Richemont: The Most Successful Company South Africa Exported

Richemont is the most successful international business ever built from a South African base, and almost none of it happens in South Africa. This story covers the 1988 separation, the maison strategy, vertical integration in watchmaking, the jewellery engine, the online experiment and the family control structure — part of the South Africa Company Stories hub.

Why was the group created in 1988?

To separate international assets from a South African corporate structure at a time when the country faced sanctions, capital controls and severe political uncertainty, and when foreign investors and partners were reluctant to hold South African-linked equity.

The new vehicle was domiciled in Switzerland, listed in Europe and run as an international business, which gave it access to capital, acquisitions and talent that a Johannesburg-listed parent could not have obtained.

It is the clearest example of a strategy several South African groups pursued: retain family control, move the assets and the listing offshore, and let the international business grow free of the domestic discount.

What is a maison and why buy them?

A luxury house with its own history, design language, manufacturing tradition and customer relationship — assets that cannot be created by marketing spend because their value derives specifically from age and continuity.

Acquiring rather than building is therefore the only realistic route into hard luxury. A new watch brand can be launched; a brand whose pieces have been worn for a century and trade at auction cannot.

The group’s discipline has been to buy houses with genuine heritage and manufacturing capability, invest heavily in both, and resist the temptation to expand them into categories that would dilute what made them valuable.

Why does vertical integration matter in watchmaking?

Because the movement is the product. A house that buys movements from an external supplier depends on that supplier’s capacity, pricing and willingness to serve competitors, and it cannot claim genuine manufacture status.

Owning movement production, case making, dial manufacture and finishing gives control over quality, supply and the technical claims that justify the price — and it locks up scarce Swiss watchmaking capacity that competitors then cannot access.

The cost is enormous fixed capacity in a cyclical industry. When demand falls, integrated manufacturers carry the full cost of workshops and skilled staff they cannot easily reduce without losing capability permanently.

What makes jewellery so profitable?

Heritage names in jewellery command pricing that is almost independent of material cost, because the purchase is symbolic and the brand carries meaning that no equivalent-quality unbranded piece can replicate.

Jewellery is also less cyclical than watches and less exposed to technological substitution, and its customer base skews toward gifting occasions that occur regardless of economic conditions among the wealthy.

Two exceptional houses inside the group generate a disproportionate share of profit, which is a strength and a concentration: the portfolio’s performance depends heavily on continued desirability of a small number of names.

How exposed is luxury to China?

Very. Chinese consumers, buying at home and while travelling, account for a large share of global luxury demand, and shifts in Chinese policy, sentiment or travel patterns move the entire sector’s results.

The exposure runs deeper than sales. Anti-corruption campaigns, changing attitudes to conspicuous consumption, domestic duty changes and currency movements have each produced sharp swings in demand within single quarters.

Groups have responded by diversifying geographically and by building direct retail in more markets, though no realistic diversification removes the dependence when one market represents that much of global growth.

What did the online experiment teach?

That luxury e-commerce is much harder than it looks. Multi-brand online platforms compete on convenience and price transparency, which are precisely the dimensions on which heritage brands do not want to compete.

The group invested substantially in online distribution and ultimately restructured that exposure, absorbing significant losses in the process — an expensive but instructive experiment in whether luxury and marketplace economics are compatible.

The conclusion most of the industry reached is that brands should control their own digital channels, use them to manage relationships rather than to clear inventory, and treat third-party platforms with considerable caution.

Why does controlling distribution matter?

Because discounting destroys luxury pricing permanently. Once customers learn that a piece can be bought below list, the list price stops being credible, and recovering it takes years if it happens at all.

Owning boutiques, controlling wholesale allocations and buying back unsold inventory from retailers are all expensive mechanisms for preventing discounting, and the industry regards them as necessary rather than optional.

Direct retail also captures the full margin and the customer relationship, which is why the share of sales through owned boutiques has risen consistently across every major luxury group.

How does the family control structure work?

Through a share class carrying voting rights far in excess of its economic participation, held by the founding family, which allows control of the group with a minority of the capital.

The defence is time horizon. Luxury investment — training watchmakers, building manufacture capacity, restoring a heritage brand — pays back over decades, and a controlled company can pursue it without justifying each step to the market.

The criticism is accountability. Outside shareholders bear economic risk without the ability to change direction, which is why governance codes discourage the structure and why it survives mainly where performance has been strong enough to silence objection.

What is the South African connection now?

Largely one of ownership and history rather than operations. The group manufactures in Switzerland and Europe, sells globally, and its South African link runs through the controlling family and a domestic listed holding vehicle.

For South African investors that vehicle has been one of the few ways to hold genuinely global hard-currency earnings through a local listing, which made it a core holding for domestic funds seeking offshore exposure.

It also illustrates a pattern with mixed implications: the country’s most successful international business was built by moving assets out, which created enormous value for shareholders and very few jobs at home.

What is the lesson?

That some categories can only be entered by acquisition. Heritage, by definition, cannot be built quickly, which makes established houses permanently scarce and permanently expensive.

The second lesson is that vertical integration in a craft industry is both moat and burden — it protects the proposition and it makes the cost base impossible to flex when demand falls.

The third is about domicile. The same assets valued in Johannesburg and in Zurich attract different multiples, different investors and different opportunities, which is a durable and uncomfortable fact of capital markets.

What is the secondary market’s effect on watch brands?

Substantial and increasingly strategic. When pre-owned pieces from a house trade above retail, the brand gains enormous desirability signalling; when they trade far below, the retail price loses credibility.

Groups have responded by entering certified pre-owned themselves, which gives some control over pricing and provenance and captures margin from a market that previously operated entirely outside their reach.

It also affects production discipline. A house that floods the market destroys its own secondary values, which is why deliberate scarcity in the most desirable references is a commercial strategy rather than a manufacturing constraint.

How do luxury groups handle inventory?

With more care than most retail, because unsold stock cannot be discounted without damaging the brand permanently. The alternatives are buy-backs from wholesale partners, redistribution between markets and, historically, destruction.

Buy-backs are expensive and appear directly in the accounts, which is why several groups have absorbed large charges to clear channel inventory rather than allow it to reach discounters.

The structural answer is producing closer to demand, which requires manufacturing flexibility that a vertically integrated craft operation with fixed skilled headcount finds genuinely difficult to achieve.

Why do luxury groups keep their brands separate?

Because the customer buys the maison, not the parent. A watch is bought for its house’s history and identity, and any suggestion of shared platforms or corporate homogenization damages exactly the thing being paid for.

Groups therefore share back-office functions, distribution infrastructure, retail property negotiation and component manufacturing while keeping design, communication and customer experience entirely separate.

The tension is permanent. Every synergy that reduces cost risks eroding distinctiveness, and the groups that have managed it best are those that took savings in logistics and procurement rather than in creative and product decisions.

How does currency affect Swiss manufacturers?

Severely, because costs are incurred in Swiss francs while the majority of revenue is earned in other currencies. A strengthening franc raises the cost base against unchanged selling prices, compressing margins across the industry simultaneously.

Manufacturers respond by raising prices in weak-currency markets, which reduces volume, or by absorbing the difference, which reduces margin. There is no third option while production remains in Switzerland.

Relocating production is not available either, because the country-of-origin designation is fundamental to the product’s value, which means the industry accepts a permanent currency exposure it cannot hedge away.

How does a luxury group handle a downturn?

By protecting price above all else. Volume declines are accepted, production is cut, and inventory is managed back through the channel rather than discounted, because a price reduction is far harder to reverse than a volume loss.

Marketing spend is generally maintained or increased, on the reasoning that desirability built during a downturn is cheap relative to rebuilding it afterwards, and competitors cutting spend leave attention available.

Costs come out of the parts customers do not see: administration, travel, projects and hiring. What survives every cycle is investment in manufacture capability, because the skills lost in a downturn take a decade to replace.

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