Winners and losers in Luxury’s new order: Andrea Felsted

Key topicsRichemont’s jewelry sales shine, offsetting weak watch performanceBurberry shows signs of recovery, but challenges remain aheadSwatch faces investor pressure as shares slump and shorts rise.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Andrea Felsted.For the past five years or so in luxury, the strong have only gotten stronger as the weak withered. Amid the shifting sands of the trade war and consumer tastes, it’s legitimate to ask whether that thesis still holds true. Recent updates show that industry polarization remains intact, with some caveats.Cie Financiere Richemont SA last week proved the divide still stands – at least in jewels, where it is shining bright.The owner of Cartier and Van Cleef & Arpels said its jewelry businesses increased sales by 8% in the year to March 31. This accelerated to 11%, excluding currency movements, in the final quarter. Full-year operating profit also rose 6%, excluding currency movements. This is the division that matters most to Richemont. It accounted for 54% of sales last year. It helps that jewelry is in vogue right now.Price hikes in other categories, notably handbags, make what would once have been seen as expensive fripperies better value for money. Johann Rupert, chairman, said Richemont had benefited from being more cautious in raising prices than some competitors, and it would continue in this approach. The strong jewelry showing helped Richemont end the year with net cash of €8.3 billion ($9.3 billion)..But there is a risk of some Cartier pieces, such as the Love bangle, as well as Van Cleef’s Alhambra clover bracelets, becoming overexposed, with many copycats on the market. Meanwhile, Richemont is grappling with higher input prices, particularly gold.Sales at Richemont’s specialist watchmakers fell 13% in the full year, and the operating margin shrank to 5.3% from 15.2%. The pullback reflects both the decline in Chinese demand, as well as a cooling of the frenzy for timepieces. However, Jean-Philippe Bertschy, an analyst at Vontobel Wealth Management, estimates that when Cartier and Van Cleef watches – included in the jewelry division – are taken into account, watch sales declined by a more respectable 2%..Read more:. LVMH chair Arnault buys into Richemont – ’hier kom ‘n ding’: Andrea Felsted.Although Rupert expects Chinese demand to eventually return, much will depend on whether US buyers are spooked by the trade war and the effects on the stock market. Richemont didn’t comment on current trading. But Watches of Switzerland Group Plc, which generated close to half of its sales from the US in the year to April 27, said that while it experienced some temporary disruption to demand in early April, conditions returned to normal later in the month.Typically, when times are tough, consumers want the classics. They don’t take risks on an upstart brand or designer – another factor helping the strongest, such as Cartier.But they also crave newness, as well as investment pieces. It is the desire for something more novel that is powering Prada SpA’s Miu Miu, the fastest-growing luxury brand. Given the industry’s hefty price increases, relative affordability helps too. Both of these factors could benefit serial underperformer Burberry Group Plc gain some ground on the leaders.The British company’s same-store sales fell 6% in the three months to March 29, hardly stellar, but better than analyst expectations.I was skeptical about Burberry’s new strategy, concerned that the product range – highly priced trench coats and cheaper polo shirts — looked disjointed. The embrace of Britishness by the previous management was a step forward, but under the new CEO, Joshua Schulman, an American who previously ran Tapestry Inc.’s Coach and Capri Holdings Ltd.’s Michael Kors, there was a risk this would veer into the tacky.Schulman said last week that the company had moved from “modern” to “timeless” British luxury. That has involved focusing on outerwear, such as the trench coat, and scarves. But he and designer Daniel Lee have also put a fresh twist on items such as the Burberry bikini, which is gaining traction.There is still a long way to go, including cutting almost a fifth of the workforce, which could be disruptive, and while Schulman praised Lee, it’s not clear whether he will stay. Last week’s more than 20% share price jump after its trading statement on Wednesday looks overdone. But at least Burberry is making some progress..Sometimes, the divide between the winners and losers becomes so wide that the situation is unsustainable: This looks to be case at Swatch Group AG.Steven Wood, founder and chief investment officer of New York-based GreenWood Investors, is seeking to be elected to the board at the watchmaker’s annual meeting on Wednesday. He told the Financial Times that he wanted to represent holders of bearer shares, mainly institutional investors. Under Swatch’s dual-class structure, the Hayek family holds mostly registered shares, which carry more voting rights.Swatch has recommended that shareholders vote against Wood for several reasons, including that he isn’t Swiss and that there is already a designated representative: Jean-Pierre Roth, former president of the Swiss National Bank, who has been on the board since 2010..As the shares have fallen 25% in the past year, it is the most shorted stock in Europe, and the enterprise value of about 6.5 billion Swiss francs is less than the company’s inventory of 7.6 billion francs at the end of last year. That makes the company’s arguments unconvincing.But given that the Hayek family controls more than 40% of the voting rights, Wood faces a tall order to be elected. Even if he is defeated, his intervention has put the company, and potentially other laggards such as Gucci owner Kering SA, on activist watch. If stragglers can’t close the gap on the leaders, someone else might do it for them..© 2025 Bloomberg L.P.

Winners and losers in Luxury’s new order: Andrea Felsted

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