1 00:00:05,559 --> 00:00:08,440 Speaker 1: Welcome to Fear and Greed, summer investing series brought to 2 00:00:08,480 --> 00:00:11,879 Speaker 1: you by Vanta, specialists in compliance lead Growth. I'm Sean Aylmer. 3 00:00:12,280 --> 00:00:14,760 Speaker 1: Anyone who's visited a shopping center in recent years or 4 00:00:14,760 --> 00:00:17,959 Speaker 1: will have come across Levisa. La Visa sells cheap jewelry. 5 00:00:18,000 --> 00:00:20,759 Speaker 1: It's a relatively simple business, but is it one for 6 00:00:20,840 --> 00:00:24,599 Speaker 1: your portfolio? As always, this is general information only and 7 00:00:24,640 --> 00:00:28,160 Speaker 1: you should seek independent advice before making investment decisions. Gorrav 8 00:00:28,200 --> 00:00:31,640 Speaker 1: Sody is the deputy head of Research at Intelligent Investor. 9 00:00:31,680 --> 00:00:33,200 Speaker 1: Gorerab Welcome back to Fear and Greed. 10 00:00:33,600 --> 00:00:34,880 Speaker 2: Thanks Shawan. It's a pleasure to be here. 11 00:00:35,520 --> 00:00:38,680 Speaker 1: So is it a simple business Levisa? 12 00:00:38,880 --> 00:00:42,640 Speaker 2: Yeah, it is a simple business, Seawan. Retailing is typically 13 00:00:43,159 --> 00:00:46,840 Speaker 2: pretty easy to understand as a concept. You're you're really 14 00:00:47,320 --> 00:00:50,800 Speaker 2: making or buying something and then selling it at a margin. 15 00:00:51,479 --> 00:00:55,320 Speaker 2: And because it's so simple, it is incredibly competitive, which 16 00:00:55,360 --> 00:00:58,320 Speaker 2: is why when I first came across Levisa, I actually 17 00:00:58,360 --> 00:01:00,880 Speaker 2: thought it was a fraud. We were doing an exercise 18 00:01:00,920 --> 00:01:03,080 Speaker 2: in the office looking at all these retailers, and the 19 00:01:03,160 --> 00:01:07,600 Speaker 2: numbers coming out of Levisa were so astonishing. There are 20 00:01:07,600 --> 00:01:10,920 Speaker 2: particular markers we have in the office for frauds, and 21 00:01:10,959 --> 00:01:15,399 Speaker 2: one of them is over profitability and a few technical 22 00:01:15,440 --> 00:01:18,199 Speaker 2: accounting things that we look at, and this was setting 23 00:01:18,200 --> 00:01:20,680 Speaker 2: off red flags. I thought, this can't be right. There's 24 00:01:20,680 --> 00:01:23,280 Speaker 2: something wrong here. This is a fraud. Now I had 25 00:01:23,319 --> 00:01:25,360 Speaker 2: to pin down as a business. I was going to explode. 26 00:01:25,800 --> 00:01:27,600 Speaker 2: But then as I did a bit more work on 27 00:01:27,680 --> 00:01:29,840 Speaker 2: it and we started try understand this business, we realize 28 00:01:29,840 --> 00:01:31,720 Speaker 2: it is not a fraud. It is probably the best 29 00:01:31,800 --> 00:01:36,080 Speaker 2: quality retailer I've ever seen. Wow, the most profitable retailer 30 00:01:36,120 --> 00:01:40,280 Speaker 2: I've ever seen. Why. It's the operating model that they have. 31 00:01:40,440 --> 00:01:44,040 Speaker 2: So let's just break down the profitability of Levisa. It 32 00:01:44,080 --> 00:01:47,960 Speaker 2: will absolutely astound you. They earn eighty percent gross margins, 33 00:01:48,000 --> 00:01:51,320 Speaker 2: incredible for retail. Their net margins are about twenty percent, 34 00:01:51,360 --> 00:01:54,240 Speaker 2: which is kind of what Apple earns. I've never seen 35 00:01:54,280 --> 00:01:59,240 Speaker 2: a retailer that earns a margin similar to an ecosystem 36 00:01:59,280 --> 00:02:02,360 Speaker 2: holder like Apple. It's astonishing. So how do they do 37 00:02:02,440 --> 00:02:09,399 Speaker 2: it well? Levisa controls the entire value chain from design, production, wholesale, 38 00:02:09,440 --> 00:02:12,280 Speaker 2: and retail. So when it comes to design, they have 39 00:02:12,320 --> 00:02:15,520 Speaker 2: a team of designers who scour the world for trends. 40 00:02:15,880 --> 00:02:20,200 Speaker 2: They then quickly produce those trends in factories that they control, 41 00:02:20,400 --> 00:02:23,320 Speaker 2: so they have production facilities in China and all over 42 00:02:23,360 --> 00:02:26,760 Speaker 2: the world. They then distribute and they have DC distribution 43 00:02:26,880 --> 00:02:29,799 Speaker 2: centers again all over the world, and they control all 44 00:02:29,840 --> 00:02:33,320 Speaker 2: their retail outlets. So they are taking they are not 45 00:02:33,360 --> 00:02:36,120 Speaker 2: giving up any margin to anyone else, and they have 46 00:02:36,440 --> 00:02:42,919 Speaker 2: internalized that entire process from design, production, wholesale, distribution, and retail. 47 00:02:43,000 --> 00:02:46,119 Speaker 2: That's because they capture margin all along the way. That's 48 00:02:46,120 --> 00:02:50,040 Speaker 2: one of the secrets to their high profitability. The other 49 00:02:50,080 --> 00:02:53,160 Speaker 2: thing that this business does because they capture that whole process, 50 00:02:53,200 --> 00:02:55,600 Speaker 2: that's high margin and when you think about the nature 51 00:02:55,639 --> 00:02:58,720 Speaker 2: of the good, it's a very high turnover good. Now 52 00:02:58,720 --> 00:03:03,400 Speaker 2: that's a really combination in retail. Typically, if you're a retailer, 53 00:03:03,440 --> 00:03:05,480 Speaker 2: you might think of a grocery business right like a 54 00:03:05,639 --> 00:03:08,679 Speaker 2: like a Woolies or Calls. They own very small margins, 55 00:03:08,720 --> 00:03:11,280 Speaker 2: but they turn over a lot of products. So that's 56 00:03:11,280 --> 00:03:14,120 Speaker 2: how they generate their profitability. Very small margins sort of 57 00:03:14,160 --> 00:03:16,800 Speaker 2: sort of three four percent profit margins, but turnover a 58 00:03:16,840 --> 00:03:18,920 Speaker 2: lot and a lot. On the other side, you have 59 00:03:19,000 --> 00:03:22,240 Speaker 2: something like like a Tiffany's, like a high end jeweler, 60 00:03:22,600 --> 00:03:25,079 Speaker 2: they might earn sort of a fifty sixty percent margin, 61 00:03:25,400 --> 00:03:27,960 Speaker 2: but they don't turn over their stock all that often. Now, 62 00:03:28,040 --> 00:03:33,520 Speaker 2: Leavisa combines super high margin eighty percent gross margin along 63 00:03:33,560 --> 00:03:37,760 Speaker 2: with super high inventory turnover, and that is a secret source. 64 00:03:38,200 --> 00:03:40,000 Speaker 2: That is That's why I thought it was a fraud, 65 00:03:40,040 --> 00:03:42,240 Speaker 2: because we don't often see that. I can't think of 66 00:03:42,320 --> 00:03:45,200 Speaker 2: many businesses that are able to combine those two things together, 67 00:03:46,080 --> 00:03:49,880 Speaker 2: and they are growing exponentially. I expect them to open 68 00:03:49,920 --> 00:03:53,960 Speaker 2: their one thousandth store sometime in early twenty twenty five. 69 00:03:54,480 --> 00:03:56,440 Speaker 2: Four years ago, they had about two hundred stores. 70 00:03:57,280 --> 00:04:01,520 Speaker 1: Wow, what the store of the competitors? Why are they 71 00:04:01,600 --> 00:04:02,880 Speaker 1: doing it? No one else is doing it? 72 00:04:03,240 --> 00:04:05,600 Speaker 2: Yeah, they have lots of competitors shore, and lots of 73 00:04:05,640 --> 00:04:08,680 Speaker 2: people have tried to copy what they're doing. I think 74 00:04:08,720 --> 00:04:12,920 Speaker 2: one of the secrets here is also because they own 75 00:04:13,160 --> 00:04:17,320 Speaker 2: their retail stores and the design and the retailer is integrated. 76 00:04:17,480 --> 00:04:20,760 Speaker 2: They collect lots of data from all over the world 77 00:04:20,839 --> 00:04:24,000 Speaker 2: about what is selling and what is not, So at 78 00:04:24,080 --> 00:04:26,720 Speaker 2: any point in time, they're able to tell you this 79 00:04:26,800 --> 00:04:29,880 Speaker 2: item is selling, these trends are working, and those trends 80 00:04:29,920 --> 00:04:32,800 Speaker 2: are not, And all that sales data feeds back into 81 00:04:32,839 --> 00:04:37,320 Speaker 2: the design team and that informs new designs. So actually 82 00:04:37,360 --> 00:04:40,560 Speaker 2: the more they grow, the larger their network, the better 83 00:04:40,640 --> 00:04:43,160 Speaker 2: their quality of their data, and the better the information 84 00:04:43,240 --> 00:04:46,400 Speaker 2: that informs the design team. And if you're a new competitor, 85 00:04:46,480 --> 00:04:48,240 Speaker 2: you may start out even if you start out with 86 00:04:48,279 --> 00:04:50,720 Speaker 2: four or five stores, you just don't have that breadth 87 00:04:50,720 --> 00:04:52,960 Speaker 2: of data to be able to hit the trends that 88 00:04:53,080 --> 00:04:56,719 Speaker 2: Levisa can find so much quicker. And because they have 89 00:04:56,960 --> 00:05:02,680 Speaker 2: built out over time these tribution centers and these production facilities, 90 00:05:02,960 --> 00:05:06,400 Speaker 2: they actually release about one hundred new items every week, 91 00:05:06,960 --> 00:05:10,599 Speaker 2: and no other retailer of this in this space can 92 00:05:10,680 --> 00:05:14,800 Speaker 2: come anywhere close to that. So in the advantages they 93 00:05:14,839 --> 00:05:18,240 Speaker 2: have have come from time and scale, and they're quite 94 00:05:18,320 --> 00:05:19,640 Speaker 2: difficult to compete. 95 00:05:19,240 --> 00:05:22,040 Speaker 1: With risks to Levisa as an investor. 96 00:05:22,520 --> 00:05:25,400 Speaker 2: Yeah, So the big risk, and I think this is 97 00:05:25,480 --> 00:05:29,840 Speaker 2: true for any retail stock, is that cheap costume jewelry 98 00:05:29,960 --> 00:05:33,960 Speaker 2: is reliant on hitting the right trends, and there's a 99 00:05:34,080 --> 00:05:38,080 Speaker 2: risk that trends change and maybe consumers no longer pursue 100 00:05:38,240 --> 00:05:41,800 Speaker 2: cheap costume jewelry. They might seek out higher cost, better 101 00:05:41,880 --> 00:05:45,600 Speaker 2: quality jewelry. So we may be in the middle of 102 00:05:45,120 --> 00:05:47,800 Speaker 2: a long trend that suddenly comes to an end. So 103 00:05:47,839 --> 00:05:52,560 Speaker 2: this requires constant monitoring. Because retail is trend driven, it 104 00:05:52,600 --> 00:05:55,640 Speaker 2: is prone to fads and we have to monitor this 105 00:05:55,680 --> 00:05:58,120 Speaker 2: to make sure we are not on the receiving end 106 00:05:58,400 --> 00:06:01,600 Speaker 2: of a fad. For your time this morning, Thank you. 107 00:06:01,560 --> 00:06:04,680 Speaker 1: Sean does Gore have Sony, Deputy head of Research at 108 00:06:04,680 --> 00:06:07,839 Speaker 1: Intelligent Investor. Remember to get your own independent advice before 109 00:06:07,920 --> 00:06:11,120 Speaker 1: making decisions. This is Fear and Greed Summer Investing series 110 00:06:11,240 --> 00:06:14,200 Speaker 1: brought to you by Vanta van To automates compliance for 111 00:06:14,360 --> 00:06:18,560 Speaker 1: frameworks like ISO twenty seven one, SoC two, CPS two 112 00:06:18,560 --> 00:06:21,360 Speaker 1: three four and Essential eight, saving time and money while 113 00:06:21,360 --> 00:06:25,240 Speaker 1: building trust. Join over eight thousand companies like Atlasian, Dovetail 114 00:06:25,279 --> 00:06:27,880 Speaker 1: and fire Ant managing real time risk. Get one thousand 115 00:06:27,880 --> 00:06:30,840 Speaker 1: dollars off at vanter dot com. Slash Fear and Greed. 116 00:06:31,120 --> 00:06:33,960 Speaker 1: I'm Sean Elma, Enjoy your day.