February 27, 2009

(BN) Richemont Triples Stores Selling $43,000 Dubuis Watches, Bucking Recession

Roger Dubuis to Cut 70 Jobs, ontinue Adding Stores

Feb. 27 (Bloomberg) -- Cie. Financiere Richemont SA will cut as many as 70 Swiss jobs at its money-losing Roger Dubuis unit and press on with a plan to triple the watch brand's stores through expansion in Asia, Russia and the Middle East.

Before its purchase by Richemont last year, Dubuis hired "too fast," the Geneva-based watch brand said today. Chief Executive Officer Matthias Schuler said Dubuis still needs to invest in marketing its watches, which cost an average $43,000, and open stores to become profitable after the job cuts.

The cuts will eliminate a sixth of Dubuis' workforce, and were announced less than a week after Schuler said headcount would fall only "slightly," if at all. Richemont, the world's second-largest luxury-goods maker, calls the current luxury market the worst since the company was founded in the 1980s. Rival PPR SA, the owner of Gucci, sold its Bedat watch brand this week after nine years of disappointing revenue.

"Dubuis is a solid high-end brand but there's no place to hide," said Jon Cox, an analyst at Kepler Capital Markets, adding watchmakers may cut as many as 5,000 jobs over the coming two years. "The word-of-mouth, very high-end prestige business model is over. They bought an underdeveloped brand and now they're starting to roll it out on a global basis."

On Feb. 23, Schuler said he expected the staff count would be "flat" or slightly lower by the end of the year. "We're relaunching the brand as a global one," he said at the time. "We had no marketing before."

Swiss watch exports dropped 22 percent in January from a year earlier, the biggest monthly decline in at least 20 years.

'Second Tier'

The company is still planning to add jobs outside of Switzerland, Schuler said today. Roger Dubuis had added 20 employees, boosting staff to 450, since Richemont bought control of the brand in August, three months before Swiss watch exports' five-year boom ended. Dubuis has eight boutiques now.

Dubuis is a "second-tier" brand that retailers might stop stocking in the recession if Richemont doesn't invest in marketing, said Rene Weber, an analyst at Bank Vontobel AG in Zurich. "In terms of production, they are quite good. The distribution side didn't work well."

Richemont acquired a brand in a segment that is resisting the slowdown better than cheaper timepieces. The Watch Federation said in January that the most expensive watches, those wholesaling for more than 3,000 francs ($2,560), retreated 14 percent, less than any other category.

600,000-Franc Watch

Dubuis says it has a yearlong order backlog for its most expensive model, a two-time-zone watch that adjusts for leap years and costs more than $500,000. Former Patek Philippe designer and company founder Roger Dubuis sought to distinguish his products with complicated designs and innovative watch motors, and won celebrity customers including Formula One champion Michael Schumacher and actor Sylvester Stallone.

Dubuis watches bear the Seal of Geneva, a 123-year-old accolade from the Geneva Watchmaking School. That's one of the industry's most difficult designations to obtain, as every component of the watch, which may contain more than 400 parts, must be decorated and polished, even the screws. Some components are smaller than a micron, which is a millionth of a meter, requiring workers to use microscopes to check their quality.

Richemont may have paid a "peak" price for control of the brand, Kepler's Cox said, estimating Roger Dubuis has annual sales of about 100 million euros ($127 million). Richemont hasn't disclosed the brand's sales or purchase price.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net .

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