John Lynch: 'It's time to move on in market for expensive Swiss watches'
With Christmas fast approaching for some (the rich), it's time for conspicuous consumption.
While not in that bracket, I don't think I'm the only one who has been picking up glossy magazines and marvelling at the sumptuous advertising for luxury goods like jewellery, Swiss watches and fancy pens that represent the very essence of conspicuous consumption.
Earlier this year I was confronted by a headline which told me Apple, the tech giant, was producing more watches than the whole of Switzerland - that's Swatch, Rolex, TAG Heuer, Patek Philippe, in addition to an array of other famous producers that includes the Cartier brand of the company we are examining this morning, Richemont. Now if that's not a Swiss problem that would challenge the might of the great apple-fancier, William Tell, I don't know my Apple from my Toblerone.
However one man claims he has a solution, if not the solution: Richemont chairman Johann Rupert, with a set of revolutionary changes in his international operations.
This started with a management shake-up that transferred responsibility to a whole new generation of young executives and got rid of eight male, greying and elderly directors with rank and titles.
He threw out the challenge of realistically facing the e-commerce problems; he faced a troublesome market in vintage Swiss watches; and he took on the perennial problems of changing tastes.
Last year, he declared: "There are too many watches in the world." And that was before the output figures showed Swiss watch-makers had been overtaken by Apple. Richemont, in a sentence, is providing a brilliant case-study of how the luxury brand market will survive in the digital age.
As things stand, Richemont is the world's second largest luxury goods company. It traces its origin to the South African conglomerate Rembrandt that until the late 1980s controlled Rothmans cigarettes together with useful assets like gold and diamond mines. Thirty years ago it spun off its international assets into Richemont, a high-end, high quality group that trades on the Swiss stock exchange and is valued at CHF37bn (€33bn). Its brands include Cartier, Shanghai Tang and Mont Blanc.
Recently it took full control of the Milan-based luxury clothing and accessories online retailer Yoox Net-a-Porter (YNAP). The group hopes the fast growing (so far unprofitable) online business will help offset its challenged smaller brands like Lancel, its leather goods maker, the company's menswear label Dunhill and the French fashion company Chloé.
The jewellery market is a vital one for Richemont as it generates 60pc of its sales and two-thirds of its profits.
In recent times business has been "challenging" with the slowdown in China because of that country's clampdown on lavish "gifting". However, Richemont's tactical adjustments have included the acquisition of UK-based online retailer Watchfinder which specialises in pre-owned luxury watches.
The Asia/Pacific region, dominated by China, accounts for 40pc of Richemont's total revenue, Europe 27pc and the Americas 16pc. The Chinese market is critical as the engine of future growth. Recently, however, the Chinese online behemoth Alibaba created a platform specifically for luxury brands. So it is no surprise YNAP has linked up with Alibaba, a move meeting the approval of analysts.
Investors in Richemont have experienced an up-and-down year for its share price. Early growth fizzled out due to a setback in the Asia/Pacific region and rising global trade tensions. Sales last year hit €11bn and while half-year sales excluding acquisitions rose 8pc, it signalled growth had stalled in September, fuelling fears of a drop in Chinese demand.
The group's growth has been helped by rises in online sales but the going online has been mixed - sales have increased, but profits and margins fell. Given Richemont has a strong balance sheet and its strong brands make it cash generative, it is in a good spot, assuming demand holds up in China.
But with today's volatile stock market and tariff wars, maybe it's best to sit on one's hands at this time.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.