Sign up for our free daily newsletter


Get the latest news and some fun stuff
in your inbox every day

Richemont review - balance sheet and brands for the future

I did a deep dive into Richemont yesterday. There is no doubt that the stock has been more than a little disappointing. Luxury goods across the globe have looked sloppy as fewer vacations to Europe coincide with lower purchases by foreigners, equally however since the current Chinese leadership has cut down on corruption and the culture of "gifting", there has been a slowdown in sales. Richemont as it exists nowadays is less than 30 years old. There was the tobacco element for more than half the life of the company, the cash flows were used to fund some of the acquisitions. They own some of the most prestigious and iconic luxury brands on the planet, Cartier and Van Cleef & Arpels, as well as watch brands like Vacheron Constantin, Piaget, Panerai, Baume & Mercier, amongst others. They own Chloe and Lancel, Dunhill, Mont Blanc and Peter Millar, Purdey and Shanghai Tang, in a division of "other" that contributes only 16 percent of overall sales.

There is a new and uber exclusive jewellery brand named after one of the internal creative directors who was tasked with starting his own internal brand. This is a first for the majors, normally the idea is to buy and hold, famous and iconic brands from yesteryear. This is the first of the home grown brands, Giampiero Bodino is the name. This is a very exclusive brand, clients essentially have a say of what they want the bespoke pieces to look like. So, instead of buying a small part of a collection, these are truly one of a kind. Watch a short clip The ultimate bespoke jewellery by Maison Giampiero Bodino. Wearable art? Perhaps. Jewellery Maisons account for around 55 percent of all sales over at Richemont, watches just below 30 percent. Jewellery has much higher margins than watches, it is the most profitable part of the group.

So what next for luxury markets? Have we entered a time where less is more? Or are we likely as humanity to consume more of these items? Lloyd Blankfein, I was reading yesterday, wears a sports watch. Does it mean that people will replace their "I have arrived timepieces" with a wearable? Maybe. And perhaps already this is happening, Swiss data yesterday reported 14 straight months of watch sale exports, down.

Not all luxury is the same however, some of the jewellery items prices that Richemont sell across their independent brands (that is important to note) are available only on request. i.e. If you are looking for the price online then, well good for you, if you are serious, then enquire about the price. Are there likely to be more people in the world that can afford their products, or less? What does society think of the products? Do they "last" forever? They certainly do and the longer you hold them, the more valuable they become, unlike wearables which in two years will be worth nothing. I suspect we will muddle through for a little while, the next 12-18 months or so. In that time, some of the second tier family jewellery and watch makers may well become a take out target for Richemont, we loosely identified a few yesterday. Chopard and Buccellati amongst the jewellery makers, Louis Moinet and Audemars Piguet amongst the watchmakers were penciled in, no real info, just suggestions.

All luxury goods makers will be fine and continue to morph into what customers want. People want the finer things in life. They also want organic food, renewable energy, an electric vehicle and craft beer. OK, perhaps not the last one. I suspect that traditionally a cautious company, they may well get busy snapping up competitors in a time when things are a little tougher, that has been their strategy in the past. We continue to recommend holding the stock, the market is factoring in low to no growth for the time being, the share price has adjusted accordingly.


Other recommended stocks     Other stories about CFR