Cartier to raise prices in euro zone after Swiss franc soars
today Jan 20, 2015
GENEVA, Switzerland - Richemont's flagship Cartier brand will increase prices for watches and jewelry by five percent in the euro zone to limit the damage to its margins following the surge in the Swiss franc.
Swiss companies have warned of a plunge in exports, tourist revenues and profits after the country's central bank last week scrapped its cap on the Swiss franc, sending the currency soaring up to 30 percent.
Cartier, the world's leading watch and jewelry brand in terms of sales, sits alongside other brands within Richemont such as Van Cleef & Arpels, Piaget and Montblanc, and contributes more than 60 percent of group profits.
"We are going to raise prices by 5 percent in the euro zone. This applies to both jewelry and watches, but we are keeping prices in Switzerland stable," Cartier Chief Executive Stanislas de Quercize told Reuters at a watch fair in Geneva on Tuesday.
Richemont's investor relations team said the group's watch and jewelry brands would raise prices across the board in "mid-single digits" in the euro zone.
Senior Richemont executives at the fair said the increase would be 5-7 percent, in line with analysts' expectations.
"This will put significant pressure on our costs in Swiss francs," one of the Richemont senior executives said about the currency's surge. Some analysts estimate around half of the group's total costs are in Swiss francs.
Richemont operates in the luxury end of the watch market, selling timepieces for as much as 1 million euros ($1.2 million). Its controlled response to the franc's leap contrasts to the howl of anguish from Swatch Group Chief Executive Nick Hayek who labeled the SNB move a "tsunami".
The SNB move and deadly Islamist attacks in Paris, a top shopping destination for luxury goods, have made for a somber mood at the Geneva watch fair. The Swiss currency's rise will hit margins and the price increase will unlikely fully compensate, executives said.
Analysts have also cut their profit forecasts and target prices for Richemont and rival Swatch.
Cartier is estimated to make around 20 percent of revenues in the euro zone while for the Richemont group overall, it is closer to 25 percent.
FURTHER PRICE RISES POSSIBLE
Quercize said he did not rule out further price increases and looking ahead, he was confident about Cartier's performance this year, partly thanks to the launch of new products.
He was also encouraged by improved local European demand. "We had a good year-end in Europe."
At the fair, Cartier unveiled its first new watch collection since Ballon Bleu eight years ago, called Clé, featuring a new shape of round cases, roman numbers and automatic movements. The watches cost between 13,000 and 825,000 euros.
Quercize said the new collection was well received, intimating it would boost sales in 2015. Cartier's watch revenues have been hit hard by China's anti-corruption drive and the lack of new models was a concern for investors.
Julien Marchenoir, marketing director at Vacheron Constantin, a Richemont brand celebrating its 260th anniversary this year, said the luxury industry was going through a period of volatility. He said the attacks in Paris this month risked further spooking tourists.
Francois-Henry Bennahmias, chief executive of Audemars Piguet, said his outlook for 2015 had changed since December.
"We thought we were going to do much better in 2015. Now we don't really know any more," said the head of one of Switzerland's biggest family-owned watchmakers.
Others echoed his words.
"It will not be a difficult year, but a more complicated year than we expected in December," said Jean-Marc Jacot, head of privately owned high-end watch brand Parmigiani Fleurier.
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