LVMH Bails, Kering Cuts – Coronavirus Watch 36


GP boutique

“They hoard their most desirable watches for their own boutiques, force less popular pieces on their partners and price them in such a way that the only way to shift them is out of the back door on the grey market.” That’s‘s Rob Corder’s take on the war between watchmakers and retailers. No question: the watch industry is in turmoil. And not just at the sharp end. LVMH is bailing on their deal to buy Tiffany & Co. . . .

LVMH Blames Taxes for Tiffany Exit

LVMH bails on buying Tiffany & Co reports . . .

After news emerged last month of a delay until late November, LVMH has now cancelled its much-heralded acquisition of Tiffany & Co.

The $16.2 billion USD deal was agreed between the two parties in November last year, and is described by Business of Fashion as “luxury’s biggest-ever deal,” however a trade dispute between the U.S. and France has seen the conglomerate pull out.

Trade dispute over “the threat of taxes on French products by the US”? I don’t think so.

LVMH Bvlgari brand dealer close during Coronavirus lockdown
Image courtesy

Like every other luxury goods manufacturer, LMVH got whacked by Coronageddon, but good.

A Falling Tide Lowers All Boats

Zenith showroom Tokyo

The world’s largest luxury goods company is comprised of 60 subsidiaries and 75 brands – including Bvglari, Chaumet, FRED, Hublot, TAG Heuer and Zenith. Post Coronageddon lockdown, they simply can’t afford to take a risk on Tiffany (whose watches are a lot less than stellar).

With luxury goods sales down 35 percent worldwide, with recovery at least two years away, LVMH execs decided this isn’t the time to write a check for ten percent of their $220b total market cap.

LVMH is in deep excrement, but it isn’t about to kill its watch brands. Even so, the luxury group’s “just walk away” announcement on the Tiffany deal is another indication that there’s blood on the Swiss watch industry carpet. And here it is, via Reuters:

Ulysse Nardin and Girard-Perregaux In Trouble

UN Stay Home Instagram

Kering-owned Swiss watch brands Ulysse Nardin and Girard-Perregaux said on Monday they were cutting about 100 jobs, or a quarter of their total workforce, after sales were hit by the coronavirus crisis.

The Swiss watch industry has seen demand collapse during the pandemic as stores around the world stayed closed for months and Chinese tourists no longer flocked to luxury shopping hubs like Paris.

Patrick Pruniaux CEO Girard-Perregaux

Patrick Pruniaux, CEO of the two brands since 2018, said the economic repercussions of the pandemic were “likely to have a ripple effect over the next several years”.

Ulysse Nardin and Girard-Perregaux are poster children for all the semi-independent Swiss watch brands COVID-cursed with a deeply uncertain future. Product pricing is a primary problem.

Swiss Brands Pricing Themselves Out of Business

Oris exec Rolf Studer‘s Swiss watchmakers seek to reprice their entry-level models sounds the alarm. Oris exec Rolf Studer (above) provides the money shot:

The industry has put itself out of reach for many customers. This is a very dangerous development. You need a price point people can afford. If it’s too high you will lose them. 

Ulysse Nardin Blast

Ulysse Nardin’s least expensive watch (the Diver) is $5800. It’s an outlier. The watch that revived their fortunes and paid the bills – the Freak – starts at $21k. UN offers a staggering 238 other models, most above $20k.

Their current halo watch (the Blast) runs $45k. More than a few of their creations are “price on request.” That’s a lot of high priced horology, at a time when high-income earners are busy “revenge saving.”

Girard-Perregaux Laureato 42mm Infinity Edition LE

Girard-Perregaux feeds further down the food chain. The recently released Laureato retails for $13,500. Although GP also has plenty of pricey pieces (e.g., the Classic Bridges Tourbillon), the majority of their products play for pay in the $10k – $20 arena.

Both brands are being hit by a general market drop. Worse, skittish watch buyers are moving to the safety of the major players: Rolex and OMEGA at the $7k to $25k end of the market; Patek Philippe, Vacheron Constantin and Audemars Piguet above that.

Between a Rock and A Hard Place

Ulysee Nardin gray market

Assuming there’s money to be had by offering more Swiss watch for less money (a novel concept I know), what’s a Swiss watch brand to do?

It takes years to develop new “entry level” products. UN and GP can’t lower the msrp on their existing products. If consumers think a luxury brand is on the ropes (i.e. unfashionable), they’ll be even less likely to fork out luxury watch money, triggering a death spiral.

Girard Perregaux jomashop

That said, beleaguered brands can lower prices discreetly through their authorized dealers, just as authorized dealers lower their prices discreetly thought gray market sales. But all that comes off the bottom line.

Many brands see online sales as the answer; you don’t have to sell as many watches at full retail when you eliminate the dealers’ 40 percent markup. That’s a long term, unproven play.

Meanwhile, the cash flow ain’t what it used to be. For the first six months of 2020, Kering booked $238m in asset impairment losses for their watch brands and fashion label Brioni. Hence belt tightening.

Every Brand for Itself

Kering didn’t reveal how much those 100 job cuts are going to cost. Swiss watch workers are well paid and highly unionized, laboring under contracts with strict job protection clauses. I suspect that the first 100 jobs Kering culled won’t be as expensive as the next 100, should it come to that.

When it comes to facing all these challenges, Ulysse Nardin and Girard-Perregaux are hardly alone. But one thing’s for sure: the Swiss watch industry is in turmoil. The war between manufacturers and dealers should be seen in the context of a concurrent fight for survival. Mutual? Those days are gone. It’s every dealer, every brand for itself.


  1. I see two categories of survivors:

    Swatch Group and Seiko – They want to go up-market, but if they have to they have the production capability to stamp out sub-$500 mechanical watches for people that simply think mechanical watches are cool. Especially if they cut out the ADs. They also have the production capability to make an Omega or Grand Seiko truly special.

    Rolex/Patek/Royal Oak – It was polite to include Vacheron but I don’t think they fit despite the “Holy Trinity” history. With private ownership these brands will maintain luxury status.

    • I’m tempted to remove Vacheron from the list at your (implied) suggestion. But the Overseas is a big hit – sold out. So I’ll acknowledge the perceptive observation and leave it so.

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