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By
Reuters
Published
Jul 14, 2013
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Richemont chairman takes a break to see who is the (next) boss

By
Reuters
Published
Jul 14, 2013

Richemont boss Johann Rupert has promised to switch off his phone when he takes a break from the company in September.

For the South African billionaire it will mark the start of a year-long sabbatical. For his younger managers, it will mark the start of a 12-month competition to show how well they can steer the world's second biggest luxury goods group in his absence - and possibly, ultimately, replace him.

"It's a test to see if he can remain in the background. He has a good team in charge and if it works well after a year he could decide to withdraw from day-to-day business for good," an industry insider said.

Rupert carved the group out of his father's tobacco empire 25 years ago. He has been chairman since 2002 and twice stepped in as CEO too, from 2003 to 2004 and 2010 to March 2013, to guide the firm through tough economic conditions. He plans to return as chairman after his break.

Officially, Richemont will be run in his absence by three wise men: Bernard Fornas, former Cartier chief who will be in charge of the brands; Richard Lepeu, who will handle back-office matters and logistics; and Gary Saage, who will oversee financial matters.

But Fornas and Lepeu, co-chief executives since April, are already in their 60s and not seen as succession material. All eyes will be on a group of recently appointed younger managers, who face their own challenges within the brands they now run.

"It's in Rupert's interest to have competition between the brand heads to single out the best man. He has De Quercize, he has Lambert, he has Kern, who is very ambitious," said Gregory Pons, editor of watch news website businessmontres.

Stanislas de Quercize, 56, formerly of Van Cleef & Arpels, heads Cartier since January. He will have to solve one of the biggest problems in the luxury goods market: how to develop a brand and preserve its exclusivity when it is has become so big?

Then there is former Jaeger-LeCoultre head Jerome Lambert, 43, at Montblanc since July, who has to make a success of the brand's diversification into watches, jewellery and leather goods to make up for the dwindling size of the pen market.

Meanwhile, IWC head Georges Kern, 48 - lacking a recent promotion - has to improve the performance of his smaller watch brands Roger Dubuis and Baume & Mercier, which are languishing behind the group's other brands.

One industry insider said that setting similar challenges for members of his staff was Rupert's style: "He puts them in a competitive situation and they have to impose themselves to make it work."

INSIDER WANTED

Industry experts agree that Richemont will most likely hire its next CEO from within in order to have a leader who understands the group and its hierarchy.

"The watch industry does not like recruiting leaders from other industries even if they have been successful," said Jacques Amey, senior partner at recruitment firm Korn/Ferry.

In addition, say analysts, Richemont has a far greater choice of good candidates inside the company than outside.

"They have a very deep talent pool. This is a great asset - this industry lacks experienced management on which companies can count. Richemont is displaying an excellent capability of promoting management from within, rather than buying at inflated prices from outside," said Exane BNP Paribas analyst Luca Solca.

Richemont declined to comment on its hiring process. The company's board appoints senior managers but it is dominated by Rupert, who holds 9 percent of Richemont's capital and 50 percent of voting rights.

Rupert has said he trusts the team he has put in place in his absence. But the challenges they must solve are manifold.

PROBLEM SOLVING

At Cartier, the group's cash cow, Quercize must lift sales of entry-price steel watches, which dragged growth in the watches segment overall to 8 percent for the full year to March - half the pace of growth seen in the jewellery segment. Though Cartier is one of the world's top jewellery brands, it also made almost 2 billion euros in watch sales in 2012/13, according to Vontobel estimates - nearly a fifth of group sales.

Analysts said Quercize was likely to quickly address the problem, related to weak demand in China and Europe, by creating new models, as the last memorable launch was years ago.

The Frenchman, who declined to comment for this article, joined Richemont in 1989 from Procter & Gamble and held positions at Alfred Dunhill, Montblanc and Cartier before taking over Van Cleef in 2005.

"He has done a sensational job at Van Cleef that was only just breakeven a few years ago and is now the No.2 contributor to group earnings with a margin similar to Cartier," Vontobel analyst Rene Weber said.

Another industry source said Quercize was in pole position to become group CEO in about five years time. "He's the natural heir. He won that internal battle when he aced out Lambert, Kern and (Piaget CEO) Metzger for Cartier."

Lambert, meanwhile, faces big challenges at Montblanc, which is "at a crossroads," Bernstein analyst Mario Ortelli said.

Richemont is trying to turn the No.1 luxury pen maker into a watch, jewellery and lifestyle brand but is having trouble imposing the "male" brand in the female-dominated leather goods market, and big stores are squeezing margins, Ortelli said.

Montblanc sales grew only 6 percent in the full year and its operating margin fell to 15.7 percent versus group operating margin of 23.9 percent.

Lambert and Kern joined Richemont in their 30s and first proved their worth at Jaeger-LeCoultre and IWC before Rupert gave them additional responsibilities. When Richemont's small watch brand Lange & Soehne was hurt by the financial crisis, Lambert was appointed to help its new CEO, Wilhelm Schmid, to put it back on track. Similarly, Kern has been working with Baume & Mercier CEO Alain Zimmermann since 2009 to solve that brand's difficulties.

Even though German-born Kern has not yet "made it to the next level", as a rival watch executive puts it, he will have to be reckoned with for the CEO job. He appears to be making headway at Baume & Mercier, the group's only watch brand whose results did not improve in the year to March: A recent partnership with Chinese retailer Chow Tai Fook might help the brand become an alternative to Swatch's Longines in China, Bernstein's Ortelli said.

The coming year offers a rare case study of how a major global brand functions without its biggest character. One thing everybody agrees on: If something really goes wrong, Rupert's phone will be switched back on in no time.

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