China’s big spenders put a shine on Richemont sales

Johann Rupert’s Richemont posted a rise in quarterly sales on Wednesday as strong growth in China offset weaknesses elsewhere.

China is the only major economy that is set to emerge from a Covid-hit 2020 with positive GDP growth, helping to sustain demand for luxury goods.

The company, which owns brands such as Cartier, Van Cleef & Arpels, Piaget and IWC Schaffhausen, reported a 5% increase in sales to €4.18bn (R75.7bn) in the third quarter, which included the key Christmas shopping season, on a constant exchange rate basis.

Its shares rose as much as 4% before paring gains to close 1.23% higher at R143.75 on Wednesday, outpacing a 0.8% gain in the JSE’s all share index. Richemont shares gained 22% in calendar 2020.

The quarterly performance may be the latest indication that high-end Chinese consumers, who forsook their usual bigspending overseas trips due to lingering Covid-19 fears and travel restrictions, are still keen to spend their largesse at home.

Richemont, in which Rupert controls 51% of the voting rights, said in a trading update on Wednesday that sales in the world’s second-largest economy, which recently overtook the US as the group’s most lucrative market, jumped 80% year on year in the third quarter to end-December.

That was enough to lift sales in the Asia-Pacific region by 25%. In Europe, the company suffered a 20% drop and in the Middle East and Africa, its smallest region by revenue, it grew 27% while in the Americas it had largely flat sales.

LUCRATIVE MARKET

Its European business was hit by renewed lockdown measures and travel restrictions, while demand in the Middle East and Africa was boosted by the resumption of tourism spending in Dubai and solid domestic customers, notably in oil-rich Saudi Arabia, Richemont said.

Richemont’s smaller British rival Burberry reported an almost 40% drop in comparable store sales in Europe, the Middle East, India and Africa in the quarter to December.

But its Asia-Pacific outlets also delivered a solid performance, rising 11% thanks to strong demand from China and South Korea.

Companies such as Richemont have been doubling down on new store openings and e-commerce platforms to meet surging demand in China.

In November, Richemont said it had formed a joint venture with online luxury retailer Farfetch and e-commerce giant Alibaba, positioning itself to meet demand for an increasing number of consumers who have moved their luxury spending online. The Farfetch deal allows Richemont to tap into Alibaba’s more than 700-million customers. Richemont said on Wednesday that it and Alibaba would invest a collective $1.1bn (R17.3bn) in Farfetch, which will launch its shopping channels on Alibaba’s e-commerce platforms.

ALIBABA TIE-UP

A recent report by consultancy Bain & Co, whose forecasts are widely watched in the industry, showed more than a 10th of luxury spending has moved online.

Richemont, which owns online portal Yoox Net-A-Porter, said online sales grew 17% on a constant currency basis, outpacing an 8% sales growth in brick and mortar stores and underscoring vast social distancing measures across the world.

The group’s results for the current financial year will be announced on May 21 and its annual general meeting will be held on September 8.