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CORDER’S COLUMN: Richemont’s rotten covid quarter

Richemont-headquarters-Geneva

Richemont had a horrible covid quarter. Sales fell by 47% in the three months to June 30, slashing turnover for the period from almost €4 billion in 2019 to under €2 billion this year.

At a time when the brightest minds in the business should have been focused on firing up ecommerce while all stores were closed, the board instead indulged in a messy and incomplete shake-up of its leadership team.

It took until September to install Jérôme Lambert, the group’s chief operating officer, as its new chief executive officer, a position that had been vacant since March 2017.

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To be fair to Richemont, Swatch Group announced an almost identical drop of 46.1% in global sales for the first six months of 2020 to CHF 2.2 billion. Profits were down by 14.9% thanks to cost-cutting measures associated with the closure of owned stores and a slow down in manufacturing for both components and finished watches. In Switzerland, 6,000 Swatch Group employees out of a total of 23,000 were on reduced hours and pay.

Swatch Group also shuffled its leadership pack with the retirement of Longines’ long-standing CEO,Walter von Känel, opening the way for Matthias Breschan, currently head of Rado, to take on the far larger brand.

Raynald Aeschlimann, president and CEO of Omega and member of the Extended Group Management Board (a board made up mostly of heads of brands),was elevated to the Executive Group Management Board, presided over by Nick Hayek in the June reshuffle.

Richemont’s specialist watchmakers division, home to all the watch brands bar Cartier, saw sales slump 56% from €823 million to €359 million during the covid quarter, which the group had the audacity to blame on multibrand luxury watch partners. Notably, WatchPro heard stories throughout the pandemic of retailers securing sales for high ticket watches from the likes of IWC and Jaeger-LeCoutre, only to be told when asking their local reps to supply the watches, that the brands wanted the sales to be routed through Richemont-owned ecommerce sites instead.

How badly were the best multibrand retailers performing? The Watches of Switzerland Group reported a drop in sales of just 28% for the three months to July 26 and ecommerce sales rose by 117.8% in May, 77.7% in June and 46.2% in July as stores reopened in the UK and USA.

Ecommerce sales across all watches at all price points in the UK rose by 55% in June. This compares with a 42% slump in quarterly sales at Richemont’s Online Distributors business unit, which houses Net-a-Porter, Mr Porter and Watchfinder.

The further away you look from multibrand retailers and the closer you get to Richemont owned operations, the worse the results become.

There appears to be an issue with getting the best talent into the right roles within the organisation, or keeping talent at all.

Stuart Hennell, the creator and chief executive of Watchfinder, built that company from nothing over 15 years before selling it to Richemont for an undisclosed sum rumoured to have been north of $300 million. He left as soon as his post-acquisition contract allowed.

Toby Bateman, who was instrumental in the creation of Mr Porter in 2010 and became its managing director in 2015, left without explanation at the end of last year. You wonder how Natalie Massenet, founder and executive chairman of online fashion group Net-A-Porter, who exited in 2015, would have fared if she had stuck around until today.

Richemont has many brilliant people, but power is too centralized and that core has had a rotten year. Executives in far flung parts of the empire are unable or unwilling to make bold decisions that would serve the organization well, so nothing seems to change, even when this year’s events make adaptability and innovation vital to survival.

3 Comments

  1. I know Yoox Net-a-Porter side of things more.

    “There appears to be an issue with getting the best talent into the right roles within the organisation, or keeping talent at all.” – This is so spot-on, it hurts. Both cases, described by the sentence, are applicable.

    There is a lot of politics in the business, given how it’s luxury fashion – the “it” industry. People hold on to their jobs and they are not willing to compromise them in any way, even if that way is to accept someone else’s project idea as a better one.

    The fear of better ideas is very-very apparent. Many are eradicated at the root, because they don’t mesh with someone’s agenda or a pet project. So people with ideas leave. “Players”, “talkers” and drifters stay.

    Another big problem is the drive for the bottom line – revenue more so than profit. It got progressively more pronounced and worse first with Yoox and Net-a-Porter merger and then after Richemont’s acquisition of Yoox Net-a-Porter.
    On the hunt for quick revenue boost, they started throwing sale after sale, with each sales period becoming longer year-on-year. It not only diluted the margin, but what’s worse, cheapened the brand and trained customers to wait for a sale, instead of buying on full price.
    Marketing operations got distorted because of that. Brand marketing operations dried out and became sloppy, bottom funnel activities (“buy, buy, PLEASE BUY, BUY NOW!!!!”) bloated out.

    Current business operations are run as if they sell fast fashion, competing with the likes of Boohoo, and not an aspirational product.

    By the time Covid hit, brand impetus, this brand allure, which Natalie Massenet carefully fostered and which business heads after her coasted and exploited to further their careers, fizzed out.

    When Richemont bought Yoox Net-a-Porter, they thought they were buying a Hulk of luxury e-commerce. Little did they know they only got a Bruce Banner with a radiation sickness.

  2. no company is irreplaceable, if they are destined to go down we should allow it. someone else will come along to replace them.

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Rob Corder

The author Rob Corder