MONTE CARLO, Monaco — What keeps luxury titan Johann Rupert awake at night?
The advent of robots, artificial intelligence and the Internet of things threaten to tear the current social fabric and exacerbate what is already high structural unemployment.
“It’s going to be more important than e-commerce and clicks-versus-bricks,” the chairman of Compagnie Financière Richemont SA told the Financial Times Business of Luxury Summit here Monday in a keynote address. “How is society going to cope with shrinking employment? I don’t know what kind of social pact we’ll have, but we better find one. Our clients will be targeted, hated. They’ll be despised. The people with money will not want to show it.
“That’s what keeps me up at night, not whether e-commerce is going to cause me problems,” he added. “Hopefully, we can survive it, because we’re planning for it.”
The outspoken executive, dressed in a blue linen suit and toting a brown alligator briefcase from Cartier, took issue with recent reports suggesting he is skeptical about online selling. “Of course, I believe in e-commerce,” he told about 380 attendees gathered in a mirrored ballroom at the Sporting Monte-Carlo.
Rupert also believes in scale, the rationale behind the recent merger of Richemont’s Net-a-porter business with Italy’s Yoox Group. “It’s too big a game so that any one company can try and dominate it,” he said, also dismissing speculation that Richemont was once in talks to sell Net-a-porter to Amazon.
“Amazon was never interested in buying,” he said. “It was a created rumor by someone who wanted to sell shares.”
Rupert also publicly invited his biggest luxury rivals to invest in the combined Net-a-porter/Yoox Group, along with a new platform to showcase artisanal luxury. While short on specifics about the latter project, he said he placed calls to Bernard Arnault, chairman and chief executive officer of LVMH Moët Hennessy Louis Vuitton, and his counterpart at Kering, François-Henri Pinault.
“I told them, ‘I don’t want you to blame me afterward for not inviting you. I think it’s in your interest. It’s certainly in all of our interests. It’s run totally neutrally,’” he said. “I don’t think any of us on our own can do it. I just want it to be free for everybody. We need a platform that is big enough for the luxury industry that is neutral.”
Yoox already has a joint venture with Kering, and has partnered with a range of brands including LVMH’s Pucci as well as Giorgio Armani and Valentino, but none are yet stakeholders.
After the meeting, Rupert told WWD: “I’d rather be a small shareholder in a big growing business that’s really working.”
And he described the artisan corner as an offshoot similar to Outnet, the off-price arm of Net-a-porter.
Federico Marchetti, founder and ceo of Yoox, told WWD he shares Rupert’s view that size is everything, describing it as “one of the reasons we did the merger” with Net-a-porter. “To be on top of the game, you need to have scale,” he said, touting, for example, the combined investments of Yoox and Net-a-porter in infrastructure.
“Combined, we can push the accelerator and we can have better technology together,” he said. “In order to have the best platform, it’s better to be big.”
As part of the merger, Net-a-porter and Yoox are plotting a capital increase of 200 million euros, or $225.1 million at current exchange, in which Richemont’s luxury rivals could participate.
Spokesmen for LVMH and Kering declined to comment on Rupert’s invitation on Monday.
Set to be finalized in September, the merger will give Richemont a 50 percent stake in Yoox Net-A-porter Group, and 25 percent of the company’s voting rights. The new Yoox Net-a-porter Group, a fashion e-commerce behemoth with revenues of 1.3 billion euros, or $1.45 billion, is to be quoted on the Milan bourse.
It is unclear whether Rupert might be willing to tender any more of Richemont’s stake, should other European luxury players come knocking and wish to invest.
In a wide-ranging address that held the room rapt, Rupert touched on everything from the threat of the Apple Watch and France’s dire need for an economic overhaul to the outsized greed of landlords, especially in Asia.
He also recounted his early brushes with luxury in the Seventies, when he was working for Lazard Freres in New York, and went into business with an entrepreneur who sold plastic lighters with a special nonleaking valve.
“I remember those days. We had no Internet, no mobile phones, forget laptops,” he said, prompting chuckles in the room, given the conference theme of “Technology, Legacy and the New Consumers.”
At that time, “luxury goods were not sexy,” Rupert said. “In those days, you couldn’t fill up a room like this if you advertised for 10 years.”
He noted his family — Rupert is the eldest son of South African business tycoon Anton Rupert — were early importers of Apple computers back in the mid-Eighties, predating its investments in watch firms such as Officine Panerai and IWC that transformed Richemont, founded in 1988, into one of the industry’s largest players in hard luxury.
Rupert also founded an investment bank in South Africa dealing in promissory notes and commercial paper.
Dealing in such diverse businesses “gives me an insider, but also an outsider’s, view on luxury goods,” he said.
To gain further insights into how technology could lead to social upheaval, Rupert urged the audience to read “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies,” a book by Andrew McAfee and Erik Brynjolfsson, and to watch the short Internet documentary film: “Humans Need Not Apply” to understand the potential impact of technology on how we live and how business is conducted.
“It changed my thinking and it has lead me into a different thought process,” he said. “We’re heading for a big change in society. Get used to it and be prepared.
“I don’t know what kind of social pact we’ll have, but we better find one,” Rupert added, describing a new age of abundance, thanks to automation and technology, that will collide with a widening wealth gap and disappearing middle class.
He said this wave of automation in the “second machine age” is the “single biggest thing that is going to hit us.”
“This is exponential, it’s digital, it’s combinatorial,” he said. “This is not science fiction, folks, it’s happening. Driverless cars? It’s happening. It’s going to put hundreds of millions of people out of work.”
“Hairdressers will be employed. Florists will be employed. Doctors who do diagnostic work will be employed,” Rupert said. “It’s not obvious who will lose their jobs.
“I think e-commerce is dwarfed by what’s going to hit the world with artificial intelligence and bots and the Internet of things,” he continued. “I read about it as much as I can, but it’s going so fast.”
Rupert lamented that Europe is not very competitive, with France at the top of the list, arguing the country “stopped improving” by strangling itself with a 35-hour work week and Byzantine legislation that takes years to get a company out of liquidation, for example.
“They need a Thatcher-like revolution,” he said of France, noting he’s only envious of the lifestyle, not the business climate.
Asked his opinion on the Apple Watch, a question lobbed frequently over the first day of the two-day gathering, Rupert said he’s refrained from commenting on it, given his friendship with Apple’s chief design officer Jonathan Ive and industrial designer Marc Newson, who contributed to the watch’s design.
“What I will say is that there’s a bit of confusion between technology and luxury in terms of value,” he said.
He described a plan for Cartier to introduce a mobile phone about eight years ago, which his son, then in a gap year during university, described as a folly, given that most people dispose of cell phones after a couple of years, and don’t think of getting it repaired.
“Are you mad? Cartier is not to be thrown away,” Rupert said, surmising that no luxury phone could be as peerless as a top-line Nokia. “Nor do you expect [a luxury client] to pay 17,000 and throw something away in two years. Don’t treat your clients like fools.”
Rupert said he expects Apple will do well, though he suggested that a Cartier or a Bulgari creation might rank as a more powerful anniversary present for a spouse, or even to a daughter graduating from college.
“That’s where I envy Patek Philippe ads so much,” he said, paraphrasing the sentiment that “you never really own it. It’s an investment.”
Despite some of his dire warnings, Rupert sounded sanguine, and noted that luxury goods have survived wars and depressions and are not apt to disappear. He said the best defense for luxury companies is to protect their brand DNA and brand equity, ensuring their pricing power.
While he said sly innovation is necessary in luxury goods, “one of the biggest compliments you can give me is that we don’t change at all,” he said. “If you don’t stay within your DNA, it won’t sell and it won’t keep its value.
“Luxury cannot be ubiquitous, it must be individual. We need style, we need desire, we need creativity,” he said, lauding the pivotal role of artisans capable of assembling fine watches and jewelry. “Hopefully these people will still be working in the second machine age.”
Rupert noted he shares his glass-half-full view with designer Ralph Lauren: “He said to me, ‘You are as paranoid as I am, aren’t you?’ I said, yes. If you have a healthy dose of paranoia, you’re going to survive.”