Oof! Listen hard enough, and you may have heard a sigh of relief coming out of Richemont’s headquarters in Bellevue, near Geneva, closely followed by some hearty back-slapping at the announcement of the group’s financial results for the third quarter to December 31st 2019. End-of-year is always an important period for the luxury industry – all the more so as sales in Hong Kong continue to bear the brunt of the pro-democracy protests that have shaken the country for over six months. For the Swiss watch industry alone, exports to this special administrative region of China plummeted by some 30% last October and November, giving a decline of 11% for the first 11 months of 2019. While Hong Kong remains the main export market for the profession, the situation, which shows no signs of abating, is taking its toll.
Richemont has been no exception, noting “a marked contraction” in Hong Kong sales but no actual numbers. However, this was more than offset by sales in other regions, particularly mainland China and South Korea, with the result that sales in Asia-Pacific increased by 3% for the period under review. Europe and the Americas posted even stronger growth at 10% and 9% respectively. Japan lagged behind, losing 1%. Sales were impacted by a stronger yen and an increase in value added tax, both of which contributed to lower tourist spending. Overall, the group ended its third quarter with a 6% increase in sales (4% at constant exchange rates) at €4.2 billion.
Jewellery drives growth
By business area, it comes as no surprise that the group’s jewellery Maisons are the powerhouses behind this growth, namely Cartier, Van Cleef & Arpels and now Buccellati, the Milan jeweller established in 1919 and consolidated into the group’s accounts for the first time. At the time of the buyout, last September, from China’s Gangtai Holding, Richemont made a point of noting that the acquisition would have no financial impact on the group’s consolidated net assets or operating result for the year. Indeed, when Gangtai took an 85% stake in Buccellati in 2017, the Italian jeweller was estimated to be worth around €250 million, a drop in the ocean of Richemont’s €14 billion of fixed assets. The same goes for Buccellati’s sales: estimated in the region of €50 million a year, they weigh little in the €2.2 billion of jewellery sales for this third quarter, which increased by 9% (6% at constant exchange rates) to contribute 52% of the group’s total sales. Though not quite so spectacular, sales by the group’s specialist watchmakers for the same period came in at a respectable +4% (+2% allowing for variations in exchange rates) at €818 million.
The biggest letdown, confirmed by analysts, came from the online distributors, i.e. Yoox Net-A-Porter and Watchfinder. They progressed by only 5% (2% at constant exchange rates). Richemont explains this lacklustre performance by a highly competitive pricing environment and storm damage to a MR PORTER warehouse in Italy. With quarterly sales of €670 million or 16% of total, the group’s online presence has become a priority. It continues to invest in online distribution, and last September launched Feng Mao, a joint venture with Chinese e-commerce giant Alibaba. Consequently, online distribution posted operating losses of €194 million for the first half-year. To conclude, for the nine months to December 31st 2019, Richemont’s sales increased by 8% (5% at constant exchange rates) to €11.6 billion with a net cash position of €2.4 billion.