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Richemont thrives on retail therapy

Richemont thrives on retail therapy

Friday, 20 June 2014
By Quentin Simonet
Quentin Simonet

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4 min read

In 2013, the luxury giant opened one new boutique every nine days on average. Sales in its own stores are growing twice as fast as in its network of third-party retailers.

Richemont’s investments keep on growing, as its annual report confirms. Over the 2013-2014 fiscal year, the luxury group, which is headquartered in Geneva, increased its capital expenditure by 10% to EUR 675 million. This covers, among other items, investments incurred in buildings, equipment, production capacity (factories), information technology and patents… and money ploughed into sales and distribution. This latter category in fact takes the lion’s share, claiming 38% of total investments or EUR 265 million, a large part of which was assigned to opening new stores.

Richemont handles this area of business "better than its rivals.".
A retail pioneer

This has, apparently, been money well spent as sales in Richemont’s “retail” network – the name given to its directly-operated stores – are outpacing sales in its “wholesale” network which comprises mainly traditional retailers. Last year, sales made in Richemont’s own boutiques progressed by 14% at constant exchange rates compared with 6% for the second distribution channel. The gap was already noticeable in the previous three fiscal years. Between 2011 and 2013, “retail” sales grew by 35%, 36% and 11%, while “wholesale” reported increases of 15%, 24% and 7%. As a result, directly-operated stores are generating an increasingly large proportion of the group’s sales: 52% in 2012, 54% the following year, and 55% in the fiscal year to end March 2014. A percentage that looks set to grow given the “continued cautiousness from third party partners,” as Richard Lepeu, Co-CEO of the group, commented.

Richemont was one of the first in the watch segment to develop a network of directly-operated stores. In a report, Bordier private bank remarks that Richemont handles this area of business “better than its rivals.” By way of comparison, directly-operated stores produce just 20% of Swatch Group’s total sales. Has Richemont put ideas into its head? Possibly, as the multinational, helmed by Nick Hayek, is ultimately aiming to reach between 30% and 35%. A similar trend is at work in the watches division at LVMH, the world’s biggest luxury group, although in the absence of published figures consolidated per segment, this cannot be quantified. What we do know is that Hublot currently has 70 stores, with one new opening a month on average, and that TAG Heuer, whose 172 points of sale include 67 that are directly operated, intends to add a further 18 to its network by the end of the year. As for Louis Vuitton watches, they benefit from the Louis Vuitton brand network which, with the group’s fashion houses, represents 1,340 stores worldwide.

Coming back to Richemont, a more detailed look at the numbers indicates the sheer scale on which the group is expanding its “retail” network. The group opened no fewer than 42 new boutiques in the last fiscal year, bringing the total to 1,808. Broadly speaking, this corresponds to a ribbon-cutting every eight or nine days. One can imagine the phenomenal workload this represents at the very minimum for the group’s real estate, store design and logistics staff.

To ensure that each one exactly conveys the spirit and values of that particular brand.
Renovations and relocations

Documents handed out to financial analysts when presenting results show that Van Cleef & Arpels was the main beneficiary of the group’s retail appetite. In the last fiscal year, the jewellery house led the field with an additional seven directly-operated stores, followed by Cartier and Officine Panerai (six new stores each), then IWC (five). No details were provided for Vacheron Constantin, A. Lange & Söhne or Roger Dubuis: they were among brands grouped together under “Others”, which is listed as having gained a further six points of sale.

Not that Richemont is neglecting its franchise partners, which are often local retailers. Twenty-six new points of sale opened for business in the 2013-2014 fiscal year to give a total of 1,056 locations at end March. This isn’t, however, where the group has focused its attention. Rather, it has devoted considerable effort to renovating and relocating stores, to ensure that each one exactly conveys the spirit and values of that particular brand, and that brands continue to benefit from prime locations in a fast-moving urban environment. As part of this ongoing optimisation process, 15 Van Cleef & Arpels boutiques were renovated or relocated last year, while 34 Piaget stores were given a makeover as part of the brand’s development of its jewellery business. Piaget also benefited from nine new store openings, both directly-operated and franchised. Panerai, meanwhile, took an additional six boutiques, including one in Moscow and another in Dubai, thus bringing to 32 its network of directly-operated stores.

And this expansion will continue, with Richemont announcing further increases in capital expenditure this year. This could, forecasts Chief Financial Officer Gary Saage, rise to between EUR 800 and EUR 850 million, while the group plans to open in the region of 50 new stores for its various Maisons in the 2014-2015 fiscal year. Meaning retailers will have to innovate, invest and be competitive if they are to hold on to their share of the cake!

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