive products, consumers will often shop for items lower down its retail chain in order to buy into brand exclusivity

June 11, 2013 4:32 pm

Ferrari repositions for a one-horse race in ultra-luxury stakes

By Rachel Sanderson in Maranello

At its headquarters amid the cherry orchards and Lambrusco vineyards of Emilia Romagna, Ferrari has built a reputation as haven of prosperity in recession-wrackedItaly. This year, while much of Italian business splutters, Ferrari is adding 250 jobs and handing out bonuses of at least €8,500 to its workers. But Luca di Montezemolo, 65, aristocratic chairman of the flame-red sports car maker, wants to pull even further away from the crowd. After a record €350m in trading profits in 2012 and on the cusp of the launch of its $1.3m LaFerrari, Ferrari plans to ensure its future success not by increasing output but by cutting back production this year by 400 cars to around 6,900 vehicles. Sitting at his red-leather topped desk at Ferrari HQ in Maranello, Mr Montezemolo sweeps back his signature floppy hair as he argues that after a record year for the business it is the ideal time to switch gear on strategy. “I’m talking about fewer cars but this does not mean fewer revenues or profits,” he says. “We want to increase the exclusivity of Ferrari. We want to maintain the value of the used car market. We want to develop the rest of the business like licensing and products.”This strategy of exclusivity pursued by Ferrari is one already followed by luxury goods houses such as handbag producer Hermès and watchmaker Vacheron Constantin.

By creating a cult of exclusivity for their most expensive products, consumers will often shop for items lower down its retail chain – high-margin key rings, bathtowels or rings – in order to buy into the exclusivity of the brand. It is a strategy that has served Hermès well in China where its perceived exclusivity has insulated it from a general downturn in luxury sales.

At Ferrari, Mr Montezemolo admits that boosting the allure of “Il Cavallino Rampante” is also useful for its parent company Fiat. Sergio Marchionne, Fiat’s chief executive, is betting a revival of its fortunes in money-losing Italy on sales of its newly launched €130,000 Maserati which will have a Ferrari engine. Of the jobs being added at Maranello this year, 200 will be to work on engines for Maserati.

“This strategy of exclusivity is something wholly shared by our shareholder. It is a strategy that is also useful in China,” Mr Montezemolo says.

Ferrari’s strategy shift to heighten its exclusivity comes amid a slowdown in car sales in China, giving rise to expectations among some analysts that it is putting a positive spin on weakening sales.

Max Warburton, a global car analyst at Bernstein Research, says Ferrari sales in China were already expected to slow this year.

Outside of Japan and the US, where Ferrari sales rose 12 per cent in the first quarter, demand has slowed. Ferrari and Maserati sales in China fell in the first two months of the year, according to LMC Automotive estimates. In Europe, sales of the two marques fell 40 per cent in the first two months to about 480 cars, according to European Automobile Manufacturers’ Association data.

Another benefit of moving into the luxury sphere is that is may help to boost Ferrari’s multiples. While Mr Montezemolo and Mr Marchionne repeatedly deny a spin-off or listing of Ferrari, analysts say Ferrari could command a valuation in excess of €6bn the more it is presented as an ultra luxury brand.

In his 22 years running Ferrari, Mr Montezemolo has turned the carmaker into one of Italy’s most successful companies, accounting for about 10 per cent of Fiat’s 2012 operating earnings. Today, Mr Montezemolo sees his role as sustaining the brand at all levels.

Ferrari’s brand stretch hit home last year when Sir Stirling’s Moss’s apple green1962 Ferrari 250 GTO sold for $35m in June 2012 to a US car collector, making it the most expensive car in the world. Ferrari also got 11.7m likes on Facebook.

Andrea Perrone, former chief executive of Brioni, the suitmaker for James Bond movies, joined last year to head up a unit which runs more than 50 Ferrari retail stores worldwide and includes among its activities licensing Ferrari’s name to theFerrari World theme park in Abu Dhabi. It made a trading profit of €50m on revenues of €100m in 2012.

At the cheaper end of Ferrari’s retailing scale, one of its biggest sellers in Asia are car seats and strollers for babies and toddlers in Ferrari red and stamped with the prancing horse selling for €100. Every minute 95 products with a Ferrari logo are sold, according to the company.

Mr Perrone has now launched a new top-end clothing line called Pr1ma, which includes leather driving jackets for €1,600 and €1,500 Kevlar sunglasses.

“We kept being asked by Ferrari owners if we could provide clothes to wear in the car. This is for them,” he says.