Richemont: watch out

Blame Apple for watch industry challenges. For its modus operandi, as well as the timepieces. On the road to pre-eminence. the technology group has built 500 temples to aluminium and glass since the first stores opened in May 2001. The stores are destinations, revitalisers of malls and precincts, physical reinforcement of the brand.

The lesson for other manufacturers was clear: a direct relationship with customers means better sales and profits. Luxury watch and jewellery group Richemont started a big programme of store openings in 2005. It now has 1,815 shops around the world, a mix of owned and franchised locations, for brands such as Cartier and Jaeger-LeCoultre. As Chinese “gift giving” and foreign tourism took off, these stores generated growth.

Yet expansion also hastened the demise of independent watch and jewellery retailers. Burkhart Grund, Richemont chief financial officer, says “that is a natural decline, and that will continue for the foreseeable future”. Half-year results from the Swiss company again demonstrated the trend of recent years. Adjusting for the effect of inventory buy-backs in the same period in 2016, retail sales were 8% higher, but wholesale watch revenues were broadly flat, Citigroup calculates.

Changing where a sale is made can boost profits. But it is not the same as finding new customers. Analysts expect €11.2bn of sales in 2018, only slightly more than in 2016. Retail is a tricky business, catering to fickle consumers who prize novelty. The push into stores also brings watch makers into competition with department stores and jewellers who develop future customers.

At a strategic level, Richemont’s 7.5% stake in duty-free operator Dufry also suggests an awareness of that risk, if not muddled thinking. Investors, however, assume expansion is a given, judging by the hefty earnings multiple they pay for stock. Disappointment probably waits in store. London, November 12.