How Richemont Deals with Changing World Economy
Back in April, Richemont sounded an ominous warning that earnings from luxury watches could drop by a third or more in 2015 as the stronger Swiss franc raised production costs. Since Richemont is the world’s second largest maker of luxury goods and controls such prestigious brands as Baume & Mercier, Cartier, Vacheron Constantin and Van Cleef & Arpels, the pronouncements of this house cannot be taken lightly. One month later, Richemont reported a 35% drop in net income from the year up to May 31.
The main reason for this drop is the volatility in the Asia-Pacific region, especially Hong Kong and Macau. These two markets are responsible for a fifth of global watch sales and the drop has led to fears that retailers are being left with unsold stock. “Who knows how long this region is going to have less robust demand?” said Richemont chairman Johann Rupert. “We are not saying no demand, but less boom time demand for sure.”
Contributing to the upheaval in Hong Kong has been the government’s crackdown on gift giving and ongoing political protests. This has led some watchmakers to offer their products at varying prices in different parts of the world. In turn, the difference in prices for luxury items has encouraged some Chinese customers to do their shopping in Singapore or North Korea.
According to Kepler Cheuv-reax analyst Jon Cox, all of this “has led to a great deal of unpredictability in terms of trading, both wholesale and retail, as many big players continually adjust prices, particularly in Greater China and the US, and suppliers delay purchases ahead of price cuts in markets linked to the US dollar.”
Richmonte is currently dealing with the changes in the world market by cutting the pay of top executives and making other efforts to reduce costs. Whatever happens, the conglomerate has no plans to move its business out of Switzerland. “We’ve got to get on with life,” Rupert stated. “We survived it before and I think we’ll survive it again. Switzerland is still a wonderful place to do business.”
