MISS TWEED
After the “handbag war,” the watch war
Astrid Wendlandt
23/06/24
A little over a decade ago, the luxury industry was gripped by the "handbag war" between LVMH and Hermès when Bernard Arnault's group tried to seize control of the maker of the prized Birkin handbags and was eventually forced to give up. Now a watch war could be afoot.
The two luxury powerhouses are bidding for Vaucher Manufacture Fleurier, the Parmigiani watch brand and other suppliers part of the watchmaking hub put up for sale several months ago by their owner, the Sandoz Family Foundation, industry sources say. Cartier owner Richemont has also expressed interest, they say, but the Swiss group is much less motivated than LVMH and Hermès because it has sufficient production capacity and strong ties with suppliers.
Earlier this month, executives from LVMH, Hermès and Richemont met with the management of the businesses put up for sale, one by one, industry sources say. "Initial bids are expected to be made this month and hopefully a deal will be announced before the end of the summer," one person with knowledge of the sale process said. Deloitte is advising the Sandoz Foundation. LVMH and Hermès declined to comment. Richemont could not be reached for comment.
For many weeks, Hermès appeared to be the best positioned since it already owned 25 percent of Vaucher, a highly regarded provider of watch movements. Hermès is said to have ploughed more than €120 million into the company since it became a shareholder in 2006. The French luxury company has right of first refusal to buy the shares it does not already own in Vaucher.
Publicly, Hermès has never denied its interest in buying the whole company. In an interview with Swiss daily Le Temps in April, Guillaume de Seynes, a member of the Hermès family who has been in charge of the group's investments in watchmaking since the beginning, said: "I can confirm that we are not uninterested with what will happen to Vaucher." Vaucher supplies all the mechanical movements of Hermès' watches, de Seynes told the newspaper. For him, letting go of Vaucher is not an option. Hermès has spent a lot of time and money trying to keep this company financially afloat and building a relationship with it. Losing ties with Vaucher would be unthinkable for de Seynes. It's his battle.
Vaucher is vital because it gives Hermès legitimacy in watchmaking and plays an important part in the narrative. If LVMH were to win control, Hermes would find itself in a difficult position. It's not clear how the two would work together. While Vaucher is part of the Sandoz Foundation, the French luxury company can say that its movements are made in-house. If LVMH took charge, it may not allow the company to say they are made in-house and even worse, it may not agree to supply Hermès with movements.
BAD BLOOD
There is still quite a lot of bad blood between the two groups. Memories of the acrimonious 2010-2014 "handbag war" are still fresh. Hermes fought tooth and nail to rebuff LVMH's attempt to gobble up the luxury company.
"I think Hermès is going to do all that it can to prevent LVMH from taking control of Vaucher," the executive of one major watch brand told Miss Tweed on condition of anonymity.
If LVMH succeeded in buying the whole watchmaking hub of the Sandoz Foundation, Hermès could take the group to court on the basis that its right of first refusal was not honored, some industry sources say. The two groups would cross swords again. That would not be good news for investors as it would create an unwelcome distraction for both groups' management at a time when the industry is facing an unprecedented downturn and everyone needs to be on deck to navigate the storm as best as they can.
Hermès is not the only one concerned about LVMH's interest in Vaucher. Audemars Piguet and Richard Mille are also worried. LVMH calling the shots at Vaucher is not a particularly palatable option for them either since they are major customers of the movement provider.
Hence, Audemars Piguet and Richard Mille could likely join the fray against LVMH. Audemars Piguet owns a minority stake in Richard Mille, which means that their interests are aligned.
Part of the Sandoz watchmaking hub is Atokalpa, a provider of key elements such as balance wheels and springs, and its sister company Elwin, which supplies hardware for mechanical movements. Patek Philippe and Chopard are shareholders in both companies.
"It's pretty clear to me that Atokalpa is strategic also for Patek Philippe and Chopard," another senior watch executive said.
"They will not want to let LVMH get control of it."
Hence, a consortium opposing LVMH's bid to buy the whole watchmaking hub of the Sandoz Foundation is forming. Watchmakers are more relaxed working with Hermès than with LVMH, Swiss watch industry sources say. The latter group's financial resources are gigantic.
Bernard Arnault's philosophy is that the end justifies the means. It's nearly impossible to counter LVMH's might and plans.
Unlike LVMH, Hermès is not on the prowl to expand its empire. The French luxury company is working on securing its supply chain and continuing to build its watch business.
Rival big brands feel more comfortable with that strategy than with LVMH's ambitions.
RISING STAR
In the past few years, Hermès has been introducing more high-end pieces costing more than €12,000, paying great attention to design. "I think Hermès really defined its soul in watchmaking," the CEO of one medium-sized Swiss watch brand told Miss Tweed. "They have found their place in the watchmaking industry and created very nice products."
De Seynes told Le Temps that the average price of its watches had risen from €3,000 to €10,000 in the past five to six years. At the Watches & Wonders trade fair last April, Hermès presented a new genderless model called the Hermès Cut, with a new movement designed specifically for it, as well as a triple-axis tourbillon coupled with a minute repeater called Arceau Duc Attelé costing €400,000.
Hermès is a rising star in the Swiss watch industry. Last year, it made €611 million in watch sales, up 23 percent at constant exchange rates, higher than the brand's overall sales growth of 21 percent. In the first quarter, watch sales were up 4 percent - a feat in a declining market. Hermès makes around 75,000 watches a year. A significant proportion are still equipped with quartz movements and they cost between €2,000 and €3,000. Its timepieces are sold in its more than 300 stores and at some 100 wholesalers, the brand says.
Hermès has been trying to buy Vaucher Manufacture for years. But now it has to counter competition from LVMH, which is also keen to invest in movement providers. The French group harbors great ambitions in watchmaking. Several industry sources said LVMH was on the lookout for more suppliers than just Vaucher.
"We see a lot of LVMH people in Switzerland attending fairs, bonding with key players and their M&A teams are scouting for acquisition opportunities," the head of one small independent brand told Miss Tweed. "They are in 'attack' mode."
Industry sources said LVMH offered €4 billion for Swatch Group's Breguet a few years ago but the Hayek family would not let go of it. LVMH and Swatch Group never commented on this fact.
TAG HEUER
Frédéric Arnault, CEO of LVMH's watchmaking division and third son of the group's chairman and CEO Bernard Arnault, is looking for ways to increase production and the quality of movements, particularly that of TAG Heuer. LVMH also owns Zenith and Hublot which, like TAG, have their own in-house movement providers.
Carole Forestier-Kasapi, in charge of movement development at TAG Heuer, told Le Temps in May that Vaucher was the "best provider" of movements with complications - additional functions than the time. At Watches & Wonders, TAG Heuer presented a new Monaco Split-Seconds Chronograph supplied by Vaucher. Some industry experts argue that this watch was more a marketing coup than a timepiece aimed to be produced in large quantities. Priced at 165,000 Swiss francs, every item will be numbered, the brand said at the time of its presentation.
TAG Heuer's spokeswoman did not reply to a request to comment on that point. Jean Arnault, Bernard Arnault's fourth and youngest son, is in charge of watches for Louis Vuitton and relaunching the brands Gérald Genta and Daniel Roth, using the group's plant La Fabrique du Temps. Jean and Frédéric Arnault may be keen to grow further Parmigiani, which is also for sale and part of the Sandoz Foundation watchmaking hub.
PARMIGIANI
Parmigiani is not a big player in the industry. Last year, it is estimated to have generated just over 65 million Swiss francs in revenue in 2023 - up from 26 million Swiss francs in 2019 - and aiming for further steady growth this year. The watchmaker is still burning a little cash but at least it is breaking even, several sources said.
Under the leadership of Guido Terreni since early 2021, Parmigiani has enjoyed a revival. The brand has narrowed its focus on its best-selling model, the Tonda PF, which has a minimalist and recognizable integrated design. Steel models start at around 20,000 Swiss francs.
Parmigiani has benefited from a shortage of popular models such as AP's Royal Oak and Patek Philippe's Nautilus which cost about the same and have similar designs.
Consumers bought a Parmigiani Tonda PF instead, watch retailers say. Parmigiani is distributed mainly by third-party retailers. It has not invested in its own network of boutiques.
Hermès, on the other hand, may not be that interested in Parmigiani since its strategy is to focus on growing its own watch business. However, both Hermès and LVMH have the means to write big cheques. At the end of 2023, Hermès was sitting on a net cash pile of more than €10 billion while LVMH had €7.7 billion. Comparatively, Richemont had a net cash position of €7.4 billion as of March 31.
In the course of the past decade, most major watch brands have been investing in the development of their own movements and production capacity. Having your own movement makes your timepiece more unique and allows you to charge more for it. Watchmaking is very capital intensive. It requires a lot of money and time to develop a movement, often several years.
Also part of the Sandoz Foundation's watch producing hub is Quadrance & Habillage, a specialist maker of watch dials with expertise in guilloche and engraving. The watch suppliers work for many of the world's top watch brands. Together with Vaucher Manufacture and the other suppliers part of the hub, they employ more than 500 people, spread between Alle in the canton of Jura, La Chaux-de-Fonds and the Vallée de Joux, three of Switzerland's most important watchmaking clusters.
The Foundation already tried to find a buyer for its watchmaking hub several times, including once three years ago, but discussions failed to produce a deal. The Foundation is understood to have lost more than 1 billion Swiss francs since it started investing in Parmigiani and its various suppliers 30 years ago. The descendants of the family behind the Foundation are keen to get as much back as possible.
(Edited by Samantha Berkead, illustration by Claire Laude,
www.claire/aude.com)
