Cartier's new boss must put the sparkle back in watches

Oriental Watch Holdings

08/12/2015 14:22

* Cartier watch sales dwindled as jewellery stays buoyant 
    * Many luxury brands suffering from China slowdown 
    * Cartier particularly exposed to China 
    * Analysts look for new innovation, marketing for watches 
    * Vigneron to take the helm in January 
 
    By Silke Koltrowitz and Donny Kwok 
    ZURICH/HONG KONG Dec 8 (Reuters) - The gold and diamonds of 
Cartier jewellery are so popular with women that the brand 
founded in Paris in 1847 is finding it difficult to market 
watches to men. 
    The world's biggest jewellery and watch brand in terms of 
combined sales generates more than two thirds of profits for 
Swiss parent Richemont  CFR.VX , but watch revenues have 
dwindled relentlessly while jewellery sales have boomed. 
    Like other high-end watchmakers Cartier is suffering from a 
drop in demand in big markets such as Hong Kong, mainland China, 
Russia and the United States. But some of Cartier's problems are 
specific to the brand, setting up a challenge for Cyrille 
Vigneron when he takes over the leadership next month.   
    Improving Cartier's image as a watchmaker in China, where 
wealthy women love its red boxes but men prefer pure watch 
brands such as Rolex, Patek Philippe or Vacheron Constantin, may 
be top of his to-do list. 
    "Cartier is popular among fashion-focused customers in Hong 
Kong. Consumers will regard it as a piece of jewellery when they 
hear the brand, it is particularly popular among ladies," said   
  Lam Tung-hing, general manager of the Hong Kong retail 
operations of Oriental Watch Holdings Ltd  0398.HK .   
    "For men, first time luxury watch buyer will choose to buy 
Rolex, which is practical and good looking." 
    Cartier and Richemont declined to comment on the brand's 
strategy to improve watch sales.   
     Richemont said last month that watch sales were down 
mid-single digits in the six months to September, dragged down 
by its biggest markets, Hong Kong and the United States. It had 
already stated a similar decline for Cartier watches in the full 
year to March. Shares have fallen over 12 percent this year.  
    Comparisons with competitors are hard to make. Rolex is 
privately owned and at LVMH  LVMH.PA , watch and jewellery sales 
rose 10 percent during the first nine months but it does not 
give a separate watch figure. Swatch Group shares have fallen 18 
percent, partly due to competition from smartwatches and the 
drop in demand from China.  
    Watch exports from Switzerland, where Cartier and other  
watches are made, fell 3.2 percent during the first ten months 
of 2015 with shipments to Hong Kong down 22.7 percent and rising 
just 0.1 percent to the United States. 
    Pierluigi Fedele, who is responsible for watchmaking at the 
Swiss union Unia, downplayed any talk of a crisis.  
    "There is no real crisis in the Swiss watch industry today. 
Exports are down a bit, but probably still above 20 billion 
Swiss francs for the whole year," he said. 
     
    NO MORE CHINESE GIFTS 
    But he noted the subdued Asian market was causing problems 
for some companies and a few had laid off staff. Cartier said 
last year it introduced shorter working hours for some employees 
and would not say if the measure was still in place.        
    Some analysts estimate that the high-end watch market in 
mainland China is down 60 percent since its 2012 peak. 
    This is partly due to the government's crackdown on the 
tradition of gifts-for-favours which often involved watches. 
Richemont also highlighted difficulties in Macau where the 
casino industry is suffering from the crackdown on corruption, 
the weak yuan and Chinese government restrictions on travel.  
     The strong franc has made Swiss exports more expensive  
while Tiffany & Co  TIF.N  forecast a bigger fall in full-year 
profit than previously expected as a strong dollar kept tourists 
from spending in its showpiece U.S. stores. [ID: nL3N13J39Y] 
    Last month's terrorist attacks in Paris are also expected to 
further dent tourists' travels to Europe to buy luxury goods 
during the pre-Christmas period which, for some brands, 
represent up to a quarter of annual sales.  
 
    NEW IDEAS 
    But for Cartier, whose sparkling creations adorned royal 
heads around the globe in the early 20th century and more 
recently Kate Middleton's at her wedding to Prince William, the 
challenges are bigger than for most. 
    Exane BNP Paribas analyst Luca Solca said Cartier is 
particularly exposed to China.  
    "Cartier is facing a relatively subdued luxury market, as 
the bulk of the other mega-brands. Additionally, Cartier is 
suffering from the step back in the Chinese watch market / 
gifting practices. You could argue Cartier has not been the 
strongest innovator in recent years," he said.  
    Lack of innovation has been a problem and Vigneron, who 
replaces Stanislas de Quercize, a 25-year Richemont group 
veteran who stepped down last month, will need to focus on this. 
    Many of Cartier's new watches have been based on existing 
versions with innovation focussed on the most expensive models. 
In January, Cartier unveiled its first new model in eight years, 
the Clé watch, but so far only gold models costing more than 
10,000 euros are available. 
    According to a person close to the Richemont group who 
declined to be named, about 90 percent of buyers of Clé since 
its launch have been women. 
    "The way to be successful is, first of all, with product 
innovation because in a subdued environment that is the way you 
can maybe get the consumer to buy a new watch," said Bernstein 
analyst Mario Ortelli.  
    The company is also a relative newcomer in "in-house" watch 
movements, the mechanisms that make a watch tick and are beloved 
of collectors. 
    When Swatch Group, the world's largest watchmaker, started 
phasing out delivery of watch movement components to the rest of 
the industry, competitors were forced to develop their own 
manufacturing tools, now an important part of the prestige of 
high-end watches.  
    Lam says in China Cartier chased the mass market on the 
mainland and paid less attention to the top technical design 
required by buyers in Hong Kong.   
    "Many local collectors will have a question mark as the 
design appeared as not as good," he said.  
       
    MORE SOCCER, LESS POLO 
    In marketing as well, Cartier could do with a few fresh 
ideas. While Omega's name is omnipresent at the Olympic Games 
and each new James Bond movie and Rolex cultivates its image as 
a sports brand, Cartier relies on its signature panther and 
other more traditional attributes. 
    It has sponsored polo for more than 30 years but competitors 
such as Hublot have been a bit more adventurous by doing deals 
with soccer teams and ski schools in resorts such as Courchevel. 
    Richemont thinks Vigneron, a music composer and guitar 
player who was rehired at Cartier after heading LVMH's 
operations in Japan, is the right man to lead Cartier back to 
growth.  
     "He is known for thinking out of the box," said one Cartier 
employee based in London. "I think a lot of people have high 
hopes for him." 
($1 = $1.0000) 
 
 (Writing by Astrid Wendlandt in Paris; editing by Anna Willard) 
 ((silke.koltrowitz@thomsonreuters.com; +41 58 306 7454; Reuters 
Messaging: silke.koltrowitz.thomsonreuters.com@reuters.net)) 
 
Keywords: WATCHES CARTIER/CEO )