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Swiss Luxury Powerhouse

“In the luxury business, you have to build on heritage.”

– Bernard Arnault, Chairman and CEO of LVMH

arvy’s teaser: From a South African tobacco business to a Swiss luxury powerhouse. Richemont, with its Maisons Cartier and Van Cleef & Arpels, is the “Hermès of Jewelry”. But its profits trail industry giants.


Cartier.

Van Cleef & Arpels.

These two stand proudly among the top jewelry brands.

What’s more, they both belong to the same Swiss company, which found its origins in 1941 by Anton Rupert. However, it didn’t begin with jewelry, but rather as a small tobacco business in South Africa. The transformation into a global luxury powerhouse only took shape under his son Johann Rupert. The shift started with a strategic move into the luxury sector through a partnership with Cartier in the late 1960s. Over time, under Johann’s leadership, the business expanded aggressively, acquiring renowned luxury brands.

Today, it stands as the third-largest luxury goods company in the world, trailing only behind LVMH & Hermès (chart 1).

The Swiss luxury powerhouse: Compagnie Financière Richemont S.A.

In short: Richemont.

Chart 1: The 13 largest luxury companies by market cap

Source: Quartr, June 2024

Founder-led

Who is the Rupert family? And who is Johann Rupert?

The family is known as the richest in South Africa with an estimated net worth of over $10 billion. But how exactly did they amass such a large fortune? And what does Switzerland have to do with it?

Let’s look at it step by step, because Johann’s story is full of lessons for entrepreneurs: the importance of being fearless, taking calculated risks and thinking globally. It’s also a reminder that founder-led businesses can be extraordinary investments (chart 2).

In the late 1980s, Johann’s father, Anton Rupert, was facing challenges with his South African company, the Rembrandt Group, one of the largest tobacco companies in the world. Johann proposed a bold solution: to split the group into two parts. One part would continue to focus on the South African tobacco interests, while the other part would become an international holding company based in Switzerland.

Why Switzerland?

Our country’s reputation as a hub for luxury goods, particularly watches and jewelry, made it the perfect location. Add to this a stable political environment and a favorable tax policy, and the decision was clear.

Compagnie Financière Richemont was founded on August 16, 1988. Johann’s vision was ambitious: he wanted to create a powerhouse with the world’s best-known luxury brands.

His strategy?

Acquire brands with deep heritage and strong identities – a playbook like what Bernard Arnault has done with LVMH. And the results?

Nothing short of remarkable.

Chart 2: Founder-Led Companies Outperform the Rest (based on S&P 500)

Source: Bain & Company, Harvard Business Review

Building Richemont’s brand portfolio

Johann Rupert’s leadership transformed Richemont into a luxury powerhouse through bold and strategic acquisitions (chart 3).

These acquisitions set the stage for Richemont’s dominance in luxury, blending heritage with global growth potential.

Today, the revenue split is as follows:

  1. Jewelry Maisons (67% of revenue):
    o Major contributors: Cartier and Van Cleef & Arpels dominate this category. High margins and enduring global demand for fine jewelry.
  2. Specialist Watchmakers (20% of revenue):
    o Notable Maisons: IWC Schaffhausen, Jaeger-LeCoultre, Piaget, Panerai, Vacheron Constantin, and A. Lange & Söhne. A focus on precision, heritage, and appeal to watch enthusiasts.
  3. Fashion & Accessories (13% of revenue):
    o Key players: Chloé, Dunhill and Delvaux lead the way, supported by Alaïa and Montblanc. Niche luxury offerings with craftsmanship at their core.

Richemont’s carefully curated portfolio, led by jewelry and supported by watches and accessories, showcases its ability to balance heritage with innovation in the luxury market.

Thus, when it comes to “Good Story,” Richemont ticks many boxes – but not all.

When it comes to luxury, rational decisions are often rare. Iconic brands like Rolex or Hermès exemplify this by increasing prices in ways that not only drive revenue growth but also enhance exclusivity, making their products even more desirable. These aren’t just purchases – they’re stores of value, as evidenced by strong demand and robust second-hand market prices.

In contrast, when average brands raise prices, they risk becoming merely more expensive, especially if their resale value remains at a discount. This distinction brings us to Richemont: a company that owns some of the finest jewelry brands yet struggles with segments that are, frankly, mediocre.

Take Cartier and Van Cleef & Arpels, which have earned Richemont the moniker “Hermès of Jewelry.” Their brilliance, however, is dulled by the company’s less profitable watchmaking and accessories divisions. This disparity becomes clear in the numbers: while Richemont enjoys robust gross margins of 67%, its net income margins slump to just 7%. For comparison, Hermès and LVMH boast net income margins that are 2–4 times higher, despite similar gross margins.

This contrast illustrates why we favor Hermès in our portfolio. It’s a brand where luxury doesn’t just have a high price tag. It is also one of superior profitability, ensuring that each segment contributes to prestige and profit through its unsurpassed heritage of craftsmanship.

Back to Richemont. Last week, they announced excellent news that lifted the entire industry. And the Rupert family has plenty of reasons to smile.

As they still hold 10% of Richemont.

Chart 3: Richemont’s impressive luxury portfolio

Source: Quartr

New All-Time-High

When it comes to the “Good Chart”, there is no more bullish sign than a new all-time high.

Why is owning stocks at new highs an advantage?

It’s psychological.

It all comes down to the «line of least resistance» and how the investors who own the stock think and feel about their position. The «line of least resistance» is up and the owner is happy!

What does this mean?

Think about yourself. You own a stock that hits a new high along with many other investors on board. Everyone who sits in this position has a profit in their account, feels validated in their analysis and lets the winner run. It is not a position to worry about, and the uncertainty level is low. And we know that as investors we dislike uncertainty. This is the simple reason why a new all-time high is the most bullish sign when it comes to chart patterns.

This is exactly what happened with Richemont, whose shares rose by 20 %. Why? Because everyone is focusing on the weak Chinese consumer which is crucial for the luxury sector as it accounts for 1/3 of sales. But suddenly, consumers in the US and Europe came to the rescue and posted strong growth, boosting Richemont’s sales by 10% – the highest growth in two years.

Unexpectedly good news for the entire luxury sector.

We like it!

Chart 4: Richemont over the last ten years

Source: TradingView

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