Luxury goods retailer Richemont says there are too many watches on the market as it explained a 46 per cent plunge in its annual profit to €1.21 billion.
Richemont results released Friday in Europe showed group sales down 4 per cent, but the parent of watch labels Cartier, Baume & Mercier, Piaget, Jaeger-LeCoultre, Vacheron Constantin and IWC Schaffhausen, reported a 15 per cent fall in its timepieces business. Watches account for 41 per cent of group sales.
The souring of the luxury watch market has been at the forefront of Hong Kong’s two-year-old retail slump thanks to a clampdown on gift-giving by the mainland government and declining visits from wealthy Chinese. But in recent months, Richemont’s rivals including Swatch Group and Louis Vuitton have reported a recovery in the greater China watch market.
Richemont chairman Johann Rupert said he was concerned at a “global glut” of watches and how his rival brands were responding to that.
“We made a decision to react,” he told the results presentation, referring to the company’s expensive buy-back program of unsold inventory last year.
“That is mostly over. Today at our major maisons our ‘sell in’ [wholesale business] is less than our ‘sell out’ [retail business] so our stock is gradually reducing. But I’d love for you to ask our competitors if they are doing the same thing.
“It is no good us doing that if the rest of the industry is force feeding the system like geese producing foie gras. I think from our side, we will be fine but if the whole industry would act rationally it would be quicker for everyone.”
Rupert said he was confident the broader luxury goods market will grow in the longer-term because Chinese consumers will keep travelling, helping revive European markets, as well as continuing to spend at home.
While Richemont sales fell for the full year, there was a noticeable upturn in the second half, largely due to China and the US. However, CFO Gary Saage said it was too early to conclude the worst was over in the important Hong Kong market, that comment despite an increase in watch and jewellery sales in March of 8.4 per cent.
Jewellery, which accounts for 39 per cent of Richemont turnover with Cartier and Van Cleef & Arpels the drivers, rose 7 per cent.
The balance of the business is luxury fashion, including Chloe, Dunhill, Lancel, Montblanc and Shanghai Tang.