With Chinese shoppers buying fewer watches, Richemont sales continue to slide, prompting the luxury brand owner to announce uncharacteristically radical moves.
While continuing to cull its store network, Richemont has axed its CEO role, placing more accountability in the roles of its brand executives.
Richemont, which counts luxury timepiece brands Vacheron Constantin and IWC in its 35-strong portfolio, says trends are improving in Mainland China, Hong Kong and Macau. But with more of its portfolio in watches than rival corporate fashion groups LVMH and Kering, it is more exposed to current market trends and less resilient. Richemont also owns Cartier, Chloe, Dunhill, Giampiero Bodino, Jaeger-LeCoultre, Lancel, Montblanc, Officine Panerai, Piaget, Peter Millar, Purdey, Roger Dubuis, Shanghai Tang and Van Cleef & Arpels.
Profits fell 43 per cent (including exchange rate effect) to €798 million for the six months to September, and the company has expressed its concern at overcapacity in the Swiss watchmaking industry. A large factor in the poor result was the €249 million buy-back and destruction of excess products to reduce overcapacity in the distribution chain.
Sales were down by 13 per cent to €5.1 billion, but significantly this was led by Japan and Europe, rather than Hong Kong and Macau as in past reporting periods. Mainland Chinese buyers still played their part in the decline, however: fewer are visiting Europe due to concerns over terrorism, and the depreciation of the yuan has impacted on spending in Japan.
The company closed 25 shops globally during the first half and another 25 are scheduled for closure by December 31. It did not reveal the locations of these stores.
The end of the CEO post coincides with the retirement of outgoing chief Richard Lepeu and finance director Gary Saage. The company’s founder, South African-born Johann Rupert, will remain in the role of executive chairman and will take over supervising a group of division directors.
Richemont has a reputation for managing for the long-term and resisting the sort of knee-jerk reactions typical among listed companies ever-concerned about satisfying shareholders. “The significance of such a dramatic break with the past can’t be overstated,” observed an analyst with Bloomberg.
“They indicate that it doesn’t expect conditions to get any easier any time soon, so it needs a fresh approach. It just might work. And it’s not as radical an idea as it might seem,” wrote columnist Andrea Felsted.
She suggests the company may need to fix or divest underperforming brands
“It also needs to control the cost base by addressing headcount, which it has already started to do, and slimming the store estate. The danger is that the new management structure is cumbersome, lacking cohesion, and is ripe for internal power struggles. Rupert will remain the constant, and is likely to take greater control as a result of the radical revamp. He says his role is that of ‘an arbiter of egos, akin to a soccer manager’.”
