Appeal of luxury goods a boost for Richemont
THE PHYSICAL appeal of luxury goods is undeniable – the leather is softer, the shoes are more comfortable, and the pinnacle of timeless craft boiled down to something that can fit in the palm of your hand. In China, men use luxury goods to show off their financial success.
Chinese and American woman love the self-indulgence of luxury goods. People buy luxury goods for a variety of reasons, all of which are related to the intense emotions that we attach to expensive material goods.
Whether we are financially comfortable or not, we will often purchase luxury items to show off or to gain acceptance from others and reward ourselves.
To think that the demand for luxury goods will ever wane is naive, especially since the ratio of the super-rich to poor increase almost every single year.
The gap between the poorest fifth of the world’s people and the wealthiest fifth has nearly tripled in this century alone.
Why will the super-rich suddenly start buying from PEP or Woolworths?
Richemont owns several of the world’s leading companies in the field of luxury goods, with particular strengths in jewellery, luxury watches and writing instruments. Richemont designs, manufactures, distributes and sells premium jewellery, watches, leather goods, writing instruments, firearms, clothing and accessories.
Divisional overview
The Specialist Watchmakers contributed 27 percent to revenue. This division design, manufacture and distributes precision timepieces.
These include Piaget, A Lange & Söhne, Jaeger-LeCoultre, Vacheron Constantin, Officine Panerai, IWC, Baume & Mercier and Roger Dubuis.
The Jewellery Maisons contributed 56 percent to revenue and design, manufacture and distributes jewellery products; The most well-known brands include Cartier and Van Cleef & Arpels.
The balance of the company contributes 16 percent to revenue and consists of Montblanc, Alfred Dunhill, Lancel, Chloé, Peter Millar, Purdey, textile brands and other manufacturing entities.
Lifting their game
Richemont recently took further steps to build their retail network aggressively. They bought UK-based Watchfinder, a preowned premium watch specialist that sells online and through boutiques.
According to Johann Rupert Watchfinder operates both as an online and offline business in a complementary, growing and still relatively unstructured segment of the industry. A brilliant way of taking steps to control the price of watches.
At the same time, they sold their leather goods subsidiary, Lancel, which was signalled earlier in 2018 as part of a plan to shake up its less profitable fashion segment.
This follows the recent disposal of Hong Kong-based dressmaker Shanghai Tang.
There has been speculation that Richemont could dispose of more soft luxury businesses and focus more on watches and jewellery. Drivers of luxury brands are exclusivity, branding, the speed of delivery, and product renewal. Like all sectors of the economy, luxury goods are also challenged by changing trends.
There is no longer a reluctance to mimic fast fashion, and the idea of luxury is worth waiting for, is out the door. Richemont realises the migration from traditional retail to online shopping channels, which could provide superior growth.
Earlier this year they acquired the balance of the shares they did not own yet in Yoox Net-a-Porter (YNAP), which will take its online sales from 1 percent to 17 percent and help the company’s other brands.
YNAP could well be the catalyst that gives a new edge to classic brands like Cartier, Vacheron Constantin, Van Cleef & Arpels, Montblanc and Piaget.
The growing consumer sector in China bodes well for the long-heritage brands like Compagnie Financière Richemont, which should continue to do well if trends in rising gross domestic product per capita continues. Jewellery is now a more significant revenue generator for them than watches and market research shows that millennials want experiences and not goods, except for jewellery.