Richemont looks eastward to grow
The luxury goods retailer seeks prosperity in a connected world
Global luxury goods retailer Richemont continues to bet on a “more connected world” with a clear strategy to target online Chinese customers, after initially delaying combining e-commerce and luxury retail.
The Swiss-based high-end retailer led by Johan Rupert released interim results for the six months to end-September on Friday.
Group sales rose 9% to €7.39bn (R120bn), less than the €7.46bn expected by analysts polled by Bloomberg.
In the results note, Rupert, who is chair of the company, said it was “undertaking a transformation to ensure our Maisons and businesses will continue to prosper in a more connected world”.
Richemont has created a new online Chinese web platform in a partnership with e-commerce retailer Alibaba. The platform was launched in October.
In the joint venture called Feng Mao, Richemont and Alibaba sell 130 brands including Balmain, Jimmy Choo, Tom Ford and Richemonts’ brands Cartier, Baume & Mercier, IWC Schaffhausen, Jaeger-LeCoultre, Panerai and Piaget.
Rupert's group delayed moving online as it wanted to avoid becoming too visible, a move which some commentators say could damage the exclusivity of their brand.
It announced its partnership with Alibaba in 2018. It also spent almost €2.7bn taking over Italian online fashion retailer YOOX NET-A-PORTER (YNAP), its biggest acquisition. It intends to combine YNAP's online luxury selling and Alibaba’s understanding of the Chinese consumer to further increase Chinese sales.
Online clothing and leather sales increased by 28%, with all online sales up 32%, reaching €1.17bn.
But the online division posted a €79bn operating loss “impacted by higher promotion and shipping costs, and increased investments in technology and logistics migration, marketing and internationalisation”, it said in a presentation.
Bloomberg quoted Rogerio Fujimori of RBC saying the results “highlight the material impact associated with the investment to continue [to] transform its business model around YNAP”.
Local independent investment analyst Liston Meintjies said Richemont was right to focus on Chinese online retail. “You have to be in China because that is where the growth is. If you are not online, you are nowhere.”
However, there were question marks about whether Richemont fully understood China. “Luxury is all about brands and it is not clear whether Richemont brands appeal to the Chinese market,” he said.
On Friday, the company said the jewellery business, its star performer, offered double-digit growth outside protest-hit Hong Kong. Operating profit rose 3% to €1.16bn, with the company reporting it had seen strong growth in the Jewellery Maisons.
However, costs in the jewellery business also increased with store renovations and an uptick in marketing.
The company could face stiff competition as rival LVMH has bid to buy Tiffany jewellery to compete with Richemont’s Cartier brand, said analysts.
Meintjies said Richemont remained a “perennial laggard” compared with LVMH, whose brands include Fenty, Givenchy, Christian Dior and Cha Ling cosmetics.
Overall, Richemont’s operating profit increased by 3% to €1.16bn, reflecting higher sales. The operating margin was 15.7% compared to 16.6% a year earlier. Excluding the loss-making online distribution business, the operating margin increased to 21.8% from 21.1% a year earlier. /Additional reporting by Karl Gernetzky and Bloomberg