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Richemont : Company Profile

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Richemont is the world's #2 luxury goods company (behind LVMH), with a strong emphasis on jewellery, watches and other fine objects. Among the many well-known brands sitting within the portfolio are Cartier, Van Cleef & Arpels and Montblanc. Although many of its brands date back to the 19th century or even before, Richemont itself is a comparatively recent creation. Celebrating its 25th anniversary in 2013, it forms one part of the extensive investment empire of South Africa's Rupert family, whose other interests include mining, financial services, packaged goods and engineering. The group started as a maker of tobacco products, but sold its Rothmans International division to British American Tobacco in 1999 in return for a very profitable stake in the enlarged business. It finally divested these shares in 2008.

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Who handles advertising? Click here for Agency Account Assignments. The group reported "communication expenses", including trade fairs and other general marketing expenses as well as advertising, of €1.12bn in the year to 2017.

Competitors

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Brands & Activities

After a difficult few years at the start of the 2000s, Richemont initiated a thorough restructuring which appeared to leave the group in robust good health, with most of its businesses reporting strong increases in performance during the latter part of the decade as a result of the boom in the luxury sector. Richemont benefits from a tightly focused portfolio, which allows for considerable synergy between its different brands. At the same time, group head Johann Rupert has shown himself to be a highly skilled dealmaker, arguably more than equal to his opposite number at rival LVMH. Notably, Rupert has generally avoided the temptation to chase high profile acquisitions (a tendency which has occasionally dented Bernard Arnault's reputation) in favour of smaller and less risky bolt-ons.

Unlike LVMH, whose biggest businesses are in wines, spirits, leather goods and fashion, Richemont is quite tightly concentrated on the area of luxury accessories, such as jewellery, watches, pens and personal accessories, divided up into separate self-contained "maisons". The group's most celebrated brand is Cartier, one of the world's leading manufacturers of watches and jewellery. The core Cartier jewellery brand is now offered in almost 20 different sub-branded collections, such as Panthere de Cartier, Pasha de Cartier, Delices de Cartier, La Dona de Cartier and Love. Juste un Clou is a more recent collection, introduced in 2012. New in 2016 were Cartier Magicien and Cactus de Cartier.

The group also markets a growing range of leather goods under Marcello de Cartier and other sub-brands, and has lent its name to a collection of prestige fragrances since the 1970s. The most widely known of these is Le Must de Cartier, first introduced in 1981. Cartier operates around 170 retail stores around the world. The group's jewellery portfolio also houses Van Cleef & Arpels, equally renowned for both jewellery and luxury timepieces, and a newly launched contemporary line from Cartier creative director Giampiero Bodino.

Richemont doesn't break out revenues for its individual brands, but its two jewellery brands reported combined revenues of E5.9bn in the year to March 2017. Even without the benefit of any acquisitions, divisional sales have doubled since 2010. The majority of revenues are generated by Cartier - around €5.3bn by most estimates, with an additional €650m or so from Van Cleef & Arpels. Total group revenues from jewellery alone, excluding Cartier-branded timepieces and other products, were €4.2bn.

The Watches portfolio houses a selection of Europe's smaller but finest prestige manufacturers including Piaget, A Lange & Sohne, Vacheron Constantin, Jaeger LeCoultre, Panerai luxury sports watches, Baume & Mercier and IWC. In 2008, Richemont agreed a deal with Ralph Lauren to set up a joint venture marketing watches and jewellery under the Ralph Lauren brand. Also that year, the group acquired a controlling stake in another small manufacturer, Roger Dubois. Combined sales from specialist watchmaking topped €3bn for the first time in ye 2015, rising to €3.23bn for ye 2016. However, they fell back below €3.0bn again in ye 2017, reflecting a global decline in luxury watch sales. Including the revenues from watches generated by the Cartier and Van Cleef & Arpels brands, Richemont's total revenues from watches were €4.3bn in the latter year.

The group's remaining businesses comprises a variety of different fashion and accessories businesses. Montblanc is the world's best-known maker of pens, or "fine writing instruments" as the company prefers them to be known. The brand has diversified widely into other areas, such as leather goods and jewellery, and for the first time in Montblanc's history, writing instruments contributed less than half the brand's sales in the year to 2009. Montblanc is the biggest of the group's other brands, with sales of around €750m.

Although British American Tobacco is now responsible for the Dunhill tobacco business, Richemont has set about establishing the Alfred Dunhill brand as the world's foremost manufacturer of traditionally styled men's accessories. That business was in some disarray until 2003 when it was completely restructured, and divided into four main units of fine tailoring, outerwear, leather goods and timepieces, each with its own creative director.

The group's main womenswear fashion house is Chloe. Though originally founded by Gaby Aghion and Jacques Lenoir in the 1950s, it was first catapulted into the global spotlight by designer Karl Lagerfeld whose career was launched there in the 1960s and 1970s. After suffering something of a decline under British designer Stella McCartney, it reported a sharp upturn in its fortunes during 2005 under creative director Phoebe Philo. However Philo quit the business at the beginning of 2006, and was eventually replaced by Paolo Melim Andersson. The design house of Azzedine Alaia joined the group in 2010. Upscale US luxury menswear brand Peter Millar joined the group in 2012. Combined revenues from "other brands" were €1.84bn in ye 2017. The group declared sales from leather goods of €779m in ye 2017, €419m from clothing and €396m from writing instruments.

Richemont took a minority stake in internet fashion retailer Net-a-Porter.com in the mid 2000s, and increased that position to majority control in 2010. Dedicated menswear e-tailer Mr Porter was launched in 2011. In Spring 2015, Richemont announced plans to merge Net-a-Porter with its Italy-based rival Yoox. Financial terms of the deal were not disclosed but Richemont retained a 49% economic shareholding in the merged Yoox Net-a-Porter Group (or YNAP), but only 25% of voting rights. That business inherited Yoox' public listing on the Italian Stock Exchange. Combined revenues of Yoox Net-a-Porter were €1.87bn in ye 2017, but with a small loss. In a reversal of the earlier strategy, Richemont offered in early 2018 to buy out all YNAP's public shareholders with an offer of up to €2.7bn, and take back full control of the business.

Other more traditional brands within the group include renowned British gunmaker Purdey, which has successfully extended its brand into shooting clothing and accessories. Perhaps the most unusual brand in the portfolio was Shanghai Tang, a Hong Kong-based clothing and accessories brand established by Sir David Tang in 1994 with the aim of becoming the world's first global Chinese luxury brand. It had struggled for some years before being sold by Richemont in 2017. British menswear retailer Hackett was sold to investment group Torreal in 2005. Old England, a French retailer specialising in traditional British apparel and accessories, was sold in 2006. Women's accessories brand Lancel was sold in 2018.

Richemont operates mainly as a holding company. With very few exceptions, it now owns 100% control of each of its individual operating units, or "maisons", but those units are left to operate more or less autonomously, each with its own management structure. The group supervises centralized distribution, either to each brand's own retail network, or wholesale to other retailers. Richemont controls a combined total of almost 1,120 branded stores (including around 280 Cartier and around the same number of Montblanc shops). The branded network accounted for 60% of sales in ye 2017, with wholesale customers contributing the remainder.

The Rothmans International tobacco business was sold to British American Tobacco in 1999. As a result, Richemont became the biggest individual shareholder in BAT, with a direct shareholding of almost 20%. Associated company Remgro held a further 10% stake. The BAT shares were one of Richemont's best-performing investments for the next ten years, contributing a huge chunk of the group's profits. For the year ending 2008, Richemont's shareholding in BAT contributed €609m of proportional profits, and a cash dividend of €325m. However in October that year the BAT stake was spun off, along with some other non-luxury assets, into a new company, Reinet Investments and then distributed to the mainly family shareholders.

Financials

In the year to March 2015, group revenues slipped back slightly from the previous year's high of €10.65bn to €10.41bn, reflecting the divestment of Net-a-Porter. On a continuing basis, sales were up 4%, and would have risen by 5% including a full-year contribution from Net-a-Porter. Group operating profits were up 10% but net profit slumped 35% to €1.33bn as a result of revaluation of certain financial instruments. Revenues for the year to March 2016 hit a new high of €11.08bn, helped significantly by currencies, while net profit almost doubled to €2.23bn, helped by a sizeable gain from the sale of Net-a-Porter.

Revenues for the year to 2017 slipped by 4% to €10.65bn as a result of buybacks of excess inventory and slowing performance, especially in the watchmaking division. The group's two jewellery maisons contributed almost 56% of revenues, or €5.93bn, and 95% of operating profit. Revenues from the specialist watchmaking group fell by 11% to €2.88bn. Other businesses - Montblanc, Chloe, Purdey, Dunhill and Lancel - contributed revenues of €1.84bn. The group's biggest region is Asia, contributing 37% of revenues or €3.9bn; followed by Europe (€3.1bn). Top countries are China/Hong Kong (sales of almost €2.6bn in ye 2017), the US (€1.4bn), Japan (€1.0bn) and France (€711m).

Richemont is controlled by Compagnie Financiere Rupert, a family holding company owned by the Rupert family, one of the wealthiest in South Africa. It owns half of Richemont's voting shares as well as a 9% direct equity stake. An associated company, Remgro (formerly the Rembrandt Group), manages the family's extensive interests within South Africa in sectors such as financial services (including a controlling stake in FirstRand Bank), media (eMedia), printing and packaging, engineering and motor components, adhesives, life assurance, medical services, mining, petroleum products, food (RCL Foods), wine and spirits. It has large shareholdings in the local operations of international companies Unilever and Total, as well as spirits company Distell. Combined revenues were around €2bn in 2016.

Background

In the late 1840s, Louis-Francois Cartier purchased the small jeweller's shop in Paris where he worked, following the retirement of his employer. His designs, many featuring animal motifs such as panthers, quickly found favour with members of Parisian high society, and the shop moved location several times as its status rose. In the 1860s, his son Alfred took over the business, and later passed it on to his own sons Pierre, Jacques and Louis.

The three brothers brought the business to worldwide prominence in the late 19th and early 20th century, largely as a result of the patronage of Queen Victoria's son, the Prince of Wales, later King Edward VII. A renowned playboy, he had been a regular customer of the Paris shop since the 1880s, relying on the Cartier brothers to supply gifts for his numerous female friends. For his coronation in 1902, he commissioned the shop to make 27 diamond tiaras to be presented as gifts to a select group of followers, an act of generosity which firmly established Cartier as the choice of the nobility and the upper classes. Later he granted Cartier a Royal Warrant, and this encouraged similar commissions from other royalty. By 1910, Cartier counted no less than 20 royal houses of Europe among its clients. To build on this popularity Jacques Cartier opened a shop in London in 1902, and Pierre Cartier launched a New York outlet in 1909, where he courted America's new breed of millionaires and tycoons. Among Cartier's many innovations were the first women's wristwatches as well as what is generally considered to be the first modern man's watch with a leather strap, the Santos watch introduced in 1908. Later, however, during the worldwide economic depression of the 1930s and the world war which followed, the business declined, and control of the three separate Cartier maisons in Paris, London and New York passed to different shareholders.

In the early 1970s, Cartier of Paris was reinvigorated by French businessman Robert Hocq. A former hero of the French resistance during World War II, he had developed the world's first gas-powered cigarette lighter in the 1960s. Feeling that only a prestigious brandname would do for this new invention, he applied for a license to market the product under the Cartier name. Encouraged by the lighter's enormous success, Hocq assembled a team of investors - who included a wealthy South African by the name of Anton Rupert - and they acquired the three shops in Paris, London and New York from their different owners between 1972 and 1979 and reunited them under the name Cartier Monde. To broaden the appeal of the business, Hocq also established Les Must de Cartier as a diffusion range of leather goods, fragrances and other accessories. Following Hocq's untimely death in a car accident in 1979, control of the business passed to his deputy Alain Perrin, who secured additional funding from the Cartier investors, including the Rupert family, to acquire other businesses such as Piaget and Baume & Mercier. In 1993, the Rupert family merged Cartier and various other companies in which it had invested under the umbrella of Vendome Luxury Group, in which its Richemont investment company became the controlling shareholder.

Richemont's founder Anton Rupert got his start in in 1941 when he and two friends took control of a small factory in their native South Africa and began manufacturing pipe tobacco. A restless entrepreneur, Rupert set up another venture two years later, to trade and invest in commodities such as tobacco, coal, wool, tea and coffee. He ploughed the profits back into tobacco, buying up rolling machinery, and established the Rembrandt Tobacco Company in 1948. Keen to trade on the appeal of prestige brands, he formed a licensing partnership with the world-famous London tobacconist Rothmans, to market his cigarettes in South Africa under their name. This relationship proved highly profitable, delivering Rembrandt a dominant position in the country's small but highly lucrative tobacco market.

Using his power in South Africa as leverage, Rupert was able to negotiate a series of extensions of the Rothmans license to cover other countries. During the 1950s Rembrandt expanded rapidly, establishing operations in more than 25 countries around the world. In 1952, it introduced the first king-sized filter cigarette, and two years later acquired a controlling interest in the main Rothmans group. Rembrandt went public in South Africa in 1956. Rupert continued to extend his empire, acquiring interests in a wide variety of other industries from mining and engineering to banking and insurance. He quickly became a giant of South Africa's expanding economy, and unusual as one of the few Afrikaaners in an environment largely dominated by British companies. In 1958, Rothmans acquired control of Spanish tobacco company Carreras, maker of Craven A cigarettes. That company in turn acquired a controlling stake in Alfred Dunhill in 1967.

Although Dunhill was best-known for its Dunhill International tobacco brand, the business had originally started as a supplier of riding harnesses and other leather goods, and still controlled a small but well-established chain of luxury goods suppliers around the world. Alfred Dunhill had inherited the family leather goods business in 1893, and modernised it, gradually abandoning its horse-powered heritage in favour of the new motor age. Dunhill's Motorities, as the shop in London's Euston Road was renamed, supplied leather coats, helmets and goggles for fashionable young motorists. An inveterate inventor, Dunhill himself tinkered with a vast collection of new ideas, once of which was the "windshield pipe", which allowed smokers to enjoy their habit while driving in an open-topped motor. This led to the establishment in 1906 of a dedicated tobacconist and pipe shop in Duke Street, close to the London clubs. Dunhill's pipe designs and tobacco blends gradually eclipsed the fame of the leather goods business, especially after the First World War. By 1924, the shop was selling more than 260,000 pipes a year, and outlets had opened in both New York and Paris. Following its acquisition in 1967 by Rothmans the company moved further afield, establishing outlets in Asia. Shares of Anton Rupert's now global tobacco business were finally floated in 1972 in London as Rothmans International, and some of the funds generated by that offering were invested by Rupert in the newly reunited Cartier jewellery business.

During the 1980s, the South African government came under intense pressure from the global community to abandon its policy of racial segregation. Other nations gradually began to impose strict sanctions on trade with the country, and many South African organisations took the opportunity to spin out their international subsidiaries to avoid boycott. The Rupert family, which had already publicly supported an end to apartheid, was no exception. Anton Rupert's son Johann had joined the family firm earlier that decade, having already established a successful independent career as a merchant banker. In 1988 he oversaw the creation of a separate group in Switzerland under the name of Richemont to house Rembrandt's large collection of international interests, including its partial shareholdings in Rothmans International, Alfred Dunhill and Cartier.

Following the end of South Africa's apartheid regime, Johann Rupert executed a clever strategy to consolidate the family portfolio. In 1991 he restructured the group's international interests once again, acquiring full control of Rothmans International and taking it private, through holding company R&R Investments, a joint venture whose ownership was itself split between Rembrandt in South Africa and Richemont in Switzerland. In 1993, the group's complicated labyrinth of interlinked investments was further simplified with the effective merger of Cartier and Dunhill and their various subsidiaries to form Vendome Luxury Group, under Richemont's control.

Also during the 1990s, Richemont began dabbling in other areas including pay-TV in France under the NetHold brand. Later that business was sold to Canal+, and Richemont ended up with a shareholding in what subsequently became French media giant Vivendi. The cash generated by the NetHold deal was used to buy out the remaining minority shareholders in Dunhill and Cartier in 1998, and Vendome Luxury Group was absorbed back into Richemont. Soon afterwards, Richemont cashed in its shares in Vivendi for a large profit, narrowly avoiding that group's subsequent near-collapse. Meanwhile, along with other tobacco companies, Rothmans was beginning to suffer from the global domination of the industry by Philip Morris. In 1999, Rupert strengthened its hand considerably by merging the Rothmans business into British American Tobacco, becoming the biggest shareholder in the merged group.

At the same time, Richemont steadily expanded its collection of luxury goods brands with a string of acquisitions including Vacheron-Constantin (in 1996), Panerai and Lancel (1997), Van Cleef & Arpels (controlling stake in 1999, with the remaining shares bought in 2003), Jaeger-LeCoultre, IWC and A Lange & Sohne (2000). However the economic downturn which hit Asia in the 1990s and later spread to the US and Western Europe hit the company hard. The fall in sales only served to highlight serious problems with Richemont's own internal structure. Johann Rupert took a significant risk by taking over the role of CEO himself and initiated a wide-ranging cost-cutting program, while also encouraging new launches within the largely stagnant Cartier business.

In 2003, Bernard Fornas, a former marketing director of Cartier, who had also successfully reinvigorated the smaller Baume & Mercier business, was appointed as CEO. He quickly appointed a new artistic director, Giampiero Bodino, launched a widespread shake-up of the company's production process, and pledged to speed up the introduction of new products, especially at lower price-points.

Last full revision 13th June 2017

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