PARIS — Kering is exiting the specialist watchmaking category, where it has failed to gain traction in the face of its larger rivals LVMH Moët Hennessy Louis Vuitton and Compagnie Financière Richemont.
The French luxury goods group on Monday revealed the sale of Girard-Perregaux and Ulysse Nardin, operating under the Sowind Group umbrella, to their current management, a move it said was in line with its strategy of prioritizing its labels “with the potential to become sizable assets within the group.”
“Kering is probably making the most of a recovering watch market to exit a category where it was suffering, given its smaller relative position to bigger competitors in this space,” wrote Bernstein analyst Luca Solca. “The move is positive, in my view, as it plugs losses on this front and concentrates senior management on more important matters.”
Market speculation had been rife for some time regarding the future of the activity, in which Kering lacked critical mass.
“Kering is quite small on the watch market, which has an impact in terms of distribution, because it’s more challenging,” Kering’s chief financial officer Jean-Marc Duplaix told analysts during the company’s third-quarter conference call in October.
The former has launched co-branded product with luxury carmaker Aston Martin, while the latter has tied up with the Vendée Globe sailing race.
“I’m very confident that these brands can improve their trajectory, they are excellent brands with a very good reputation,” Duplaix said.
“On the sound foundations laid thanks to Kering’s support and investments, we have the right setup and resources to implement a plan capable of ensuring the long-term development of both brands,” said Patrick Pruniaux, who has been chief executive officer of Girard-Perregaux and Ulysse Nardin since 2018.
A year ago, the market was awash with rumors about a potential merger between Kering and Richemont that would have allowed them to flex their muscles in the face of LVMH’s acquisition of Tiffany & Co. Richemont’s founder and chairman Johann Rupert denied any plans for a merger but said the two companies had talked about collaborating. In October, they revealed they would work together with the Responsible Jewelry Council to lay out 2030 sustainability targets for the watchmaking and jewelry sector.
While the divestment — which also includes the labels’ factory in La Chaux-de-Fonds, Switzerland, as well as the JeanRichard label — signals an exit for the company from specialist watch brands, Kering will continue to offer high-end timepieces under Gucci as well as jewelry brand Boucheron, a spokesperson for the company said.
Gucci unveiled its first Swiss-made high end timepieces last year to coincide with the brand’s centenary, as reported.
While its rivals have benefited from renewed demand for high-end Swiss timepieces, Kering’s activity in the segment failed to return to pre-pandemic levels in the first nine months of 2021, despite strong year-on-year gains.
“There are a lot of encouraging signs, not only in terms of revenues, but also in terms of the quality of the offer, the quality of the distribution that has improved dramatically,” Duplaix said in October. “I think the team working on Ulysse Nardin and Girard-Perregaux is doing a great job, the visibility of the brands has increased massively, so we are very pleased with a lot of initiatives.”
“Considering its limited exposure to hard luxury, Kering has struggled to develop the potential of these two brands, which are expected to be loss-making,” wrote Barclays luxury goods analyst Carole Madjo in a research note Monday. “The two brands were also hit particularly hard by the pandemic in 2020.”
Madjo cited a Euromonitor estimate that put annual revenues for the activity at around 260 million euros.
While Kering has failed to bounce back in the category, in contrast, Richemont’s specialist watchmaking arm saw sales grow 29 percent on a reported basis in the three months to December on the prior-year period, reaching 977 million euros, which was a 19 percent gain on the same period in 2019.
In the six months to September, its sales were up 7 percent on a two-year basis as the company reaped the rewards of shifting toward a direct-to-consumer model.
While LVMH does not break out sales for its timepieces, its watches and jewelry activity grew 4 percent in the first nine months of 2021 on an organic basis (not including the Tiffany acquisition), compared with the same period in 2019.
Kering (then PPR) bought into Sowind Group and Girard-Perregaux, which dates back to 1791, in 2008, acquiring a majority stake in 2011. It bought the Ulysse Nardin brand in 2014, and activities for the two were merged in 2019.
In September 2020, the activity shed 100 employees — around a quarter of its workforce — as it scaled down production in the wake of coronavirus.
Kering said the financial impact of the disposal would be reported in its accounts for 2021, and that the transaction should be completed during the first half of 2022. The French firm reports its full-year results for 2021 on Feb. 17.
Known to be on the lookout for M&A activity, this concentration on its core business could pave the way for new acquisitions. “Kering has ambition to grow, both organically and through acquisitions,” wrote Solca. “Not in watches, though.”
Kering’s shares dropped 2.98 percent to 648.90 euros on the Paris Bourse on Monday.