Michel Chevalier - Luxury Brand Management in Digital and Sustainable Times

The company name was changed to Kering in 2013. Table 2.10summarizes the existing sales and operating profit data.

Gucci and Saint Laurent have outstanding performances for the past five years. The case of Bottega Veneta is quite interesting: it was at the same sales level as Saint Laurent in 2005 but grew extremely fast until 2013 when Saint Laurent was doing very poorly. Then Saint Laurent woke up and did extremely well, and Bottega Veneta was stuck with decreasing volume and profitability. It may have woken up now, but we still have to wait to find out.

Table 2.10 Kering Historical Sales and Results (€ million)

Source: PPR annual reports.

Richemont.The Compagnie Financière Richemont, based in Geneva, with sales of €13.9 billion was, for many years, the second major operator in the luxury fashion, jewelry, and watch businesses. But probably because of difficulties in the sales of watches, and little involvement in the fashion business, it has developed slower than its competitors in the past 5 years (see Table 2.11). In 2019, it integrated and consolidated the two online distribution systems: NAP (Net à Porter.com) and Y (now called YNAP).

The company's results by product lines are given in Table 2.12.

Table 2.11 Richemont Historical Sales and Profit (€ million)

Source: Richemont annual reports.

Table 2.12 Richemont Performance by Product Lines, 2005–2019 (€ million)

Source: Richemont annual reports.

*Starting in 2010, leather and accessories and other businesses have been merged.

In 2019, the jewelry houses (Cartier and Van Cleef & Arpels) represented 51% of sales and 115% of operating profit, with Cartier probably being the biggest contributor, but the growth performances of Van Cleef & Arpels have certainly been extraordinary in the past 10 or 12 years. Specialty watches (which include Vacheron Constantin, Baume & Mercier, Jaeger-LeCoultre, Lange und Söhne, Officine Panerai, IWC, and Piaget) also performed quite well.

The performance of Montblanc (with Montegrappa first included in the figures then sold out) was certainly quite impressive as well. The only bad news was in the leather-goods category (which now only includes Dunhill), which has probably been losing money. Now that this category is merged with other businesses, it will be more difficult to follow.

Richemont is both a jeweler and a watchmaker. It has two star brands in Cartier and Van Cleef & Arpels. It has a very strong portfolio of watch brands, and after a few difficult years could bounce back and develop. This is what is peculiar in the luxury business.

The answer to this question is quite simple. Yes, it does make sense to be a pure player in this industry, to have only one brand and to manage it as well as possible. Armani, Hermès, Chanel, and Prada are prime examples of what can be achieved.

In multibrand portfolios with a number of star brands, management must decide where to invest, and those brands deemed to be of lower priority have a difficult time. On the other hand, brands with high potential but that are struggling cannot invest as much as they would need, because they have to balance out the losses of the smaller brands.

Clearly, large and diversified groups are not necessarily more profitable than individual brands (such as Chanel or Hermès, for example). It is true that groups provide an opportunity for small brands to find cash to finance their growth. The idea is that the new brands will one day provide future growth and profit to the company as a whole. This may well prove to be true for some but by no means all.

To sum up our findings in this chapter: the luxury business is a different business from non-luxury sectors and follows different rules. Timing, financial constraints, and the effects of size are clearly different. The keys to success are different, and even though the multibrand groups are powerful, it is possible to remain small, independent, profitable, and growing as a single-brand company.

In the next chapter, we will analyze each of the major sectors in the luxury field.

1 1 Calculated as follows: The company difference between operational profit and net profit is 8% on sales. For perfumes, sales are €6,835 million and the operational profit is €683 million. If we subtract from the latter amount the average difference between operational profit and net profit (683 – 546), that gives us the net profit for the perfume and cosmetic division: €337 million.

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