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Watches models by Cartier are pictured during the opening day of the Salon International de la Haute Horlogerie (SIHH) watch fair for Richemont brands in Geneva, Switzerland January 16, 2017. REUTERS/Pierre Albouy - RC1EDA8C0410
Reuters/Pierre Albouy
Not intended for sale on the grey market.
GEAR HEADS

Richemont is destroying its expensive, unsold watches to save their brand value

Marc Bain
By Marc Bain

Fashion reporter

Luxury and exclusivity fit together like two gears in a pricey Swiss watch. But any luxury product can start to lose its exclusive prestige if too many pile up in the marketplace. It can lead to price markdowns that devalue the brand and hurt its ability to sell at full cost.

Look at Swiss luxury group Richemont. Watch sales from its brands, which include Cartier, Piaget, and IWC, haven’t gone as it had hoped over the past couple years, leaving too much stock in the marketplace. Unsold, high-end watches can frequently make their way to an unauthorized “grey market” where they’re peddled at heavy discounts. The “industry’s cancer” is how Jean-Claude Biver, head of the watch division at luxury group LVMH, has described it.

To cope with the problem, Richemont has bought back €481 million (about $567 million) worth of watches from its retail partners in the last two years, it revealed in its 2018 earnings report (pdf, p. 3). The company has said in the past (paywall) that it reallocates some of these watches to other regions. The rest it takes apart and recycles. We’ve reached out to Richemont for comment and will update this story with any reply.

Though the buy-backs weighed on the company’s profits, Richemont feels the trade off is worthwhile. ”We don’t believe that having our inventory in the grey market will help long-term brand equity, so that’s why we bought it back,” Burkhart Grund, Richemont’s chief financial officer, said of the program (paywall).

The company started the buy-backs in 2016, pulling mostly unsold Cartier watches off the market in places such as Hong Kong and mainland China. The Swiss watch industry was taking a major regional hit, owing to a luxury slowdown in the country caused, in part, by a Chinese government crackdown on corruption that targeted extravagant gift-giving among government officials, including ultra-expensive watches. At the time, Richemont called the buy-backs (paywall) an “exceptional measure” in “exceptional circumstances.”

In the most recent year, though, Asia-Pacific, which makes up 40% of Richemont’s sales, saw solid growth, led by China, Hong Kong, Korea, and Macau.

Instead, this year’s buy-backs mainly focused on European markets, and centered on its specialist watchmakers division, which includes Piaget, IWC, Vacheron Constantin, and Baume & Mercier. The company said its happy with the inventory it has on the market now.

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