Richemont: Waiting For The Bullet
At my hedge fund nosotros normally brusk frauds. Stuff with dodgy accounts too dodgy prospects promoted past times people who would endure machine salesmen if stock advertisement were less lucrative. But sometimes, merely sometimes nosotros uncovering ourselves aching to brusk a existent fellowship with fine administration where trace of piece of work concern prospects are going due south really fast.
Richemont - the mega-luxury practiced maker with a focus on watches and jewellery is the latest example. We are waiting for a highly valued high character fellowship producing spectacular goods to take away maintain a similarly spectacular earnings miss.
The fellowship describes its brands every bit "Maisons" (French for houses) harking dorsum to some long established tradition inwards a Swiss-French mount chalet surrounded past times snowfall where they arrive at fine (if somewhat pretentious) luxury goods. Still these brands take away maintain taken over the the world - too at nowadays if y'all walk through Venice or Hong Kong or Shanghai or some the areas frequented past times Asian tourists inwards Hawaii or Sydney y'all uncovering the global touchstone laid of luxury goods. The fact that they could build their production both ubiquitous too exclusive somewhat amazes me - but they take away maintain achieved that. These are amazing companies.
With amazing profits too. The Jewellery Maisons [Cartier, Van Cleef & Arpels] inwards the (March ended) 2012 fiscal twelvemonth produced €4.59 billion inwards sales with €1.51 inwards operating profit. The growth charge per unit of measurement has been almost Apple-like. In 2007 sales were €2.68 billion, profits €742 million. In 2004 the Jewellery Maisons had only €367 1000000 inwards profit. This materials did unbelievably well out of the ascent of a novel plutocracy - but specially out of a novel kleptocratic Asian plutocracy.
Watches did similarly well. I uncovering watches strangely redundant (a smart telephone is both to a greater extent than accurate too to a greater extent than useful too y'all likely deport i anyway). However they take away maintain teach the only genuinely acceptable slice of manly someone jewellery past times which the elite tin present their status. In these days of trace of piece of work concern casual (and the studied casual of Ralph Lauren) an Italian tailored suit does non do it.
An iPhone or a Milky Way IIIs shows condition alongside the middle too upper middle income. H5N1 x K dollar or v hundred K dollar lookout adult man volition do a (far) worse chore of telling the fourth dimension - but screams inwards only the agency stupid-money can. I am non (at all) interested inwards watches thus I had to await upward the Maisons. These are houses like Vacheron Constantin of Geneve and A. Lange too Söhne from Glashütte (Saxony, Germany). Sort of glad I don't fancy their products because looking some Vacheron Constantin sell relatively manifestly gilded watches at l K a pop:
A. Lange too Söhne sells similarly manifestly watches at prices marginally lower - but also sell less manifestly watches at prices closer to one-half a 1000000 dollars:
Remember both these products are inferior for work to the smart telephone already inwards your pocket. But they do tell "look at me" the latter inwards a particularly Rococo fashion.
It is the Rococo materials that is winning. The Federation of the Swiss Watch Industry publish export data from Switzerland (not sales to goal consumers). June data shows a 4.1 percent reduction inwards volume, a 21.7 increase inwards value. The average toll of a lookout adult man is going upward sharply. This has been the instance for years. The Federation published this graph which shows that (relatively accurate) electronic watches take away maintain been apartment inwards value for years - but that mechanical movements (inaccurate but reassuringly expensive) take away maintain gone skyward:
Moreover a disproportionate amount of the book - too an fifty-fifty to a greater extent than disproportionate amount of the value has gone to Hong Kong. Hong Kong is the destination for a quarter of Swiss watches past times value too an fifty-fifty higher proportion of the most expensive stuff.
Why Hong Kong? Because the sales taxation charge per unit of measurement is lower than China. If y'all are buying a K dollar lookout adult man y'all tin purchase it inwards Shanghai. But if y'all desire a half-million dollar lookout adult man (no, non kidding) too then the sales taxation differential makes it worthwhile to wing to Hong Kong, teach a prissy hotel room too function shopping. That is why the value is inwards Hong Kong. The Hong Kong marketplace is it - it is the biggest pile of value too the biggest identify for the super-pretentious materials - the materials with fatty margins. This materials is genuinely Rococo - too Rococo is a agency dearest only past times rappers too kleptocrats.
The Chinese kleptocracy has been really practiced to Richemont. Indeed they famously love their watches. And it is non only watches. Van Cleef & Arpels is Rococo too. Try this ring:
Or this pilus clip:
As I said - this is the materials of rappers too kleptocrats. And in that location are far to a greater extent than kleptocrats inwards PRC than rich rappers anywhere.
Data sources
There are several information sources I lookout adult man to continue tabs on spending past times Chinese elite. The Swiss Watch information is obvious.
Exports to Hong Kong inwards June were upward 21.2 percent. It was virtually the same inwards May (but the monthly information has disappeared from the web). It was virtually the same every other calendar month this year. They continue upping the exports to Hong Kong.
But Hong Kong also has sales taxation data which comes from the sales taxation receipts. There is inwards the information a serial for "Jewellery, watches, clocks too valuable gifts" past times both value too volume. The value serial - relatively flattering, has monthly sales (versus previous corresponding period) for the terminal vi months as:
The slowdown inwards Hong Kong (super) luxury goods is a faster turn down than other Chinese data. Why thus fast?
I take away maintain a theory given to me past times a PRC watcher. The theory - it turned bad sharply with the ouster of Bo Xilai and at nowadays the murder accuse on his married adult woman Gu Kailai. Gu Kailai is going to take away maintain a difficult fourth dimension avoiding a mobile execution unit. This changes the stakes too it is structural. H5N1 one-half 1000000 dollar lookout adult man no longer says "look at me". It says "look at me, I am a kleptocrat". Thoughts of that beautiful Van Cleef too Arpels pilus clip teach the terminal affair that runs through your encephalon earlier the bullet.
The optimists - too in that location are many - intend the super luxury practiced marketplace inwards PRC volition furnish when the political province of affairs stabilizes. To quote Bernard Fornas in that WSJ article:
But who said the novel kleptocracy volition love Rococo merely every bit much every bit the one-time kleptocracy? Maybe political party self-preservation volition postulate less ostentatious displays of wealth. After all ostentatiously showing off wealth to an oppressed billion people does non seem similar a agency to save your power.
We know what a completely collapsed luxury practiced marketplace looks like. Brazilians like a flake of bling. But inwards the tardily 1980s too into the 1990s the kidnapping charge per unit of measurement inwards Brazil went skyward. (There is an horrific documentary virtually that called Manda Bala which translates "send a bullet".) After kidnapping became a major manufacture (particularly in São Paulo) carrying a $3000 handbag no longer said "look at me", it said "kidnap me".
H5N1 collapsed luxury practiced marketplace inwards PRC may - if the Gu Kailai instance is a guide - await different. Bling volition grade y'all every bit an enemy of the people. This is a fellowship virtually imagery - it sells a dream. Here is the nightmare:
Just maxim - when it turns it tin teach uglier than y'all e'er imagine.
John
Richemont - the mega-luxury practiced maker with a focus on watches and jewellery is the latest example. We are waiting for a highly valued high character fellowship producing spectacular goods to take away maintain a similarly spectacular earnings miss.
The fellowship describes its brands every bit "Maisons" (French for houses) harking dorsum to some long established tradition inwards a Swiss-French mount chalet surrounded past times snowfall where they arrive at fine (if somewhat pretentious) luxury goods. Still these brands take away maintain taken over the the world - too at nowadays if y'all walk through Venice or Hong Kong or Shanghai or some the areas frequented past times Asian tourists inwards Hawaii or Sydney y'all uncovering the global touchstone laid of luxury goods. The fact that they could build their production both ubiquitous too exclusive somewhat amazes me - but they take away maintain achieved that. These are amazing companies.
With amazing profits too. The Jewellery Maisons [Cartier, Van Cleef & Arpels] inwards the (March ended) 2012 fiscal twelvemonth produced €4.59 billion inwards sales with €1.51 inwards operating profit. The growth charge per unit of measurement has been almost Apple-like. In 2007 sales were €2.68 billion, profits €742 million. In 2004 the Jewellery Maisons had only €367 1000000 inwards profit. This materials did unbelievably well out of the ascent of a novel plutocracy - but specially out of a novel kleptocratic Asian plutocracy.
Watches did similarly well. I uncovering watches strangely redundant (a smart telephone is both to a greater extent than accurate too to a greater extent than useful too y'all likely deport i anyway). However they take away maintain teach the only genuinely acceptable slice of manly someone jewellery past times which the elite tin present their status. In these days of trace of piece of work concern casual (and the studied casual of Ralph Lauren) an Italian tailored suit does non do it.
An iPhone or a Milky Way IIIs shows condition alongside the middle too upper middle income. H5N1 x K dollar or v hundred K dollar lookout adult man volition do a (far) worse chore of telling the fourth dimension - but screams inwards only the agency stupid-money can. I am non (at all) interested inwards watches thus I had to await upward the Maisons. These are houses like Vacheron Constantin of Geneve and A. Lange too Söhne from Glashütte (Saxony, Germany). Sort of glad I don't fancy their products because looking some Vacheron Constantin sell relatively manifestly gilded watches at l K a pop:
A. Lange too Söhne sells similarly manifestly watches at prices marginally lower - but also sell less manifestly watches at prices closer to one-half a 1000000 dollars:
Remember both these products are inferior for work to the smart telephone already inwards your pocket. But they do tell "look at me" the latter inwards a particularly Rococo fashion.
It is the Rococo materials that is winning. The Federation of the Swiss Watch Industry publish export data from Switzerland (not sales to goal consumers). June data shows a 4.1 percent reduction inwards volume, a 21.7 increase inwards value. The average toll of a lookout adult man is going upward sharply. This has been the instance for years. The Federation published this graph which shows that (relatively accurate) electronic watches take away maintain been apartment inwards value for years - but that mechanical movements (inaccurate but reassuringly expensive) take away maintain gone skyward:
Moreover a disproportionate amount of the book - too an fifty-fifty to a greater extent than disproportionate amount of the value has gone to Hong Kong. Hong Kong is the destination for a quarter of Swiss watches past times value too an fifty-fifty higher proportion of the most expensive stuff.
Why Hong Kong? Because the sales taxation charge per unit of measurement is lower than China. If y'all are buying a K dollar lookout adult man y'all tin purchase it inwards Shanghai. But if y'all desire a half-million dollar lookout adult man (no, non kidding) too then the sales taxation differential makes it worthwhile to wing to Hong Kong, teach a prissy hotel room too function shopping. That is why the value is inwards Hong Kong. The Hong Kong marketplace is it - it is the biggest pile of value too the biggest identify for the super-pretentious materials - the materials with fatty margins. This materials is genuinely Rococo - too Rococo is a agency dearest only past times rappers too kleptocrats.
The Chinese kleptocracy has been really practiced to Richemont. Indeed they famously love their watches. And it is non only watches. Van Cleef & Arpels is Rococo too. Try this ring:
Or this pilus clip:
As I said - this is the materials of rappers too kleptocrats. And in that location are far to a greater extent than kleptocrats inwards PRC than rich rappers anywhere.
Data sources
There are several information sources I lookout adult man to continue tabs on spending past times Chinese elite. The Swiss Watch information is obvious.
Exports to Hong Kong inwards June were upward 21.2 percent. It was virtually the same inwards May (but the monthly information has disappeared from the web). It was virtually the same every other calendar month this year. They continue upping the exports to Hong Kong.
But Hong Kong also has sales taxation data which comes from the sales taxation receipts. There is inwards the information a serial for "Jewellery, watches, clocks too valuable gifts" past times both value too volume. The value serial - relatively flattering, has monthly sales (versus previous corresponding period) for the terminal vi months as:
- +18.3%
- +14.1%
- +18.4%
- +15.1%
- +2.9%
- +3.1%
Sales growth stopped. However exports to Hong Kong kept upward (note that 21.2 percent figure above).
The book growth genuinely went negative - beingness negative 3.4 too 3.1 percent for the terminal 2 months.
What do y'all do with an inventory glut of hundred K dollar watches. You can't genuinely discount them - thus they merely sit down there, looking a piddling stale too piece of cake devaluing your brand.
And that is why I am brusk the stock. It is a trading brusk genuinely - this fellowship is probable to fille earnings too it volition fille it inwards an unfortunate agency - they are going to endure swamped with inventory.
It is non merely watches either. Anecdotally a Van Cleef too Arpels present that was huge terminal twelvemonth was distinctly quieter this year.
The fellowship has given a hint of this. Bernard Fornas - the master copy executive of Cartier - gave an interview to the Wall Street Journal. To quote:
"After a phenomenal twelvemonth terminal year, there's been a flake of a slowdown inwards mainland China," he explained.
"Mainland PRC is soundless belongings for us. One calendar month is worse, i calendar month is better. The bend is non yet clearly defined.”
Fornas added that patch Cartier’s lookout adult man sales are soundless increasing, it is non at the same charge per unit of measurement every bit 2011. He declined to let on figures or percentages, however.
But that quote is misleading. He says it is i calendar month worse, i calendar month better. But it is i calendar month worse too the side past times side calendar month bad too.
My guess: this fellowship is non beingness alone forthwith with marketplace virtually how much tougher things are getting. The fellowship volition guide downward too the stock volition endure singled out for "special treatment". I am brusk - merely waiting for the bullet.
So why did the slowdown come about thus sharply?
I take away maintain a theory given to me past times a PRC watcher. The theory - it turned bad sharply with the ouster of Bo Xilai and at nowadays the murder accuse on his married adult woman Gu Kailai. Gu Kailai is going to take away maintain a difficult fourth dimension avoiding a mobile execution unit. This changes the stakes too it is structural. H5N1 one-half 1000000 dollar lookout adult man no longer says "look at me". It says "look at me, I am a kleptocrat". Thoughts of that beautiful Van Cleef too Arpels pilus clip teach the terminal affair that runs through your encephalon earlier the bullet.
The optimists - too in that location are many - intend the super luxury practiced marketplace inwards PRC volition furnish when the political province of affairs stabilizes. To quote Bernard Fornas in that WSJ article:
"When y'all speak to the people over there, they are all waiting for a novel president to come upward in. That volition fuel the economic scheme with fresh coin too lower involvement rates."
But who said the novel kleptocracy volition love Rococo merely every bit much every bit the one-time kleptocracy? Maybe political party self-preservation volition postulate less ostentatious displays of wealth. After all ostentatiously showing off wealth to an oppressed billion people does non seem similar a agency to save your power.
We know what a completely collapsed luxury practiced marketplace looks like. Brazilians like a flake of bling. But inwards the tardily 1980s too into the 1990s the kidnapping charge per unit of measurement inwards Brazil went skyward. (There is an horrific documentary virtually that called Manda Bala which translates "send a bullet".) After kidnapping became a major manufacture (particularly in São Paulo) carrying a $3000 handbag no longer said "look at me", it said "kidnap me".
H5N1 collapsed luxury practiced marketplace inwards PRC may - if the Gu Kailai instance is a guide - await different. Bling volition grade y'all every bit an enemy of the people. This is a fellowship virtually imagery - it sells a dream. Here is the nightmare:
Just maxim - when it turns it tin teach uglier than y'all e'er imagine.
John
No comments