Horology is so rich in history, engineering and design that it is sometimes difficult to remember the broader context surrounding the watch industry in which relatively gigantic “luxury groups” own collections of watch brands and operate diligently in the background. For the watch industry, there are at least four groups worth knowing: LVMH, Swatch Group, Richemont and Kering.
It can be funny to consider the wide range of products in each of these conglomerates. For example, the income of children buying tickets to shoot arrows in the Parisian suburb of Bois de Boulogne is pooled with the sales of Bulgari’s Octo Finissimo watches. LVMH owns both Bulgari and an amusement park in France called Garden of acclimatization. The fictional character Jack Donaghy from the TV series “30 Rock,” whose title was President of East Coast Television and Microwave Oven Programming, would likely be comfortable at LVMH’s headquarters.
On a more serious note, on January 24, 2022, it appears that two historic watch brands, Ulysse Nardin and Girard-Perregaux, headquartered in Le Locle and La Chaux-de-Fonds, Switzerland respectively, were reorganized in response to developments in men’s fashion. in Rome, Italy. In a vacuum it’s hard to see how one would lead to the other: their connection is the Kering group.
Dry, brioni, Ulysse Nardin and Girarod-Perregaux
Kering’s CEO is French billionaire Francois-Henri Pinault. Ten years ago, Pinault bought the Italian menswear brand brionic. The brand seemed to thrive; in 2016, news circulated that then-presidential candidate Donald Trump preferred his suits. Brioni also worked with Jude Law and Brad Pitt as brand ambassadors. The global pandemic closed many of the spaces in which men would consider wearing expensive, relatively formal clothing: offices, restaurants and nightclubs were not an option for a long time. Brioni’s sales faltered.
As a result, in October 2021 news broke that Brioni would lay off up to 320 employees. The brand planned to be “production matrix to return Brioni to levels of efficiency and profitability that are sustainable over the long term.” This pivot marked a new focus on high-end casual wear.
Kering’s formal acknowledgment of these financial difficulties was published in the summer of 2021 financial report for the first half of 2021Kering noted: “In the first half of 2020, given the deterioration of the financial outlook for certain Homes in the context of the COVID-19 pandemic, the Group recognized an asset impairment of €256.7 million, mainly related to de Ulysse Nardin, Girard-Perregaux and Brioni for an amount of € 201.0 million. The impairment of other non-current assets included an impairment of a right-of-use asset under a lease held by Brioni for €35.1 million.” A “depreciation” means Kering has formally acknowledged a nine-digit drop in the combined market value of these three brands.
In the context of Kering’s balance sheet, this was not a big blow; these are relatively small pieces of a very large pie. the biggest piece, Gucci, has its own problems. the big movie House of Gucci paints a not-so-flattering picture of the brand’s founding family (it has been canceled accordingly). Gucci’s sales growth has declined steadily over the past four years and has struggled to recover from the pandemic.
In light of these developments, Kering understandably chose to cash in on some of its luxury watch chips, which watch industry insiders have been anticipating for about a year. Finally, on January 24, 2022, the company announced that it would sell Ulysse Nardin and Girard-Perregaux to management.
For Kering, this will provide a cash injection that will aid the group in its efforts to change Gucci and Brioni. In addition, management’s decision to acquire Ulysse Nardin and Girard-Perregaux represents an incredible vote of confidence in the future of these two watch brands (trust shared with the financiers who supported management’s acquisition).
The new old management of Ulysse Nardin and Girard-Perregaux may not have all its financial eggs in one basket, but it has more of their eggs in that basket now than in the past. There is a lot of “skin in the game” when it comes to the UN and GP C suites.
Kering’s stock price closed lower after the sale announcement, but the decline was less severe than that which occurred at the same time market-wide. In that sense, the market response to Kering’s move was positive.
There are a few more implications of this development. With this one change, the independent watch community expanded its ranks with two brands with a very long and important legacy in the watch industry. The management of Ulysse Nardin and Girard-Perregaux probably feels more freedom to push its brands in any direction they want.
It’s possible Kering had a light touch when it came to overseeing these watchmakers, so this could be a no-brainer. In the coming months, however, any benefit to management will be important.
Take Ulysse Nardin for example. The top 10 countries in which people are doing Google searches for this brand are Armenia, Azerbaijan, China, Switzerland, Kazakhstan, Moldova, Russia, Uzbekistan, Hong Kong, and Ukraine. With tensions mounting between Russia and Ukraine (and the prospect of international sanctions), the brand could face a worrying short-term slump in demand.
And now luxury “arch-rivals” playing chess?
In hindsight, “a certain Instagram post hits different” in light of the sale of Ulysse Nardin and Gerrard-Perregaux. Kering’s CEO Pinault and the CEO of LVMH, Bernard Arnault, are referred to as “bowRivalsin the luxury market.
Two days before Kering announced to stop making luxury Swiss watches, a photo of Arnault appeared on his son Frédéric’s Instagram page with a chessboard between father and son, the elder Arnault’s wrist clothes evident as he makes a move. The younger Arnault captioned the image: ‘Unique 5740 playing for the win. Check size!”
The 5740 in question (and visible in the photo that adorns Bernard Arnault’s wrist) is a unique Patek Philippe Nautilus perpetual calendar chosen by Tiffany. Images of the timepiece almost immediately flooded watch accounts on Instagram. Like many others, I interpret this as a playful debut of the timepiece and nothing more.
However, this post may have been a clever move by Arnault the Elder: just days before his “arch-rival” Pinault sold Ulysse Nardin and Girard-Perregaux, forcing him to retire from the proverbial battlefield of watchmaking, Arnault quite publicly celebrated his close and growing relationship with one of the best watchmakers”Holy Trinity” marks (friendly reminder: the Patek Philippe Reference 5740 chosen by Tiffany was preceded by the hugely successful) Tiffany & Co. double signed Patek Philippe Nautilus Reference 5711 end of 2021).
This timing may have been coincidental. Or the chess game referenced in the caption may have been a metaphor for the battle for luxury market share between Arnault and Pinault. It remains to be seen if this is really a checkmate moment or if we’re in the midgame with a lot of extra moves ahead.
Brendan M. Cunningham, PhD has an upcoming book on the history of Rolex. You can find out more by visiting www.sellingthecrown.com and signing up for email updates about the project.
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Stunning Phillips Auction of the Tiffany & Co Double Signed Patek Philippe Nautilus Ref. 5711/1A-018: Some Deep Thoughts and Wider Implications, Plus Auction Video
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Ulysse Nardin Blast: Highly Volatile Explosive
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