Richemont scrapped its CEO role in the watch crisis and profits turned by 2018
Johann Rupert retired his CEO, pruned the board and bought back dealer inventory; operating profit swung from -14% to +5% in two years.
What was changed
Between 2015 and 2017, Swiss watchmaking went through its worst slump since the quartz crisis. China's anti-corruption drive emptied the Hong Kong and Macau boutiques that had absorbed the industry's growth, and the January 2015 revaluation of the Swiss franc inflated Richemont's manufacturing costs. Group sales for the year to March 2016 rose 6% to €11,076m only because of currency; at constant rates they fell 1%, operating profit dropped 23% to €2,061m, and April 2016 sales fell 18%.
The trough came in the year to March 2017: sales fell 4% to €10,647m and profit fell 46% to €1,210m. In November 2016, chairman Johann Rupert announced that CEO Richard Lepeu would retire on 31 March 2017 — and no successor was named. Richemont ran without a group CEO under Rupert as group executive chairman, with a slimmed executive committee of Georges Kern, Jérôme Lambert and Cyrille Vigneron. The board was pruned at the same time: eight directors retired at the 2017 AGM and nine new members were elected.
The chairman's letter in the 2017 annual report framed the overhaul plainly: the group had taken 'significant measures which, while having weighed on short-term financial performance, will ensure Richemont is well positioned for the future'. The measures included 'exceptional' buy-backs of unsold stock from multi-brand retailers and capacity cuts at the watchmaking Maisons — deliberately shrinking reported sales (constant-rate decline would have been 2% rather than 4% excluding buy-backs) to keep Richemont product off the grey market.
The turn came in the year to March 2018: sales rose 3% to €10,979m, operating profit rose 5% to €1,844m (10% excluding one-time items), cash flow from operations reached €2,723m, and the dividend rose to CHF 1.90 — the third consecutive increase through the crisis. The letter credits 'steady progress on Richemont's transformation agenda', the uncompromising grey-market stance, and the relaunch of the Cartier Panthère.
Why it worked
The crisis was distributional, not just cyclical: grey-market discounting was destroying pricing power, so the group paid to remove inventory from the channel instead of defending wholesale volume.
Rupert held both chairmanship and executive control, which let Richemont restructure leadership without the search cost and transition risk of hiring an outside CEO in mid-crisis.
Structural simplicity was part of the cost plan: a three-person executive committee and a smaller, more executive board shortened decision chains across 28,000 employees.
The balance sheet did the signalling: net cash of €5.8bn and three straight dividend increases told retail partners the group would not discount to survive.
What can be applied
In a brand business, protecting pricing beats chasing volume: Richemont paid to pull inventory from the market, cut capacity and stripped a management layer rather than hiring a new CEO.
Aftermath
A year of no-CEO rule ended in June 2018 when Jérôme Lambert, the former Jaeger-LeCoultre chief, was appointed CEO. The 2018 annual report also announced the tender offer for online retailer YOOX NET-A-PORTER, a stake in travel-retailer Dufry, and a €4bn inaugural bond issue — capital moves aimed at owning more of the customer relationship the wholesale channel had failed to protect. The inventory buy-backs that suppressed FY2017 sales were still running in the recovery year, but the operating-profit swing held, and Cartier's parent entered the next luxury cycle with its pricing power intact.