Three lessons from the world’s second-biggest luxury goods group that Luxury Wine Estates should learn.

Three lessons from the world’s second-biggest luxury goods group that Luxury Wine Estates should learn.

China

Richemont, the world’s second-biggest luxury goods group, announced yesterday higher sales in the first five months of the year, but warned that momentum might not be maintained for the full year.The maker of Cartier jewellery and Montblanc pens said sales had jumped 37 per cent in the five months to the end of August, compared with the same period last year.By product, Richemont’s specialist watch brands, led by upmarket Vacheron Constantin and Jaeger-LeCoultre, proved strongest, with unadjusted sales up 40 per cent. Jewellery, including the Van Cleef & Arpels brand, rose 32 per cent. These are the facts and let’s now analyze it through the lenses of a luxury wine estate owner. Three major lessons could be learnt and could benefit to the success of luxury wine estates in the future.

Recovery is still weak
If sales were satifying during the first 6 months, luxury wine estates should be very cautious about their estimates for the end of the year. Richemont pointed out that the strong growth was achieved on the back of low comparisons and that the second half will be a tougher period. Expensive wines may suffer from a lower demand in restaurants or wine shops if this recovery is not sustainable.

A strong distribution network in Asia
Richemont demonstrated that they were very successful by expanding in Asia to offset a slowdown in the U.S. and Europe. Asia proved particularly buoyant, with sales up 51 per cent in the period (36 per cent adjusted for currencies and the acquisition). At the same period, Europe and the Americas were very resilient. In fact, Hong Kong has become the biggest market for Swiss watches as shoppers from mainland China buy timepieces there to avoid luxury tax. Wealthy Chinese consumers own 4.4 luxury watches on average, according to the Hurun Wealth Report, which estimates there are 875,000 people in the country who have assets of more than 10 million renminbi ($1.47 million). The same trend is happening for luxury wines (and more particularly for French wines from Bordeaux and Burgundy) and therefore estates must build stronger relationships with this part of the world. A strong distribution network in Asia is now key for wine estates if they want to develop sales and increase margins.

An online strategy for luxury goods
Selling luxury wines online? An idea that still sounds crazy for many luxury wine estates. In fact, even if the wine business is tied to strict regional rules with strong restrictions on selling bottles on the internet, the recent acquisition of U.K.-based fashion retailer Net-A-Porter.com by Richemont shows the luxury market is going online very rapidly. Richemont announced that Net-a-Porter, the luxury goods market website they bought in April, will soon expand internationally (they currently sell to customers in the Americas, Europe and the Middle East) which is a strong sign about their confidence in the success of this business. This online business is a way to reach people who do not live in places where Richemont brands are sold and who can afford buying expensive items. This argument could also be used for luxury wines but estates are sometimes still reluctant to go further into this online business.

(You can reach the writer at guillaumejourdan@hotmail.com)