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Ferrari: The magic brand

26 July 2010 | Posted in Notes & Insights | By David Cushnan | Contact the author

Ferrari is quite simply one of the world’s most recognisable brands. But the legendary Italian manufacturer no longer relies simply on selling cars and winning races to generate revenues. Its US$1.5 billion licensing and retail division has become the model for sports properties around the world.

In terms of results it has been a less than stellar season for Ferrari, perhaps the most famous of all the world’s car manufacturers. In early September, the Italian firm announced that it had sold eight per cent fewer cars in the first six months of 2009 than in the same period the previous year, resulting in an overall drop in revenues to around US$1.3 billion. On the track, meanwhile, its Formula One team has had a dismal year. After winning last year’s constructors’ championship and narrowly losing out on the driver’s title, this season has yielded only one victory – Kimi Raikkonen’s brilliant win in Belgium – and has seen the team having to cope with the severe head injuries suffered by Felipe Massa during qualifying for July’s Hungarian Grand Prix.
More positively, the race team appears in excellent shape for the 2010 season, with the team’s long-term target Fernando Alonso finally secured to partner the returning Massa. And despite the financial dip, the general consensus is that Ferrari as a company is doing better than most manufacturers during the global recession – it described the half-year figures as “a positive result, given the particularly negative conditions currently on the world markets.”
 
The company’s resolute performance is, in no small part, down to its ever-expanding licensing and retail departments, designed to exploit and broaden the Ferrari brand around the world. It has become a huge part of Ferrari’s business. Stefano Lai, Ferrari’s director of communications, puts it this way: “The brand is getting more and more important. Licensing and branding accounts for roughly 25 per cent of our trading profit, so it’s important. In the last six months – the first six months [of the year] – the licensing and retail grew by something like 27 per cent. It’s really a market that is doing well and what we are doing there is maintaining exclusivity, so we are very careful in the partners we select.”

Retail and licensing is particularly important to a company like Ferrari because, in global terms, the company is a tiny car manufacturer, employing only around 3,000 people in its road car and race team. Remarkably, despite having been in the car building business since 1947, throughout its history the firm has only produced the same number of cars as Porsche produces in a year – estimated by the Italians to be around 100,000. As the company’s appropriately named licensing and retail director, Massimiliano Ferrari puts it: “That’s exclusivity; it’s a true luxury. When we talk about luxury, this is it.”

He adds: “Ferrari is a style brand. We have more than 60 years of very successful history, always consistent in red, in racing, and the brand allows us to generate a lot of profit. We have ‘two souls’. One is the racing soul, with the racing shield logo, and the other is the GT part – both with Il Cavallino logo, the prancing horse that everybody knows. We reach both targets: we reach the millions of fans who are in love with the Ferrari brand – and we have seen all the numbers – but at the same time we also reach a very exclusive elite of Ferrari owners or aspirational Ferrari owners.”

Ferrari is currently present in 52 countries around the world; it sold 6,587 cars in 2008, which was the company’s best ever year in terms of sales. Says Lai: “The growth is not because we sell more cars in each market; it’s because we enlarged our markets. China has become a booming market for us; the Middle East is growing, South America is doing well. The United States is still our best market. Our production goes 95 per cent abroad.”

Ferrari has 200 dedicated dealerships, split across four separate geographical business areas: North America; Asia-Pacific (China, Middle East, South Africa, Australia and New Zealand); west Europe; and east Europe. “We don’t want to have too many Ferraris. We are not really into the numbers, apart from the profitability of the company. Last year we had a return on investment of around 17 per cent which, for a car manufacturer, is amazing.”

The comparatively small number of cars produced undoubtedly helps to heighten the mystique of the brand, something that Lai is happy to elaborate on: “We have a business model that we always sell less than the market demands. If the market has a certain amount of cars, we sell less. We have a waiting list, we don’t touch the waiting list, so if you want a Ferrari you have to desire it.”

Thanks to that and the history of the company, particularly through its racing exploits in Formula One, the company has been able to exploit retail and merchandising opportunities perhaps better than any other major sports property. It is therefore no surprise that when Massimiliano Ferrari attempts to convey exactly what the brand means, he becomes almost evangelical: “The core values of Ferrari are competition, passion and, if you go more in the exclusive part, you have the uniqueness of the style, the Italian style, the dolce vita. Foremost, and this is something that is in common with both target groups, is the quality – the absolute excellence. It’s a magic brand. It’s performance and technical but it’s a warm and emotional brand. What Ferrari gives, and we have seen it in our sponsorship and licensing partners, is emotion to the brand. This is unique and very important especially on the sponsorship side. We are absolutely one of the top sporting properties in the world, ahead of Manchester United and Real Madrid in terms of the power of the brand. This is key on the sponsorship side.”

Overall, Ferrari estimates that the retail value of all Ferrari products excluding the actual cars – merchandise and licensed products – totals US$1.5 billion annually worldwide. “It has become a very big part of the business,” Ferrari says. “This part of the business is very international, very balanced between all the different countries. Our core business is of course cars but we are stretching the brand, but very carefully. We are faithful to the Ferrari name.” Some 45 per cent of retail sales occur in Europe; 14 per cent in the Middle East; 21 per cent in the Americas; and 22 per cent in the Asia-Pacific region.

Ferrari’s approach to licensing and retail is divided into three areas: premium fan merchandising; the toy market; and luxury. “The fan merchandise is all the red and yellow caps and t-shirts – what you see at Monza and all over the world,” says Ferrari. “Our approach is always a premium approach. We have premium merchandise; our merchandise is always a little bit above, for instance, Manchester United. Then of course we have the luxury side. We are a luxury brand and we develop products like leather products made in Italy – we try and incorporate the deep, deep value of the brand, both technological as well as in terms of lifestyle.”

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Arguably, however, it is the toy market that is most valuable to Ferrari, not financially but from a brand-building perspective. “The magic of the brand comes from children; when you are a child you always have as a gift a little model of the car, and each year we are selling more than 25 million pieces. That is very important because they grow with us – the emotion, the magic and the positive value are linked to that. Attracting the Formula One fan creates the aspiration.”

More often than not, Ferrari licensees are also Ferrari Formula One team sponsors or suppliers. As Ferrari puts it: “We like very much to do sponsorship and activate the sponsorship through products; Puma is one, as is Acer. We are looking for global partners. We are a global brand so we look for global partners that will stay with us for a long time. Of course we also have the lifestyle and luxury part, which is really inspired by our GT cars. An example is the Vertu mobile phone – they are a sponsor and a licensee. We talk to our fans in one language but we also talk the language of luxury with our products.”

With its three product areas firmly established, the next step in expanding the brand was a fairly obvious one: establishing dedicated Ferrari retail outlets. That concept was born in 2002. Now there are 30 outlets around world, sited in premium locations often in major cities. In May, for example, Ferrari opened its London store on the city’s renowned Regent Street. Of the Ferrari Store concept, Ferrari says: “It’s unique, and for us it is the most important part of the non-car business because it’s the best shopping experience you can have with our brand. There are exclusive products. We had a little team that developed the design internally to make it a top experience.”

“We always look for top locations around the world. We are very selective,” Ferrari adds. “We started in Maranello, Milan and Rome, in Italy. That was a pilot test but we are now moving internationally. We are in Singapore, in Macau, and we just opened in London and Abu Dhabi. We have a list for expansion. By the end of the year we will be in New York.”

But Ferrari insists that the company will retain the exclusivity of the brand by not opening shops anywhere and everywhere but, instead, choosing locations that match the prestige of the brand itself. “We don’t want to open 500 stores,” he says. “We currently have 30 and we want to grow little by little in top locations. It’s something we are developing; in the next two years we would like about 60. It’s a reasonable number that maintains the exclusivity but gives a wider visibility to the brand all over the world.”

Future plans include new stores in Barcelona and Madrid, which will prove timely as Spanish double world champion Alonso joins Ferrari’s Formula One team from next season. Massimiliano Ferrari calls Spain “a priority country for us,” adding: “We feel our brand is very sympathetic and close to Spain.” The racing team is also benefiting from Spanish investment next year, when Santander bank joins as a major sponsor. “We started with the airport store in Barcelona, which is very important. Now we are pushing the envelope, and the partnership with Santander will accelerate that in Spain and all over the Latin countries. We also plan to open in Sao Paulo, Brazil.”

The interiors of each store are carefully divided into three specific areas to match the three product areas. “We have a fan area for our tifosi,” Ferrari explains. “Then we have a kids area and then a lifestyle area. The kids area is more playful with a lot of entertainment, and the luxury area has the high end products.”

It is the fan-targeted products that currently yield the biggest returns for the company. “The most important is the fans,” Ferrari confirms, “because we are talking about millions of fans; in terms of volume that is huge. In terms of value, the high side of the brand is becoming more and more important. In Ferrari stores, for example, the turnover is 50-50 in value, which is interesting. The ‘kids universe’ is about 35 to 40 per cent of the total, so that’s very important as well. So its fans, toys and lifestyle, but lifestyle is growing very quickly.”

Aside from direct licensing and merchandising, Ferrari has also embarked on what it terms “special projects”. Most notably this means the development and construction of a Ferrari theme park – Ferrari World – in Abu Dhabi. Mooted for several years, construction is now well underway on Yas Island, a US$40 billion lifestyle, leisure and retail development being built in the emirate that was also the site for the inaugural Abu Dhabi Grand Prix in November. Ferrari expects the park, being built by Aldar Properties, to be open between June and September next year. The distinctive roof – Ferrari red with the prancing horse logo so large it will be visible from aircraft landing at nearby Abu Dhabi airport – is modeled in the shape of a Ferrari GT car.
 
Ferrari World will be the largest indoor theme park ever built and will include 24 rides and attractions, including what is set to be the fastest rollercoaster in the world. “It will be a multimedia experience and the ultimate experience of Ferrari – the rollercoaster, the history, the hall of fame of Ferrari. It is family-targeted but it will be a huge Ferrari experience.”

He adds: “Ferrari is a very emotional brand and this is another way to develop in a very nice way our very powerful brand.”

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