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First-Half fake watch Sales Rise At Richemont ADVERTISEMENT

Watch sales at the Swiss luxury goods group Richemont increased 7% to ?.49 billion ($2.89 billion) for the six-month period ended Sept. 30 versus the same period in 2017.

Richemont cited strong sales for the reinvigorated Cartier fake watch brand as a major factor behind the increase. The company reported "high single digit growth in watches" for its Jewelry Maisons division, which consists of Cartier and Van Cleef & Arpels.

That contrasted with what Richemont Chairman Johann Rupert called "muted sales growth" for the eight brands in the group's Specialist Watchmakers division. fake watch division sales grew 2% versus the same period in 2017 to ?.55 billion ($1.80 billion). The softness was due to decreased sales in the division's wholesale network, a consequence of Richemont's efforts to match fake watch supply with market demand, the company said.

The acquisition of Yoox Net-a-Porter has reshaped the Richemont Group.

Total group sales jumped by 24% for the first half to ?.81 billion ($7.90 billion). That figure includes the results of two acquisitions Richemont made during the period: the online luxury retailer Yoox Net-a-Porter and the omnichannel, pre-owned timepiece retailer Watchfinder. Excluding the acquisitions, group sales rose 8% at constant exchange rates to ?.94 billion ($6.89 billion).

"Growth in the six months under tag heuer replica watches review was driven by the Jewelry Maisons and the strength of our online and offline stores, including for watches," Richemont Chief Finance Officer Burkhart Grund, told financial analysts in a review of the financial results on Nov. 9.

Watches accounted for 37% of the group's total sales for the period, followed closely by jewelry at 36%.

'Self-Inflicted Pain'

Watch sales by Specialist Watchmaker brands were strong in their own boutiques, up by double-digits, Grund said. Overall, Richemont cited "good momentum at Vacheron Constantin, Roger Dubuis and Jaeger-LeCoultre." The company cited Vacheron's Overseas Chronograph and Roger Dubuis's Excalibur Spider Pirelli fake watch as strong performers.

However, "we are suffering from self-inflicted pain" in the wholesale fake watch division, Grund told the analysts. Grund cited Richemont efforts "to align inventories with end-client demand."

For the past two years, Richemont has taken extraordinary measures to eliminate excess fake watch inventory from global markets that had built up due to the slowdown of 2015-16. In 2016, it spent ?78 million ($305 million at the exchange rate then) on fake watch buybacks in Asia, primarily Cartier replica watches in Hong Kong.

Richemont followed with another wave of buybacks focused primarily on Specialist Watchmakers brands in Europe. It spent ?03 million ($238 million) on those buybacks in the January through March period of this year (which corresponds to the final quarter of the previous fiscal year, which ended March 31).

All told, Richemont spent approximately $540 million (at wholesale prices) to remove old inventory from the market. That effort, Grund said, is now finished.

The so-called "specialist watchmakers" like Vacheron Constantin, A. Lange & Söhne, and IWC make up a large portion of Richemont's brand portfolio.

However, the group has installed strict guidelines to make sure fake watch supply matches demand in the fake watch division's wholesale network. "This is now a KPI [key performance indicator] that we follow every month," he told the financial analysts. "It reflects our unwavering commitment to clamp down and end grey market trading, because we do not want to feed products, directly or indirectly, into the grey market. That has resulted in the closing down of some accounts.

"At the same time, we are continuing to monitor the sell-in, which has to be below the sell-out. That has led to a slightly negative wholesale performance at the Specialist Watchmakers."

ADVERTISEMENT Cartier Makes A Pivot

Cartier's success has been a particular bright spot for Richemont.

Richemont's efforts at reviving Cartier's fake watch fortunes have paid off. When Richemont says the Jewelry Maisons drove first-half growth, it means primarily Cartier, whose business is vastly larger than Van Cleef & Arpels's. Combined, the two brands' sales were up 9% to ?.45 billion ($4.00 billion). (Richemont does not break out sales by brand.)

Watches played a big part in the increase. Cartier fake watch sales got a shout-out from Chairman Rupert in the "Chairman's Commentary" that accompanies the release of the financial results. "Watch sales grew strongly in Cartier's stores, benefitting from the successful Panthère and relaunched Santos collections," Rupert wrote. (He did not attend the session with the financial analysts.) Cartier's Ballon Bleu collection is also selling well, Sophie Cagnard, Richemont's corporate communications director, told analysts.

Cartier pivoted back to the elegant man, and has slightly stepped back from the high-complication, very technical fake watch business.

?Burkhart Grund, RICHEMONT CFO

Cartier's fake watch recovery involved more than buybacks. Richemont has refocused and repositioned Cartier under CEO Cyrille Vigneron, who took over three years ago. "The clear mission of Cyrille Vigneron and his team was to bring Cartier back to what it was and what it stands for," Grund told the analysts. "We've seen a new Cartier, which resembles more what they stand for. Not only a jewelry maison, with exceptional pieces and a fantastic, high-quality distribution network on the retail side. But also a fake watch maison which pivoted back to the female customer and the elegant man, and has slightly stepped back from the high-complication, very technical fake watch business." Cartier now is "a healthy business" with "healthy operating margins," Grund said. "We're very comfortable with where Cartier is going."

Joint Venture With Alibaba

Van Cleef & Arpels's Poetic Astronomy watch

A major development in the first half of its fiscal year, Richemont noted, was the steps it took to embrace e-commerce and remake Richemont for today's omni-channel marketplace.

"Richemont strengthened its portfolio with two strategic investments aimed at offering our discerning and globally dispersed clientele more options in how, when, and where they engage with and purchase from our Maisons," Rupert wrote in his commentary. "We now fully own Yoox Net-a-Porter, the leading online luxury retailer, and Watchfinder, a leading omni-channel platform for premium pre-owned timepieces."

Those acquisitions have upped Richemont's percentage of total sales done online to 14%. It now breaks out sales results by three channels, instead of two: wholesale; retail (i.e., in-store sales of its 1,123 directly operated boutiques); and online retail (sales of YNAP and online sales of its Maisons and Watchfinder).

Mainland China is the second largest market for Richemont products, after the United States.

Richemont also announced in late October what Rupert called a "new chapter in the history of Richemont": a partnership with Alibaba Group, the largest online marketplace for Chinese consumers. The move, Rupert says, "reflects the potential we see in China." The plan is for YNAP and Alibaba to form a new joint venture company selling luxury goods online to Chinese consumers.

Mainland China is Richemont's second largest market overall. Its largest market, Grund said, is the United States. Hong Kong ranks third.

Richemont made no forecast for the results of the full fiscal year ending next March. Rupert, however, did remark in his commentary on "growing volatility in consumer demand, partly attributable to an uncertain economic and geopolitical environment."

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