Welcome to professors’ picks, offering a weekly curated selection of FT articles by and for business school faculty to connect classrooms to current events and to develop students’ critical thinking.
Read all submissions at www.ft.com/bschoolpicks. Save this link in myFT to receive emails alerting you to each new edition. Search the tags for relevant topics to illustrate teaching points. Encourage students to join the debate in the comments section beneath the article.
Comments or contributions? Get in touch at [email protected]
Marketing of luxury brands
Hermès overtakes LVMH for luxury’s top spot after weak sales spark sell-off
Tags: Luxury brand value, brand exclusivity and desirability, monobrand vs multi-brands strategy, pricing strategy, economic uncertainty
Summary: On April 15, shares in LVMH dropped 7.9 per cent, reducing its market value to €246.5bn — its lowest since November 2020 — after disappointing Q1 results, including a 5 per cent decline in fashion and leather goods sales. Meanwhile, Hermès, which maintains a single-brand model, surpassed LVMH in market value at €248.1bn. Hermès’ success stems from its exclusive products, wealthy clientele and limited production, allowing it to better withstand economic slowdowns and minimise the impact of tariffs on profit margins. Its coveted bags like the Kelly often sell for over €8,000 and command high resale prices. As a result, Hermès shares trade at 50 times forward earnings, outperforming competitors.
Classroom application: This article provides a clear overview of the contrasting financial performance of two luxury companies, Hermes and LVMH, measured by stock market value and the ratio of earnings to share price. It raises several important points, such as what makes a luxury brand valuable to the consumers; what makes it resilient to economic uncertainty, such as a trade war; and what are the advantages of a single brand business model vis-à-vis a multi-brand business model?
Questions:
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Why does Hermès appear more resilient to economic uncertainty compared with other luxury brands, including LVMH? What does this suggest about the brand value and customer base of Hermès and LVMH respectively?
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Is a monobrand luxury business model more resilient during periods of economic uncertainty than a multi-brand luxury group? If so, why?
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How are increased tariffs between the US and the EU affecting the sales and profit margins of luxury brands?
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What additional challenges are Western luxury brands currently facing, and what strategic adjustments should they consider to stop the downward trend and secure long-term growth?
Qing Wang, Professor, Warwick Business School
Banking
Switzerland proposes forcing UBS to add $26bn in capital
Tags: Banking, capital requirements, regulation, Switzerland
Summary: The Swiss government has proposed raising UBS’s capital requirements by up to $26bn to prevent a repeat of Credit Suisse’s collapse. UBS criticised the plan as “extreme” and harmful to its global competitiveness. The reforms would require UBS to fully capitalise its foreign subsidiaries and adjust its capital base, with changes phased in over several years starting in 2028. The package also includes regulatory tightening, greater accountability for bank executives and new powers for regulators. Political opposition and the possibility of a national referendum may delay or alter the reforms. UBS plans to continue lobbying against them.
Classroom application: This article provides an opportunity for faculty and students to analyse how regulation affects the banking sector and how companies can respond.
Questions:
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How does the Swiss government’s proposal to fully capitalise UBS’s foreign subsidiaries address systemic risk in the banking sector? Evaluate the effectiveness and potential limitations of this approach
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Analyse the strategic implications for UBS’s international expansion plans if it is required to meet 100 per cent capital coverage for foreign subsidiaries. How might the bank adjust its global growth strategy in response?
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Critically assess the trade-offs between financial stability and international competitiveness in the context of Switzerland’s proposed banking reforms. How can regulators strike a balance?
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Discuss the role of the proposed senior managers regime and clawback provisions in improving corporate governance in systemically important financial institutions. What challenges might arise in their implementation?
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How should UBS’s leadership navigate stakeholder opposition, including political parties and regulators, while safeguarding the bank’s strategic interests? What stakeholder engagement strategies would be most effective?
Stefan Legge, lecturer, University of St Gallen
International finance
Dollar slides towards 3-year low as weak US data stokes economic fears
Disciplines: Finance, International Entrepreneurship, International Strategy, Currency exchange
Tags: International Finance, Dollar, Diversification, US Treasuries, US Trade
Summary: Imports have declined sharply and manufacturers reduced inventories in anticipation of new trade levies. One result is that the dollar slid towards a three-year low and US government bonds yields rose further. A Forex strategist said these changes are adding to an already problematic momentum. JPMorgan Chase chief executive Jamie Dimon is concerned the US bond market might eventually “crack.” Prices for commodities such as aluminium and steel are now surging. An Institute for Supply Management survey is likely directly and negatively affecting the S&P 500.
Classroom application: This article provides a good catalyst for the debate about how economic policy decisions (in this case, US manufacturing activity) are affecting not only consumer spending, but also fiscal and monetary policy. It is strong reminder that everything in business — currencies, bonds, inflation — are inextricably linked. Ironically, these are all US economic policies rather than a commentary on international policies or their ramifications. The survey further confirms these trends.
Questions:
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Do you believe that treasury yields will eventually begin coming down?
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Currencies tend to follow the “Big Mac Index,” which is a proxy for purchasing power parity. Does that model apply here for the weakening dollar?
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There has been much debate over the past couple of years on the positives and negatives of a strong dollar. It’s an easier discussion if the dollar is too high but now that it is lowering, what are your thoughts?
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Do you believe Moody’s downgrade for the US sovereign credit rating has affected the dollar’s strength?
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If you were a manufacturer, would you plan to diversify your own investments now or are you still going to primarily keep your existing portfolio intact?
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Do you believe a moderately strong dollar is in the long-term best interest of the country and for world trade?
Case Discussion Positioning: Here are other associated articles. The connection between US bond yields and the Dollar. Investors are getting jittery about weakening economic fundamentals. President Trump’s policies now directly affect traditional flights to safety. Bond markets can no longer be described as “calm.” Can this all have long-term damages?
Gregory Stoller, Master Lecturer, Boston University Questrom School of Business
Got feedback on professors’ picks or willing to contribute? Get in touch at [email protected] or add your selected articles and questions in the comments below.
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