On November 4, 2016, Richemont, a world-renowned luxury goods group, released its group financial report for the first six months ending September 30. The report pointed out that the group’s profit plummeted by 51% to 5.4 Billion euros, sales fell 13%. Worrying data makes Richemont urgently need to respond quickly. In this context, the group announced the reorganization of senior management. Eight directors, including group CEO Richard Lepeu and CFO Gary Saage, will withdraw from their positions next year. And nominated Van Cleef & Arpels, IWC, Montblanc and other brand and group executives to the board of directors. There is no doubt that such a large-scale change in the senior management of the group is like an earthquake to any company.
Richemont Group Statements for the Six Months Ended September 30
In response to the group’s major decision, Richemont’s share price quickly climbed from 63.1 Swiss francs on November 3 to 67.9 Swiss francs on November 7, an increase of more than 10%. For half a month before that, Richemont’s stock price has been shrinking. After a sharp increase in the Group’s business in 2015, this year’s sharp decline is undoubtedly a difficult challenge. In addition to the significant decline in sales of Richemont Group, when the Swatch Group released its semi-annual financial report on July 21 this year, it also showed a worrying performance, with net profit in the first half of the year falling 52% year-on-year. The two groups have one thing in common, that is, the horological business occupies a considerable proportion of the entire group’s business, and the Swatch Group has performed more clearly. Not only that, but recently, the Swatch Group has encountered a plan from Comco to reject the supply of the ETA movements of the group, for which the group stated that it would increase the price of the ETA movements. This is undoubtedly another dose of ‘poison’, which makes other manufacturers relying on ETA movements under greater pressure. They may accelerate to abandon ETA and choose other movements such as SW, or increase the price of watches accordingly. Price increases for watches using ETA movements are almost inevitable.
2016 Swatch Group Financial Report
On October 20th, the Swiss Watch Industry Federation announced the data on Swiss watch exports in September. Not surprisingly, Swiss watch exports fell by 5.7% year-on-year. Beginning in the second half of last year, this data appears to have become a normal, which makes people look almost numb, lasting at least 12 months. From around 2014, Swiss watch export data began to fluctuate, from extreme growth to slow growth, and negative growth in 2015. The continuous sharp decline is a serious blow to any industry, so many people compare this to the industry crisis of the 1970s. The decline of the industry has put pressure on the two watch-focused groups Lifeng and Swatch, although the top executives of various brands have consistently expressed optimism in interviews.
Swiss watch export data released by the Swiss Watch Industry Federation
On the other hand, the two groups with the same watch business, but with a relatively small proportion-LVMH and Kering, have significantly better days. In mid-October, the LVMH Group announced its data reports for the first three quarters of 2016. The sales of the watch and jewellery division increased by 4% year-on-year, the total sales of the group increased by 5% year-on-year, and the stock price rose 5% to reach 12 months A new high since.
LVMH Group CEO Arnold
In the sluggish overall environment, the performance growth has been maintained. LVMH Group CEO Arnault said that ‘this reflects the advantages of the group’s business model.’ In fact, the diversity of the business, the brand style and the diversity of organizational forms are the characteristics that distinguish LVMH from other groups. In addition to the watch and jewelry business, LVMH also has four major areas: wine and spirits, fashion and leather goods, perfumes and cosmetics, and high-end retail, which account for a heavier proportion of the group’s business. In terms of watches and clocks, the Group’s watch and clock department, operated by marketing master Jean-Claude Biver for many years, has made great contributions to the growth of the group’s business. Hublot, supported by him, has become a group of dark horses in fine watchmaking today. Hublot continuously cooperates with a variety of art forms, sports, and global stars to create a diversified ecological culture of watches and clocks, making it enter the focus of elites in different fields. On the basis of the original watchmaking, Tag Heuer also carried out multi-faceted cross-border cooperation such as racing, football, basketball, fashion, and celebrities, trying to find focus in the younger generation. Bvlgari seeks innovation and breakthroughs in fine watchmaking art and fine jewellery watches, while Zenith constantly digs brand value in traditional culture. Different brand characteristics combined with corresponding marketing skills make the LVMH Group’s watch business stand out.
Zenith CEO Aldo Magada
In October of this year, Zenith CEO Aldo Magada bluntly stated in an interview: The best way to deal with the tightening of the Chinese market is to do public relations and events. This is the only way for brands to face customers, because Zenith is not buying one. Brands that can be read by watches. Magada is an old veteran brought by Biver. The watch business of LVMH Group does follow Mr. Biver’s marketing strategy. They pay more attention to market development in the field of pan-fashion.
At the same time, in response to the pressure of closing stores and the pressure on flagship stores, Magada said that it has significantly repositioned global pricing. Although there are tax issues in Mainland China, try to make the prices in Switzerland, the United States, Hong Kong and the mainland as equal as possible. In September, LVMH and Richemont collectively increased their prices by 10% in the UK market. It may be due to the exchange rate impact caused by Brexit. Rolex also raised the price of watches in the UK market by 10% on November 1.
In terms of overall performance, Kering Group is the best one among these four luxury goods groups, but the clocks behind the prosperity are not optimistic. According to the third quarter financial report recently disclosed, Kering Group’s luxury product revenue in the third quarter rose 11.3%, and the revenue of the luxury product segment in the first three quarters rose 6.1% to 5.995 billion euros. Kering’s luxury division is divided into Gucci, Vanessa, Saint Laurent and other luxury brands. In terms of watches, Kering owns Girard Perregaux, Athens, Shang Weisha and other jewellery and luxury brands. These are all classified as other luxury brand businesses in the financial report, and this part only rose by 0.5% in the first three quarters. In the report, compared to the detailed data reports of other businesses, the watch and clock business only mentioned that “being affected by the sluggish market environment, the watch and clock department is still adapting”, it seems to be adjusting internally, but it has also indicated that the watch and clock business is not ideal. .
Regardless of Richemont Group, Swatch Group, LVMH or Kering Group, the data of the watch business are quite bleak. The wave of store closures that have begun in 2014 has continued to this day, and some of the most prosperous business districts such as Hong Kong, Shanghai, Beijing, and Guangzhou are experiencing such pains. High rents and a small number of customers have made brand flagship stores unsustainable. Little stress. Distributors all over the country also share this pressure. Because of the backlog of inventory, brands rarely solve the problem of inventory backlogs for dealers, and can only allow dealers to clear inventory in a small range (mainly inside sales). The brand itself also has some inventory problems, such as watches with flaws that cannot be sold, and old models many years ago. All these backlogs necessarily require a way to dissolve, so many have entered the gray area and sold at low prices. The Internet provided the initial export of these watches, but it seriously undermined the market confidence of Internet luxury consumption.
Beijing SKP Luxury Rally
With the continued hotness of e-commerce, luxury goods have gradually begun to embrace e-commerce. In addition to opening online shopping channels on their official websites, some brands have also opened new sales channels with the help of mobile terminals such as WeChat and APP. Once, embracing e-commerce was considered a possible breakthrough in industry growth, but so far only a few brands have authorized third-party e-commerce platforms to sell their watches, and the brand’s official online sales channel in the past two years has not Can save the industry downturn.
Are you waiting for the miracle of a sudden rise in the market? Like the rise of the Chinese market after 2000? Obviously this is more like a long-term adventure. Whether to further open the market, relax the control of prices and channels, or seek progress while maintaining stability, let us wait and see what happens.