<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
SIMON BROWN: I\u2019m chatting with Tasneem Samodien. She is research analyst at Private Clients by Old Mutual. Tasneem, appreciate the time today.<\/p>\n
Thinking about Richemont and going back a decade, I remember this. At the point there was a fair bit of pressure in the luxury goods market, a fair bit of turndown in the market. Richemont at the time responded quite decisively.<\/p>\n
They bought inventory back from the wholesalers and fundamentally changed their business model, going from wholesale to more direct-to-consumer. It wasn\u2019t an easy change, but it has really benefitted them.<\/p>\n
TASNEEM SAMODIEN: Thank you for having me. Yes, Simon. I am giving away my age now, but I remember it like yesterday. Ahead of the AGM around 2017\/2018, Richemont put out a notice to say its operating profit was going to be down about 50%, and obviously there was a sell-off in the market. We were investors at the time, so it was a very painful period for them.<\/p>\n
They could have waited for the luxury market to turn because there was an overall slowdown. But I think management acted very decisively in saying, \u2018We know that there is a downturn, but we also see these gaps and the issues in our business, and we are going to take action.<\/p>\n
\u2018We\u2019re going to buy back watches from the grey market. We\u2019re going to take more control over distribution in order to take more control over pricing.\u2019<\/p>\n
It cost them. For two years there was this jewellery price overhang as management was instituting these actions. And so it\u2019s so pleasing to see 10 years later that those changes made to the business are now placing them in such a strong position to outperform their peers and outperform the overall sector.<\/p>\n
Read:
How Richemont keeps growing despite global luxury slump
Richemont buys back more unsold watches, holding back profit<\/p>\n
SIMON BROWN: I\u2019d forgotten about that collapse in the profits. I\u2019d remembered the sort of luxury downturn. I\u2019d forgotten just how bad it got. I was also at that point in time a shareholder, and it was nasty on the share price.<\/p>\n
But it has worked. \u2018Direct to consumer\u2019 is now over three-quarters of group sales. A decade or so ago it was around half. It was a big move. It has absolutely paid off just in terms of the numbers.<\/p>\n
TASNEEM SAMODIEN: Yes. I think we must also remember at the time \u2013 it\u2019s easy to say now that everyone\u2019s going direct to consumer \u2013 back in the day it was very traditional for luxury brands to focus on brand equity, building the brand, and for wholesalers to distribute the luxury products. That was very much the status quo.<\/p>\n
It was kind of going against the grain to say, \u2018As a luxury brand we are actually going to go into retail. We can own our stores with our own retail staff, have relationships with customers.\u2019 That was going against the grain \u2013 building your own e-commerce platform. They kind of did what other peers weren\u2019t willing to do.<\/p>\n
And the peer group certainly followed after that.<\/p>\n
Now they have much stronger relationships with their clients who have actually followed into how they design the product. If you go on the online site now, you can actually influence the design of your Cartier Love Bracelet, for example. So it\u2019s placed them in a much stronger retail position, apart from just taking control over distribution.<\/p>\n
There have been multiple ways that have made them much stronger and improved their brand equity as a result. But now the business is much more. Back in the day it was 50:50 wholesale, versus direct to retail. And now it\u2019s predominantly direct to client.<\/p>\n
Read:
Richemont, Hermes slump as luxury-goods malaise worsens
Herm\u00e8s sales rise as brand shows resilience during luxury slump
Richemont sales surge on robust US demand for luxury jewelry<\/p>\n
SIMON BROWN: I get your point. It gives them more control over that relationship, aside from pricing and inventories and all of that. It is that direct one-on-one relationship, which can go wrong. But in Richemont\u2019s case it has really, really worked.<\/p>\n
We\u2019ve also seen jewellery become more important than watches. Way back in the day I remember the first smartwatches and concerns around Richemont. Because they were so reliant on watches, they have also leaned a lot more heavily into jewellery instead of the watch.<\/p>\n
TASNEEM SAMODIEN: Yes, that\u2019s true. Ten years ago this was a struggling luxury watch company. That was very much the narrative. But obviously management paid attention to the commentary and the concerns. So they\u2019ve really leaned heavily into Cartier, into Van Cleef.<\/p>\n
They have bought more luxury brands along the way, driving that brand equity and also being just better able to build a story, build a relationship with the customers around when you buy your Love Bracelet, the Alhambra design that is very popular with a younger luxury consumer.<\/p>\n
So they have leaned into it, and it is a category much more able to influence pricing in their specialist watches or luxury watches.<\/p>\n
There is a lot of nuance that goes into how watches are priced versus how the jewellery categories price.<\/p>\n
I think it absolutely the right action to increase the contribution from jewellery in the business and decrease exposure to the overall luxury watch category.<\/p>\n
Read:
Richemont posts higher sales on Cartier jewellry demand
Cartier allure helps Richemont reach R2trn value<\/p>\n
SIMON BROWN: And if you look across the sector \u2013 and there isn\u2019t really a one-for-one comparison \u2013 there are other luxuries.<\/p>\n
LVMH has everything from fancy whiskies onwards. Richemont really stands on its own as sort of proper, pure luxury, and it\u2019s also made it a much more defensive luxury good company.<\/p>\n
Companies often pivot and make changes. This is almost an MBA study in it going incredibly well and benefitting shareholders and the company itself.<\/p>\n
TASNEEM SAMODIEN: You must say that while there was clear management to tilt the portfolio in the direction of jewellery and take back the relationship with the customer, there is also a bit of luck. The jewellery category in particular is benefitting from the precious metal price tailwind.<\/p>\n
Richemont has not increased its prices significantly to compensate for what we\u2019ve seen happen in the gold price and precious metals. Customers have this perception that they\u2019re not just buying a piece of jewellery, they\u2019re also buying an investment.<\/p>\n
The item that they purchased a year ago is worth more today, just based on the gold content, on the precious metal content. And that is also supportive of demand.<\/p>\n
We\u2019ve seen that play into Richemont\u2019s rating.<\/p>\n
Read:
Gold and silver drop as Mideast strikes heighten rate-hike risks
Richemont sales surge on robust US demand for luxury jewelry
Richemont\u2019s sales beat expectations in holiday quarter<\/p>\n
SIMON BROWN: I hadn\u2019t actually thought of that. Of course, just the good old-fashioned precious metal prices are helping significantly.<\/p>\n
We\u2019ll leave it there. Tasneen Samodien, research analyst, Private Clients by Old Mutual, appreciate the time.<\/p>\n
#Direct #sales #jewellery #focus #reshape #Richemonts #future<\/p>\n","protected":false},"excerpt":{"rendered":"
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