The line of suitors for Pomellato

The combination of a clampdown on corruption and on ostentatious buying in China that has hit watch sales, an increase in consumption by women in Asia that has boosted jewellery revenues and a trend of “branding” the fragmented jewellery industry has upended the world of “hard luxury”, generally defined as watches and jewellery.

Where sales of watches have been the engine of growth for more than a decade, the fastest-growing area today is jewellery. That trend is triggering the biggest round of consolidation the luxury industry has seen in many years.

Claudia D’Arpizio, a Milan-based partner at Bain & Co, says the branding of the jewellery sector is the big trend. “There’s a huge potential for creativity and growing a brand in this market,” she says.

Erwan Rambourg, HSBC analyst, also argued that, in China, jewellery sales will outpace sales of watches as Chinese women overtake men as the dominant consumers.

Their predictions have proved correct. Altagamma, the Italian luxury goods association, and Bain expect sales of jewellery to outpace those of watches over the next 12 months. In its annual consensus, Altagamma sees sales of hard luxury slowing to 7 per cent growth a year, a “sharp deceleration” of the watches industry because of destocking.

Ms D’Arpizio points out that the past two years have shown that the reality of tapping into the rapid growth in the jewellery business that has traditionally been dominated by “mom and pop” stores, is difficult. Running a mono-brand successfully needs significant funds to be invested in distribution and working capital. Even then, for new entrants the chances of breaking in are slim. “It is not an easy game, so you don’t see many major players in that segment of the market. Although there are many talented designers, it is very difficult to establish a new brand globally. It is very expensive and it’s very difficult to become profitable.”

Thus, the question facing the world’s largest luxury goods groups is whether to acquire or build a jewellery business out of their current brands. At Richemont, Johann Rupert, the chairman, has signalled that he is leaning towards organic growth and exploiting the brand power of its stable of established elite watchmakers. “I’d rather have Piaget [owned by Richemont] expanding in jewellery than buy another jewellery company,” Mr Rupert said last month.

Meanwhile, private equity groups are scrambling to pick up smaller brands. Clessidra, the Italian private equity group, last month bought out another Milan jewellery brand, Buccellati, days after the Pomellato deal.

The line of suitors for Pomellato, maker of the cult “Nudo” and “M’ama non m’ama” rings advertised by Tilda Swinton, the actress, underlines the desire of investors to get into the sector.

With takeover momentum at fever pitch, industry executives expect more consolidation of the few remaining independent, established jewellery brands. David Yurman, Tiffany and Chopard are considered to be next in the sights of global aggregators or wealthy Chinese or Middle Eastern investors keen to pick up trophy brands, if the price is right.

By contrast, the heat has come out of the watches business, at least in the short term, say analysts. The most recent figures, published at the end of May, showed Swiss watch exports to China fell 12 per cent in April. Globally, they rose 6 per cent after years of double-digit increases.

Thomas Chauvet, an analyst at Citi, believes the tough stance of China’s President Xi Jinping on corruption and extravagant spending will probably limit the recovery of the market this year.

Nonetheless, Betty Yap, a luxury expert and partner at international law firm Linklaters in China, says that China is still the market to be in for sellers of high-end wares, watches included.

“Anecdotally, people are seeing some signs of slowdown, but the reality is that China remains the highest growth market for luxury items,” she says.

As a consequence, Ms Yap says that one of the important difficulties for luxury retailers in China remains real estate. “There are plenty of issues to overcome in order to find that spectacular site for your flagship store,” she says.

Moreover, the future of watch sales in China may well come from the same market that is boosting sales of jewellery in that market – women buyers.

Ms D’Arpizio says this “girl power” that is fuelling growth in branded jewellery is also giving a boost to the watch market.

“There is a trend of women buying watches for complications and movements, not only for aesthetic value. This is a new trend. It is going to be a big driver for watches.”
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