Road to Recovery: Richemont, Swatch Rebound to Pre-COVID SalesBy Neha S Bajpai
The pent-up desire to step outdoors and indulge in post-Covid ‘revenge spending’ has sparked an unprecedented retail resurgence for luxury brands this year. Buoyed by the rebound of the world’s two largest economies — China and the U.S. — the Swiss luxury watch market is finally bouncing back to pre-pandemic levels with promising sales and recovery across the world.
After a long slump, the Swatch group has reported profit in the first six months of 2021 with sales witnessing a jump of more than 50 percent. Thanks to a strong demand for its prestige brands like Harry Winston, Omega and Blancpain, the Swatch Group is boasting a net profit of 270 million Swiss francs compared with a 308 million franc loss in the same period of last year.“Based on the significantly accelerated increase in sales in the second quarter, particularly in the month of June, the Swatch Group anticipates further strong growth in local currencies in the second half of the year, with sales above 2019 levels,” the company forecasts.
Racing towards pre-pandemic profits, while Swatch Group AG is still a bit below the CHF 4.1 billion mark from 2019, its sales in the first six months touched an encouraging CHF 3.4 billion as compared to CHF 2.2 billion in 2020. As pandemic restrictions ease out and big spenders hit the market with renewed appetites, Swatch Group is determined to mark a strong second half for the company this year. “It’s proving true that consumers like to shop even more after a crisis. 2021 will be a very good year, finally,” said the Group’s CEO Nick Hayek in an interview to Bloomberg this week.
Hayek’s optimism is certainly not misplaced as more and more shoppers returned to brick and mortar stores in July in countries like China, Russia and the U.S. “We’re seeing an acceleration month-to-month, where we approach 2019 levels more and more or even exceed them sometimes,” said Hayek, who might even introduce more stores in the second half of the year.
The rebound in the U.S. has brightened the turnover for the Richemont Group as well. Thanks to a brilliant performance by its jewellery maisons and specialist watchmakers like Cartier and Van Cleef & Arpels, the Group reported a 22 percent rise in turnover as compared to the same period in 2019. While it is not reasonable to compare numbers with last year, which were remarkably low across categories, Richemont has reported a glorious growth of 143 per cent in its sales for specialist watchmakers (at constant exchange rates) since the same period in 2020.
The main drivers of this year’s boomlet for Richemont are the Americas, Asia Pacific and the Middle East that reported double-digit increase in sales. While sales in the U.S. market touched a hearty €955 million (47 percent up from 2019), the Middle East and Africa posted the strongest regional performance with 55 percent growth in sales, reflecting the buying power of the locals in Dubai and Saudi Arabia.
From the total turnover of €4.4 billion for the quarter, Asia Pacific contributed €1.9 billion (up 40 percent from the same period in 2019). However, sales in Europe (€905 million) contracted by 15 percent as a robust demand within the continent could not offset the halt in tourist sales.
The momentum towards recovery caught speed with a strong community of watch enthusiasts who brought their tribe online to propel discussions around collecting. Digital media also played a crucial role in encouraging people to research and buy watches online all through last year. Richemont’s online distributors, the division of Net-A-Porter, Mr Porter and Watchfinder saw sales rise 86 percent since last year.
The second half of the year for Richemont will usher in some management changes as well. Cyrille Vigneron, President & Chief Executive of Cartier, and Nicolas Bos, President & Chief Executive of Van Cleef & Arpels, will step down from the Senior Executive Committee and will not seek re-election to the Board of Directors at the Group’s Annual General Meeting (‘AGM’) in September.
Philippe Fortunato, CEO of Fashion and Accessories, Emmanuel Perrin, Head of Specialist Watchmakers Distribution, and Frank Vivier, Chief Transformation Officer will also step down from the Senior Executive Committee but continue to report to Jérôme Lambert, group chief executive officer.
“The continual evolution of our corporate governance structures reflects our commitment to meet the changing demands of our operating environment most efficiently and align with best practice. While the enlarged SEC structure proved effective in the early stages of our transformation journey and in navigating one of the most trying times in recent history, the time is ripe for a more streamlined structure as we embark on the next stage of our development. The outstanding development of Cartier and Van Cleef & Arpels, in particular, means that these businesses have reached a size and scale that require the full attention of their leaders and support of the Group to continue on their remarkable trajectory,” said Richemont’s Chairman, Johann Rupert. “Throughout the pandemic, agility and well-informed rapid decision making have been essential. Decisions must be made as close as possible to customers. These governance changes will allow Maison and business executives to focus exclusively on their customers, colleagues, partners and the sustainable development of their entities at a time when the world is changing rapidly and growing in complexity,” he said. Johann Rupert, Jérôme Lambert and Burkhart Grund, Chief Finance Officer, will remain on the Senior Executive Committee and will stand for re-election to the Board of Directors at the AGM.
So is the worst over for the luxury watch industry? Given the fluctuating nature of the pandemic and its effect across the world, experts believe the brands still need to tread the post-Covid trajectory cautiously. As per the latest report by the Federation of the Swiss Watch Industry, watch exports to China (+17.4% compared with May 2019) and the United States (+16.6%) recorded a steady growth. The United Kingdom – the sixth-largest market for Swiss watch exports – also saw a marked improvement in its result (+8.3%). However, other top markets like Hong Kong, Japan and Singapore recorded significant declines in May, reflecting local challenges with regard to travel restrictions and the wavering number of Covid cases.