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The Luxury of Time
Rupert, a former banker with Chase and Lazard who founded his own bank before eventually joining the family firm which his father had started in his native South Africa, talked to us about the company -- its going public, the global luxury goods industry and Richemont's particularly successful investment philosophy. Rupert:My father's era started in the 1950s in South Africa and expanded rapidly internationally. The holding company moved here to Zug in the late 1970s from Monaco where it had been for a few years. Before joining my father's company -- then still the South Africa-based Rembrandt Group -- I worked in New York as a banker at Chase and then Lazard. Then I started my own bank -- which I later sold. I joined my father in 1985 with the idea of separating the international assets from the South African ones. It took us three years to do that. What we then did was to unbundle the international assets and put them into a Swiss company. We already had the holding company profile changed from a private company to a public company and the IPO on the Zurich Bourse was done in 1988. But as a great number of shareholders in those days were South African we created a depositary receipt system so that it was freely available in South Africa. Today, international institutions hold most of our shares. R:I think it is having the luxury of time -- the ability to invest in the future and not be under pressure to deliver results immediately. Life is not a sprint, but neither is it a marathon. I would prefer to say it is series of sprints with a lot of preparation and exercise in between them. So while the family structure does not allow for people to treat life like a marathon, they are not under pressure to sprint all day either. We take our time to plan. "We have the luxury of time - the ability to invest in the future and not be under pressure to deliver results immediately." I think the interesting thing is that in extreme boom time our competitors - and I have said this before on a number of occasions -- will outperform us by three or four percent because we don't apply as much financial leverage as they do. But in average to tough times we tend to outperform them by more than that. R:Because you cannot sell Ferraris with Fiat engines. It is not possible. You have to have the authenticity and the credibility of movement and they happened to be some of the best, if not the best. We bought systems and engineers -- we bought totally professional people. And that's what we really bought, much more than a product. Plus, as we have been in watches for over 25 years, we got a little tired of other luxury goods coming into our neck of the woods, so it was a defensive move. But you know life is very interesting. When you think you've paid too much it always ends up being a good deal. You pay too little and you think you have a bargain. Normally you find out very shortly afterwards why it was such a bargain and it's normally not such a pleasant surprise! I must also say, the people at LMH are highly professional, so they slotted into our culture and group with the greatest of ease. It was wonderful. "Life is very interesting. When you think you've paid too much it always ends up being a good deal." R:Pulling out of Vivendi gave us the liquidity to buy LMH. If we had not had that liquidity would we have paid $2.8 billion for that company? Knowing what I know now, yes. But I wouldn't have known it then. One must never confuse luck with genius. If you start confusing the two you're bound to lose your shirt. R:Well, we have always had some companies that have been more autonomous than the others. In a sense I prefer using the word "maisons" because brands have now become common. We believe that each maison must be vertically integrated: they must have their own design teams, their own watch making facilities; they must have their own "anima". Then, what can the overall company provide? Finance, an umbrella to give them time, technical expertise in watchmaking -- because the watchmaking industry is truly a cottage industry -- and logistical planning and distribution. Instead of having a warehouse for each maison in Hong Kong, you can have one for all, and then they can all be sent to different outlets once again. The big companies don't need it -- it is the little ones that do. Vacheron Constantin, for instance, is very popular in Hong Kong where we have a very good distributor. But for them to build an overhead system would take them 15 years. Through us it takes three years. The product is superb, made in their factories. We know the retailers, we know the department stores and what we are trying to do is change fixed cost into variable cost. The maisons must have their authenticity and integrity intact. For instance, Jaeger-LeCoultre is very well represented in Germany, but not in the US. So what you do is you look at the distribution. The heads of the various maisons help one another. On the other hand there is huge competition also within the group, like that between Van Cleef and Cartier, for example. I like internal competition as well. They are so independent from each other they might as well be owned by different owners! R:Cartier is by far the biggest globally. It is what Louis Vuitton is to LVMH. We have Montblanc that does very well and other companies that do very well. But in terms of sheer size and presence worldwide Cartier stands alone. It started 15 years before anybody else. It just has the size, gravitas and momentum and it will take years for the others to catch up. It is as simple as that. "In terms of sheer size and presence worldwide, Cartier stands alone. It just has the size, gravitas and momentum and it will take years for the others to catch up." R:You cannot be popular and exclusive at the same time. If you become too popular you have to start watching your exclusiveness. We are constantly looking at a brand's DNA. And we force our colleagues not to do what we call "picking low hanging fruit". We could make so much more money if we wanted to by just cheapening the offer. But in three to five years what would we have left? R:It is very important. Our sales vary year to year but about 40 percent of our sales come from Asia. Fortunately for us -- because of the exclusivity of our product range -- we are not so exposed to cyclical upturns and downturns. In bad times our sales are as stable as they are in good times. R:The greatest irony is that consumers in Japan are probably the least indebted in the history of man; while in America they are the most indebted. The Japanese have saved and worked while the Americans have spent and consumed -- and the US economy is in far better shape than the Japanese is. There is no justice. "Because of the exclusivity of our product range, we are not so exposed to cyclical upturns and downturns. In bad times our sales are as stable as they are in good times." I am worried about deflation. There is a saying in the bible that the naive are happy. The tragedy is that the more you are exposed to the less you want to do because you are more aware of the risk. My problem is maybe I have seen too much and am too conservative. You must remember I was in investment banking, owned my own bank, and made enough money to be autonomous between the ages of 30 and 35. Then, I assumed risks of a magnitude that I would never do today. Now that I am 50 I ask: could I ever have done that? It seems to me that in Japan they have not been able to restructure because of cultural reasons. For five years I have been saying please restructure before the US goes cold. Now America is shaky along with Japan. R:I find it very sad that the consolidation is taking place because it is taking a lot of the charm out. We must watch out that we don't make it boring. Going to France is fantastic. They have 300 different types of cheese. If, say, Danone controlled the market there would only be 30 types -- because it would make better business sense. I also love going to Italy because the quality of luxury there is so unbelievable. I don't want that to become a production process. We just bought a little company called Montegrappa 1912, makers of top of the line writing instruments. They will be autonomous, like all our other maisons. Clients want variety. They want pleasant surprises. They don't want to see the same boring stuff in the same boring stores the whole world over. It has got to be an experience. Our customers want to have fun. So we have got to keep it fun, creative and vibrant. I think that when you have four companies that buy everything they can make it dull, and it could be the start of the demise of the industry. So our strategy is to keep autonomy and help it grow. All of that buying and subjugating is unhealthy. It is far more fun going the other way. For example, there is a small watchmaker called Officine Panerai from Florence who use Swiss movements. Florence, where Da Vinci and Galileo studied time and space! We bought it for a very good price in 1997. Today it's the most sought-after watch. The story behind this acquisition is very funny. A friend of mine came into my London office one day wearing a Panerai. I asked him what kind of watch it was and I asked him to swap watches with me for one day. I wore it and that evening I went out to an Italian restaurant and next to me were a bunch of Premier League soccer players with their entourages. Suddenly they all came over and asked me what kind of watch I was wearing. I told myself: "Don't be stupid!" This is something. I went to Italy and had a look and we bought the company. And that is what I mean by fun! We could sell gazillions but we are limiting the supply. Montegrappa, Panerai - that is the fun bit. The fun bit is buying or doing a deal with an unknown or very creative individual and helping it grow. We're not here to buy somebody else's success. That's boring. All you are doing is becoming a financial engineer.
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Ricola www.ricola.ch Hilti www.hilti.co.jp  |
In an informal conversation touching on Richemont's guiding philosophy, Executive Chairman Johann Rupert expounds on the impossibility of selling Ferraris with Fiat engines