Multibrand retailers, which have worked tirelessly for decades to establish brands like IWC, Panerai and Vacheron Constantin in the UK, are being eased aside as Richemont continues its inexorable push to sell direct.
According to the $20 billion group’s latest financial report for the 2022-23 financial year, direct sales now account for 56% of turnover for its Specialist Watchmakers.
This does not include Cartier or Van Cleef & Arpels, which are categorised as Jewellery Maisons, where 83% of sales were made through directly-owned showrooms.
Multibrand retailers are being pressed into opening monobrand boutiques for Richemont brands, a mission for the group that now sees almost three-quarters of its watches sold in branded environments, its financial statement says.
The changing configuration of Richemont watchmakers’ retail networks is leading to higher profits for the group, but these profits are not as spectacular as direct to consumer evangelists suggest.
In the last financial year, operating margin for Specialist Watchmakers rose to 19%.
This is a significant improvement. In 2019-20, operating margin for all of Richemont, including its much more profitably jewellery brands, was just 10.7%.
However, we all know 2022-23 was the hottest year on record for luxury watches. If you can’t make record profits in a year like that, you never will.
I can’t help feeling that Richemont’s abandonment of the retailers that have led to this success may come back to bite them.
For sure, the brands are capable of running high turnover flagships in cities like London, but wealth is spread across the country, which is why we have luxury watch hot spots in Leeds, Manchester, Glasgow and elsewhere.
Retailers in these cities proved how strong domestic demand could be during the pandemic when high-spending tourists stayed away (a situation that may become permanent with the loss of duty free shopping in this country).
It is not just the UK’s biggest cities where luxury watch retailers are generating substantial sales and profits for Richemont, you only have to look at the accounts for businesses like Laings (stores in Glasgow, Edinburgh, Cardiff and Southampton), Berry’s (Leeds, Nottingham, York, Windsor, Newcastle and Hull), Prestons (Wilmslow, Guildford, Leeds), or Pragnell (Stratford-Upon-Avon, Leicester and London) so see the breadth of demand across the country.
And this is before we get into the nationwide success of the major multiples, which are making a killing in university cities and suburban shopping centres. Just pull up the UK list of Rolex points of sale to see the potential across the country.
Until now, Richemont’s brands have been well-represented by multibrands in most of these communities, but retailers are now being pressed to invest in branded boutiques for the likes of IWC, Panerai and Vacheron Constantin.
If they don’t, they could lose the brands and, in the meantime, they have been stripped of all the most desirable boutique-only watches.
Richemont needs to be careful it has enough friends left after as this process plays out.
It may be OK for a brand like Vacheron Constantin, which makes about 32,000 watches per year, to concentrate retail in global cities, but Panerai makes 70,000 watches per year and IWC over 150,000.
That is a lot of watches to shift without the power of family-owned multibrand retailers doing the relationship-building, sales and marketing in their local communities.
As economic headwinds take the heat out of the high end watch market, we will see if brands are as good as multi-generational retail families at maintaining the irrational desire required to sell five-figure timepieces.
My suspicion is they will not be, and they may regret burning bridges with the retailers that developed their brands before they had even set foot in this country.