Richemont on line and on trend

Who would buy a swanky watch online? Fawning flunkies were once thought essential to the purchasing experience. So was the chance to fondle the merchandise. No longer. When Cartier released its €138,000 Panthère diamond watch on Net-a-Porter’s website, it sold out in three weeks.

Long term, this trend should be a boon. Already online glitz has added much-needed lustre to the revenues of Richemont, the parent of Cartier. Group half-year sales were hit by a September slowdown. On Friday, the luxury group reported that online sales jumped from 1% to 14% of group sales, thanks to its recently acquired online distributors Yoox Net-a-Porter (YNAP) and Watchfinder.

But technological change is not an unalloyed blessing. Youngsters prefer to use phones to tell the time. Going online has also had a mixed financial impact, boosting sales but not profits. The online distributors were to blame for a four-point drop in operating margins to just under 17%. A drop in YNAP’s margins, though small, gives ammunition to those who say Richemont paid too much for full control. Some think the online luxury business could lose out to fast-growing rival Farfetch. That would add to jitters about Richemont’s exposure to the Chinese market. Fears of a slowdown sparked Friday’s 7% share price fall.

Richemont needs to move quickly if fixes to YNAP are necessary. But it is on the right track with its online strategy, bolstered by a recent tie-up with Alibaba. Its luxury e-commerce site will help Richemont take advantage of one of the biggest trends in retail. Online sales will be a quarter of total luxury sales by 2025, up from 10%, says Bain.

The transition will add to costs. Physical stores are still needed. But going digital makes it easier to sell direct to consumers. Wholesalers charge higher commissions than online platforms. Bypassing them could end up boosting profitability. /London, November 9