Richemont under pressure over restructuring of reporting lines
The CFO of the luxury brands group will report directly to the board, instead of to the incoming CEO
The conference call held last week for luxury brands group Richemont’s latest results was at times surprisingly tense.
This tension was especially noticeable when CFO Burkhart Grund had to field questions on why incoming CEO Jérôme Lambert would not be responsible for the whole group.
Under the new structure Grund will not report to Lambert but directly to the board. Lambert, the former COO who started his new job in September and filled a position left empty since the retirement of Richard Lepeu in March 2017, was not on the conference call.
The revised Richemont structure will also see subsidiaries Cartier and Van Cleef & Arpels not reporting to Lambert but rather having their CEOs report directly to the board.
Grund said Cartier and Van Cleef & Arpels had strong management teams and could give real insight to the board as they were “ahead of the curve” when it came to what the market was looking for.
Grund underlined this point by noting how a change in Cartier’s leadership two and half years ago had reversed a slide in its market share. “What we are seeing is a new Cartier," he said. Under its new management, Cartier had gained traction in making watches for female customers and what he called the “elegant male”.
As for the CFO reporting directly to the board, Grund said it is important the CEO and CFO work well together but having both of them report directly to the board would provide “checks and balances”.
The restructuring of the reporting is not the only change happening at the group. Its recent acquisition of online retailers YOOX Net-a-Porter (YNAP) and Watchfinder is part of its strategy to expand into e-retail.
The addition of YNAP’s contribution had a marked impact on Richemont’s results for the half year to end-September. Group sales rose 21% to €6.8bn and online sales amounted to 14% of total sales.
Prior to the acquisition of YNAP only about 1% of the group’s total sales were online.
Though sales were up, operating profit dropped 3% to €1.13bn as a result of a once-off cost of €77m, related to the disposal of French luxury leather goods group Lancel and an €82m charge for the amortisation of YNAP and Watchfinder’s intangible assets.
Besides going into online retail, Richemont is also orientating a sizeable part of its operations to the Chinese market. “The Chinese customer is the most important, if not the most dominant customer for the industry. That also applies for us,” Grund said.
China now accounted for about a third of the luxury goods market, of which 25% was the Chinese domestic market and the remaining 75% Chinese tourists who bought luxury goods abroad.
At €2.54bn in sales, the Asia-Pacific region makes up the largest revenue when measured by geographic region. Grund said he was happy with Chinese domestic demand: “It’s quite stable and it’s expanding.”
Richemont hopes its recently announced partnership with China’s e-commerce giant Alibaba would further cement its footprint in the Chinese domestic market.
Grund cautioned that while its prospects looked promising, it would take some time for its partnership with Alibaba to get going as they still have to figure out matters such as localising the technology stack, logistics and payments. “It’s not just a joint venture, it’s a new venture,” he said.
He anticipates its venture with Alibaba to be up and running in 12-18 months.