Rischemont plummets!

[WatchIng]

Wow - Richemont is forecasting a near halving of 6-monthly profits: it's getting tough out there!

http://watchesbysjx.com/2016/09/rich...half-year.html

[Alansmithee]

Switzerland’s high-end watch industry on Wednesday showed more signs of buckling under the weight of weaker global growth, volatile currencies and sluggish tourism in Europe, as the sector saw its second major profit warning in as many months.
Cie. Financière Richemont SA, the maker of Cartier jewelry and watches, issued a profit warning as it posted a tumble in sales. In July, Swatch Group AG—owner of expensive brands such as Omega, Blancpain and Breguet in addition to its cheaper plastic watch line—reported a 52% plunge in first-half profit.
Luxury brands across Europe have struggled in recent months, with the trend particularly pronounced in Switzerland, where companies face the added difficulty of the strong Swiss franc. Watch exports have plunged in recent months, government and industry data show.

http://www.wsj.com/articles/cartier-...omy-1473832336

[jounetsu]

Bubbles bursting...

As many here have long suspected, the meteoric prices increases of recent years appear to be unsustainable; manifesting as decreased demand, accentuated by the current state of various economies.

So much for the Veblen effect!

[MarkO]

" inventory buy-backs."

Appearing in a grey market near you shortly !

[alfat33]

Watch sales down by 10%. Other lines of business up. Net margins c.20%. Hardly a disaster. All businesses have cycles.

[Alansmithee]

" inventory buy-backs."

Appearing in a grey market near you shortly !

They actually destroy them (or at least disassemble them).

[kaiserphoenix]

overall sales fell 13%.... doesnt seem that bad....

[Neilw3030]

That's the problem these days, you see a downturn in business and it's the end of the world. Maybe a price reduction to boost sales, most retailers do it.

[paskinner]

The issue is not a drop in profits this year; it is whether the long inflationary trend in luxury watches is coming to an end.
And no one actually knows. This might be a blip, it might the start of long term decline. I note that Richmont themselves predict a slow recovery.

[peter2704]

surely its to be expected,slow down I mean? You cant keep selling to the masses in big profits/ volumes and not expect some form of saturation point.

[RAJEN]

OMG!
World is coming to an end. Sales down by 10%.
Lol!

[robert75]

surely its to be expected,slow down I mean? You cant keep selling to the masses in big profits/ volumes and not expect some form of saturation point.

Pretty much sums it up.

[Der Amf]

Worth remembering: they've several billion cash in the bank.

[peter2704]

hard to feel sorry really,lot of its fueled by greed and lack of a plan B

[kk]

They actually destroy them (or at least disassemble them).

That's right. And all expensive watches on the internet are fakes. It says so on the Rolex web site.

[alfat33]

hard to feel sorry really,lot of its fueled by greed and lack of a plan B

I refer you to:

Worth remembering: they've several billion cash in the bank.

[GrandS]

Richemont is still making a profit? They must be doing something right if they are buying their own inventory and still making money.

[Lovewatches108]

hard to feel sorry really,lot of its fueled by greed and lack of a plan B

Totally agree!

Come on watch firms - let's have a sale!!

[HectorHughMunro]

As many here have long suspected, the meteoric prices increases of recent years appear to be unsustainable; manifesting as decreased demand....

Probably true. Unfortunately, I'm a shareholder!

[alfat33]

Probably true. Unfortunately, I'm a shareholder!

As far as I can tell you are down quite a bit compared to the peak 2 years ago but still a fair way up compared to 5 years ago. Ignoring any currency effects, which I'm guessing roughly cancelled out the losses of the last 2 years?

Hard to know whether to hang on I guess - is this all the bad news or will it get worse?

As a shareholder I guess you know more than most of us about how the company is doing. Do you think they are in trouble long term?

[KavKav]

Quite predictable, you cannot repeatedly keep jacking your prices up without sales eventually suffering, watch manufacturers are increasingly delusional about the value of their products as they are the first to believe their own marketing hype and they blindly ignore the decreasing intrinsic value of their products! Simple economics guarantees the watch price jerking bubble WILL burst.

I have not purchased a brand new expensive watch in years as I simply will not pay five grand for something that costs much less than a grand to manufacture and could be bought a few years ago for half the current asking price! Nothing to do with whether I can afford it, everything to do with declining to be ripped off!

[HectorHughMunro]

As far as I can tell you are down quite a bit compared to the peak 2 years ago but still a fair way up compared to 5 years ago. Ignoring any currency effects, which I'm guessing roughly cancelled out the losses of the last 2 years?

Hard to know whether to hang on I guess - is this all the bad news or will it get worse?

As a shareholder I guess you know more than most of us about how the company is doing. Do you think they are in trouble long term?

Not really. I've held them since long before the BAT divestment and sold the value of my original stake years ago so am letting the profit float and in it out of interest more than anything.

I think there's a lot of fat there and the industry has to produce more reasonably priced products before Asia comes in to steal their lunch. You can't expect to produce that level of excessive profit without creating competition. The complacency is staggering.

[StuartGR]

Not really. I've held them since long before the BAT divestment and sold the value of my original stake years ago so am letting the profit float and in it out of interest more than anything.

I think there's a lot of fat there and the industry has to produce more reasonably priced products before Asia comes in to steal their lunch. You can't expect to produce that level of excessive profit without creating competition. The complacency is staggering.

I'm in a similar situation, having worked for a company that was acquired by Richemont in 2006/7 via Columbus, their internal VC arm.

I remember seeing some internal documents back in the day about margins and profitability by 'maison' and was surprised at how well some of the lesser-known brands fare. It's worth remembering that Richemont also owns Shanghai Tang, Lancel, Dunhill, Montblanc and Van Cleef - brands that are first and foremost luxury retail brands with only a passing interest in watches (albeit growing in Montblanc's case). Vacheron remains the jewel in the group's crown. Richemont encourages internal competition between, say, Panerai and IWC and while that it probably quite healthy, it does feel like they need a little more diversity in their portfolio of businesses.

Come what may, they've been here before and have weathered previous storms so I can't imagine there is panic in the boardroom. Brands take years to establish and build - Asian brands with cheaper products may steal some of Richemont's lunch but the plate still looks full from here...

SGR

[alfat33]

Not really. I've held them since long before the BAT divestment and sold the value of my original stake years ago so am letting the profit float and in it out of interest more than anything.

I think there's a lot of fat there and the industry has to produce more reasonably priced products before Asia comes in to steal their lunch. You can't expect to produce that level of excessive profit without creating competition. The complacency is staggering.

Thanks, makes a lot of sense.

[Itsguy]

I think we have to remember the extent to which the price rises were due to the Swiss Franc going up when it became a safe haven currency in the wake of the financial crisis. I doubt that the watch brands themselves would have dared to raise prices to such a degree if it hadn't happened by itself, so they weren't initially being arrogant. Of course they were very pleasantly surprised when the market appeared to bare it. You could see a certain amount of grumbling on this forum from those of us who remember how much a Moon Watch or a Sub used to cost, but in general people quickly got used to the new prices, in the same way they have with UK property - or else people found their place in the pre-owned and vintage market. The brands then become overconfident that they'd inadvertently discovered a new normal (see Kerns 'Zurich Minds' lecture), and continued to raise prices further, feeling that they had made a one way bet. They must have been surprised when China introduced anti-corruption policies and HK sales dropped like a stone.

The question is, where do they go from here? They can just wait it out, drawing on their vast reserves, but this is being compared in scale to the 70s quartz crisis. They found their way out of that by taking radical action, selling cheap Swatches, overhauling outdated structures, and repositioning the mechanical watch as the luxury alternative to quartz. That worked last time, but now they need new ideas. It's notable that Montblanc, with more affordable complications, is one of the few brands that is doing well. They may have to radically reposition some of their existing brands - indeed, this is already happening with Tag Heuer. It would be hard to bring in cheaper products within their top existing brands with the most heritage, they would probably rather scale them down and wait for inflation to naturally erode the prices back to normality, while others, say TH, Oris, Tissot etc can be re-positioned at will.

[robert75]

Quite predictable, you cannot repeatedly keep jacking your prices up without sales eventually suffering, watch manufacturers are increasingly delusional about the value of their products as they are the first to believe their own marketing hype and they blindly ignore the decreasing intrinsic value of their products! Simple economics guarantees the watch price jerking bubble WILL burst.

I have not purchased a brand new expensive watch in years as I simply will not pay five grand for something that costs much less than a grand to manufacture and could be bought a few years ago for half the current asking price! Nothing to do with whether I can afford it, everything to do with declining to be ripped off!

Absolutely spot on. Having just put down for a Dornbluth I think aside from that I will stick to vintage rather than overpriced watches soon to be in financial freefall. It's no use watch companies trying to find the latest overseas cash cow to milk when it hits it will be worse than any quartz crisis.

[Tony-GB]

Quite predictable, you cannot repeatedly keep jacking your prices up without sales eventually suffering, watch manufacturers are increasingly delusional about the value of their products as they are the first to believe their own marketing hype and they blindly ignore the decreasing intrinsic value of their products! Simple economics guarantees the watch price jerking bubble WILL burst.

I have not purchased a brand new expensive watch in years as I simply will not pay five grand for something that costs much less than a grand to manufacture and could be bought a few years ago for half the current asking price! Nothing to do with whether I can afford it, everything to do with declining to be ripped off!

Hear, hear.

However- I do still really, really want a Drive De Cartier. Will I get a juicy discount?

[Iconoclast]

I'm coming in for the kill... screw buying watches... I'll buy the industry.

[johnfm]

Bubbles bursting...

As many here have long suspected, the meteoric prices increases of recent years appear to be unsustainable; manifesting as decreased demand, accentuated by the current state of various economies.

So much for the Veblen effect!

Issue seems more to be tourist traffic reduced in certain key markets by either terrorism (Paris market hit quite hard) or currency issues.

Sales in U.K. pretty strong post Brexit as watches are a bargain to overseas buyers.

[johnfm]

Not really. I've held them since long before the BAT divestment and sold the value of my original stake years ago so am letting the profit float and in it out of interest more than anything.

I think there's a lot of fat there and the industry has to produce more reasonably priced products before Asia comes in to steal their lunch. You can't expect to produce that level of excessive profit without creating competition. The complacency is staggering.

Remember the fears of Asia stealing their lunch when quartz movements became commercial?

Didn't happen.

Unlikely to happen with high end watches because collectors/buyers want a Swiss watch from a maker with history, not a cheaper equivalent from China.

[ddm27]

I know, just double the prices (again) on Omega RRPs! /s

[Apersonofsorts]

I am waiting for a bit before the next watch purchase. Hopefully after demand drops in the UK the watches will be discounted more due to the weak sales.