Richemont: in the sweet spot
of the luxury market

Durable, ‘hard’ luxury – jewellery, expensive watches and other precious goods – is seen as the sweet spot of the luxury market, and Richemont’s classic brands have been at the forefront of this niche market for over a century. Over 90% of the group’s earnings come from jewellery, especially the lines of its flagship Cartier brand and Van Cleef & Arpels. Other main brands include Piaget, IWC Schaffhausen, Panerai, Vacheron Constantin, Purdey, Dunhill, Montblanc and Chloé.

While Richemont operates in a cyclical industry, its earnings are notably more resilient than those of competitors, due to increasing demand for high-end branded jewellery in both developed and emerging markets. This trend was especially evident in the post-Covid period when, for multiple reasons, the luxury sector enjoyed exceptional growth – surprising both Richemont management and the wider market.

Today, investors once again face uncertainty, with renewed concerns over the tariffs imposed by the Trump administration and their second-order impacts. There is some reprieve in this regard for Richemont, however, since high-end consumers are mobile and often able to shop internationally to circumvent local tariffs. More importantly, luxury goods companies can typically pass on additional costs to consumers without significantly denting demand, and Richemont is well poised to do this as a result of its waiting lists and brand desirability.

STRONG POSITIONING

The luxury branded market is defined by formidable barriers to entry – rooted not just in price, but in heritage, quality and craftsmanship. Brands with deep histories are uniquely positioned to market their legacy, creating powerful emotional appeal and long-term desirability. Consumers tend to prioritise these attributes over investment value.

Richemont exemplifies this dynamic. Its jewellery segment – led by Cartier – boasts high margins due to enduring heritage and brand image, with margins sustainably above 30% in our forecasts. While the global jewellery market remains fragmented, the high-end branded segment is consolidating and growing steadily. The watch industry continues to grapple with cyclical challenges, particularly in China. Yet Richemont’s brand dynamics help to mitigate the cyclical nature of the luxury industry with well-entrenched jewellery lines such as Cartier and Van Cleef & Arpels.

These brands epitomise ‘quiet luxury’ – which emphasises high-quality, understated elegance over overt displays of wealth – and provide an underpin of sustained demand, even in more challenging environments. Looking ahead, we believe the luxury sector will continue to grow ahead of global gross domestic product (GDP) – with branded luxury, in particular, capturing an increasing share of that growth.

GOOD MANAGEMENT

Richemont’s capital allocation strategy places the emphasis on cash first, margins second, sales third. It’s worth noting that the group delivers exemplary returns on equity – even with sizable cash on the balance sheet. This conservative management approach is deeply embedded in Richemont’s culture. At the same time, its decentralised management structure allows for divisional autonomy, and recent leadership changes have brought experienced individuals into key positions.

Given challenges in the specialist watches and other accessories segment, Richemont appears to be tactically reallocating capital towards its high-performing jewellery division. It is also enhancing manufacturing capabilities to improve the availability of jewellery lines and meet growing demand while maintaining desirability. The strong balance sheet allows Richemont the freedom to make these strategic moves on its own terms, without reliance on external funding.

Moreover, Richemont’s robust cash position means it can ride out a difficult macro environment for far longer than peers, using the balance sheet to subsidise businesses and brands. The group has invested in renovations and refurbishments of stores, driving increased traffic and sales at Cartier and Van Cleef & Arpels relative to competitors. It has also transitioned towards a retail-led revenue model, with retail now accounting for over 70% of sales, enhancing customer relationships and inventory control.

ATTRACTIVE INVESTMENT

Richemont remains a standout in the luxury space – underpinned by exceptional brand equity, a favourable balance sheet and growth potential in branded jewellery. These strengths make it an attractive long-term holding despite the cyclical challenges facing the broader luxury market. We continue to advocate an overweight position, driven by the structural tailwinds in Richemont’s favour.

As outlined, we expect the luxury sector to continue to outpace global GDP growth, with branded luxury leading the way. Richemont sits firmly in this sweet spot – a global player with rand-hedge qualities and a luxury portfolio built for compounding. At the current share price, we see modest upside, but even at fair value, this is a business we would continue to own. In our view, this is not just luxury – it’s lasting value.