LONDON — Compagnie Financière Richemont SA is hunkering down — tightening operations, controlling costs and investing in future opportunities — in anticipation of better times ahead.
This story first appeared in the May 28, 2010 issue of WWD. Subscribe Today.
Richemont, parent of brands including Cartier, Van Cleef & Arpels, Dunhill, Montblanc, IWC and Chloé, saw sales and profits fall in the year ended March 31, but the company is looking forward to a bright future for luxury goods.
“Richemont has weathered the economic crisis to date, and is in a strong financial position,” said Johann Rupert, executive chairman and chief executive officer.
“Our businesses reacted quickly and positively to the downturn in demand and have grown market share. They are ready to capitalize on growth opportunities in new markets and to meet demand in established markets once the economic situation improves,” he added.
Rupert’s optimism isn’t unfounded: In April — the first month of the new fiscal year — sales rose 24 percent, year-on-year, and were driven primarily by wholesale activity, he said.
On Thursday, the company said profits in the year to March 31 fell 18 percent to 603 million euros, or $850 million, due chiefly to currency translation losses on net financial assets. Sales, meanwhile, fell 4.5 percent to 5.18 billion euros, or $7.3 billion, due to a particularly weak first half and lower inventory levels spurred by last year’s recession.
Figures have been converted at average exchange rates for the 12-month period.
During a conference call later in the day, deputy ceo Richard Lepeu said the company’s strategy was to be careful in the short term by avoiding oversupplying, reducing capital expenditure, controlling costs and fine-tuning levels of production.
“The chairman believes there’s a great future for the luxury goods industry in the medium and long term — if we do the right things now,” Lepeu said.
Although Lepeu acknowledged that tough times lay ahead with regard to European customers, he pointed to growth in Asia-Pacific, where sales swelled 18 percent in the year. All other regions showed sales declines.
On a more positive note, he added that high-end merchandise in Europe is often purchased by non-European customers, and the slide in the value of the euro would only boost sales. “If the euro continues to weaken, you’re going to see high-level tourism increase,” he said.
Last year, sales in all product categories saw single-digit declines. The Piaget and Vacheron Constantin watch brands performed particularly well, the statement said, and all the watch brands were profitable except for Baume & Mercier and Roger Dubuis.
The statement added that Alfred Dunhill and Lancel were close to breakeven, while Chloé remained profitable.
With regard to the jewelry brands, Richemont said the “very top end of the high-jewelry market” has not recovered past record levels, although traditional high jewelry and accessible bijou ranges did well. Cartier saw only a “marginal decline” in sales and profitability. Van Cleef & Arpels was also resistant to the hard times, due to a proportionately higher exposure to Europe and the U.S.
And while the year saw both sales and profits decline, Richemont emerged with 1.9 billion euros, or $2.34 billion, in net cash on its balance sheet. That figure has been calculated at current exchange rates.
Lepeu said the company would continue to invest in Asia-Pacific — and China in particular — and that some of the group’s best-performing stores are in Hong Kong. The company also plans to open more stores in Eastern Europe, the Middle East and countries including Russia, Azerbaijan and Kazakhstan. The focus, Lepeu said, is on strong markets with potential.
The company has also set up its own distribution infrastructure to service the Chinese market, as well as an after-sales service program and training schools to improve service among Chinese staff.
Richemont has been cleaning up its wholesale distribution, terminating accounts it no longer sees as appropriate. In a video conference Thursday, Norbert Platt, the outgoing ceo, said this strategy would continue. “I’ve created the slogan: ‘Less partners for more partnership,’ ” he said.
Earlier this week, Burberry’s ceo Angela Ahrendts said she was making a similar move, winding up hundreds of small wholesale accounts that no longer fit in with brand strategy.
Platt stressed in his talk Thursday that the luxury playing field had changed considerably since 2008.
“Before Lehman, we thought the sky was the limit. At that time, we couldn’t even buy gemstones because there was not enough of them on the market,” he said
In a separate statement, Richemont unveiled a program to buy back up to 10 million Richemont “A” shares through the market over the next two years, representing 1.7 percent of the capital and 1 percent of the voting rights of the company. The shares will be held in treasury to hedge awards to executives under the group’s stock option plan, the company said.