Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
An invitation to sip Bellinis at a members’ club sounds a fun experience. Being asked to invest is a more complex proposition. Those mulling a punt on Cipriani’s new €500mn club venture will hope the high-end Italian hospitality group performs better than New York-listed rival Soho House. Its share price has dropped 40 per cent since listing in 2021.
Cipriani runs the historic Harry’s Bar in Venice and the high-end Casa Cipriani clubs in Milan and New York. It has teamed up with Optimum Asset Management to raise a €500mn real estate fund. This will buy properties in megacities around the world to house new Casa Cipriani clubs, which will be managed by the Venetian family company.
Members’ clubs find rapid growth tricky to pull off. It requires marrying a perception of exclusivity with mass-market appeal. LVMH, the French luxury behemoth, has bags of experience doing this.
Rapid expansion involves high upfront costs, which damp financial returns. Soho House, whose revenues increased 18.5 per cent to $290mn in the second quarter of the year, has historically struggled to turn a pre-tax profit.
Its free cash flow has been negative, although that should improve in the next few years. Debt at Soho House has risen to $590mn, some 15 times next year’s expected ebitda.
Clubs can earn profits in other ways. The first is to be old, established and have a small number of locations. A parallel in the luxury sector might be Hermès: capacity constrained with high pricing power. While no shortcuts exist for this, Cipriani has some form.
Another model couples a high-end hotel with a members’ club added on top. Well-managed rooms and meals should generate strong returns, raising the value of underlying properties. The membership fee — a rumoured €4000 a year for Casa Cipriani in Milan — simply squeezes extra value from the brand.
Cipriani will hope to do this. Balancing growth and exclusivity is tricky. But its unique heritage should enable it to achieve success.
Read the full article here