Owning the Fibre

Most luxury companies compete on the brand. A smaller number compete on the material, and Loro Piana is the clearest example of what that strategy looks like when it is pursued for decades.

The logic is simple enough to state in a sentence. Design can be copied and designers can be hired away; supply cannot be manufactured. If you control access to the finest fibre in the world, a competitor with a better designer and a bigger marketing budget still cannot buy what you are weaving.

So the company went upstream, in two directions.

The first is vicuña. The vicuña is a wild camelid in the high Andes, hunted almost to extinction by the 1960s, and the finest animal fibre in commerce at around twelve microns. In the 1990s Peru began legal live shearing again, and Loro Piana, leading a consortium, signed an agreement with the Peruvian government and Andean communities covering the right to buy and process the fibre. Peru also gave indigenous communities exclusive rights to shear and sell fibre from animals on their land.

That is a moat nobody can dig around. There is no way to make more vicuña: the animal is wild, protected, and can be shorn only every few years.

The second direction is merino, and the instrument is a prize. The Record Bale Award is given annually to the grower of the finest merino fleece in the world. The 2023 record was 10.2 microns, from a farm in Australia, beating a record of 10.3 that had stood for a decade.

Stop on that number for a moment, because it is remarkable. The record sheep's fleece is finer than vicuña. One is a wild animal that has to be caught and released, the other is the product of selective breeding pushed to an extreme, and the sheep won.

The prize costs very little. What it buys is that the best growers in the world bring their best bale to you first, every year, in public, and the competition reads about it afterwards. It is one of the cheapest supply-side advantages available in any industry.

LVMH bought eighty per cent of Loro Piana in 2013 for roughly two billion euros, adding a further slice in 2017. A conglomerate that owns dozens of brands paying that for a company whose advantage is upstream is a judgement about which kind of advantage lasts.

Now the risk, which is structural and not incidental.

When your moat is a raw material, your supply is a place, and places have people in them.

Bloomberg reported in 2024 that the rate paid to the community of Lucanas for raw vicuña fibre had fallen by around a third over the previous decade, while sweaters made from it retailed in the thousands. An earlier government-commissioned study had found most people in the town saying they had not benefited from the trade. Loro Piana disputed the reporting.

And the community's own president said something that explains the bind better than either side's statement: the company is their main buyer, and the most important one.

That is the shape of the problem. A single buyer in a remote market sets the price and is simultaneously the only market, so the seller's leverage is close to zero and the buyer's exposure is total. There is nobody else for the community to sell to, and nobody else for the reporter to ask about.

The commercial lesson is not that going upstream was a mistake. It plainly worked, for thirty years, and it is still working. The lesson is that an upstream moat makes you responsible for a specific place and a specific group of people, permanently, whether or not that responsibility appeared anywhere in the business case.