September 27, 2013 12:26 pm

Cloud of uncertainty hangs over Richemont’s fashion brands

Cartier's Chief Executive Fornas talks during an interview with Reuters at the "Salon International de la Haute Horlogerie" at Palexpo in Geneva©Reuters

Bernard Fornas

When Swiss luxury conglomerate Richemont hired Marty Wikstrom as CEO of their fashion group in 2009, chieftain Johann Rupert said the move “reaffirms Richemont’s commitment to our fashion and accessories Maisons”. Little wonder that when Ms Wikstrom’s departure was announced abruptly last May, it prompted questions about whether some of the group’s fashion labels would follow her out of the door.

So far Richemont has done little to put an end to the speculation, leaving a cloud of uncertainty hanging over brands such as Chloe, which will hold its womenswear show on Sunday in Paris. Guests will be keeping a close eye not only on the runway, but also on which executives – both from Richemont and, potentially, rival groups – are in the audience.

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Richemont gave no reason for Ms Wikstrom’s departure and declined to name a successor to take charge of its stable of ready-to-wear style brands, which include the likes of Chloe, Dunhill and Lancel, as well as the couture house Azzedine Alaia.

Instead, in a terse statement, the Swiss group merely thanked Ms Wikstrom for her efforts “transitioning the fashion and accessories businesses and positioning them for further prosperous growth”.

More telling, perhaps, were the comments of Bernard Fornas, who along with Richard Lepeu is now Richemont’s co-chief executive, at the group’s full-year results presentation, which was held just five days before Ms Wikstrom’s exit was announced.

“We are conducting a closer review of our Maisons portfolio, comparing development potential and asset performance. The optimisation of all our Maisons is a key target,” he said, naming the watches and jewellery brands, Cartier, Van Cleef & Arpels and Piaget, rather than fashion marques, as targets for investment.

At the same event, Mr Rupert also hinted that disposals of underperforming brands could be on the cards. “You know, we talk about Van Cleef and about my baby, Panerai, but we don’t talk about a load of rubbish that I also had a hand in buying,” he said. “OK, so we haven’t always been that successful. Maybe we’ve . . . got to cull our bad investments quicker . . . Not ‘maybe’, we should.”

In comparison with Richemont’s watches and jewellery brands, the performance of its fashion and accessories labels has certainly been lacklustre in recent years.

According to Thomas Chauvet, luxury goods analyst at Citi, six fashion brands – Dunhill, Lancel, Chloe, Alaia, Purdey and Peter Millar – accounted for about €850m of Richemont’s €10.2bn sales in 2012-13 and managed an operating margin of merely 3 per cent, a level Mr Chauvet sees as “well below [the] Richemont group and industry average”.

Ms Wikstrom improved the profits of some of the brands and the stores look better than they did, but there was never enough investment in the brands to make up for their lack of size relative to their competitors

- John Guy, an analyst at Berenberg bank

“Management suggested that by allocating capital and human resources to the core watches and jewellery activities they can continue to deliver strong returns, hence the legitimate question of portfolio review,” said Mr Chauvet. “We believe that Richemont’s lack of critical size and expertise in fashion and accessories could lead to disposals in the division.”

Jon Cox, head of Swiss equities at Kepler Chevreux, takes a similar line. “I see divestments among Dunhill and Lancel, two businesses that have struggled for years,” he says.

The reason for the struggles, according to John Guy, an analyst at Berenberg bank, was that Richemont’s strategic priorities were always centred on its core watch and jewellery business, rather than its fashion marques.

“Ms Wikstrom improved the profits of some of the brands and the stores look better than they did, but there was never enough investment in the brands to make up for their lack of size relative to their competitors,” he said.

Richemont would not be drawn on a possible sale of some or any of the brands. However, Mr Guy said that he thought between them, the Swiss group’s fashion businesses could fetch upwards of €2bn.

“Together with the €3.2bn of cash on their balance sheet, that would give Richemont some pretty interesting strategic options,” he said.

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