Ever since the Chinese government cracked down on “gift giving” as part of its anti-corruption campaign, Swiss watch exports have taking a beating.
Here’s the trend, courtesy of a UBS European luxury note out Wednesday:
Now that we have Chinese socialites engaging in public cat fights over who is richer, posting snapshots of their bank accounts “Rich Kids of Instagram style“, one has to wonder if it may be worth revisiting John Hempton’s prediction last year that the Chinese authorities will finally crack down on this sort of over-the-top gratuitous wealth display, and when that happens the luxury brands — among them Swiss watches — will begin to suffer.
John Hempton of Bronte Capital was gobsmacked this week when Richemont, the Swiss-based luxury goods group, warned that profits in the first half were likely to be rather better than the market was expecting.
Hempton was short the stock on the sensible view that in the wake of the Bo scandal in China, Chinese kleptocrats were less likely to be adorning their wrists with things like Vacheron Constantin watches. Read more
Trilantic Capital Partners, the former Lehman Brothers private equity fund backed by Richemont chairman Johann Rupert, has offered to take control of German glasses maker Rodenstock with the support of the Swiss luxury goods group. The unusual offer, featuring a licensing deal for the German company to use Richemont’s luxury brands, requires Trilantic and Bridgepoint, Rodenstock’s UK private equity owner, to agree with Rodenstock’s lenders to restructure its €370m ($523m) of bank debts.
Richemont on Monday issued a grim warning about the outlook for expensive jewellery, watches and accessories, as the world’s second largest luxury goods company said sales had fallen 12% in the crucial third quarter, which covers the Christmas period. The Geneva-based group, which owns brands such as Cartier, Vacheron and Montblanc, said it saw no easing in the toughest market conditions since its formation 20 years ago. The statement coincided with the opening in Geneva of a top trade fair for prestige watches, and suggested Richemont had already had strong indications from its own boutiques and independent retailers about the steep downturn in consumer confidence and spending.
Richemont said Monday it may become a pure-play luxury goods group, citing legal changes that could prompt it to spin off its big stake in British American Tobacco. The news that restructuring – recommended by many analysts – was under consideration saw the group’s share price close 1.7% higher at SFr74.25, compared with a 2.45% drop in the blue chip SMI index. The group stressed that no decision had been taken about its 19.3% holding in BAT. However, the stake is equivalent to about 40% of Richemont’s market cap and analysts say the company could unlock value by concentrating on luxury to remove a valuation discount to its peers.