You may have read the headline recently that 'Richemont Group Bought Back and Destroyed $539m of Watches', essentially to stop the old stock being passed on to grey market dealers and sold at heavy discounts. This includes pieces made by Cartier, IWC, Piaget and Vacheron Constantin and while the 'physical destruction' tagline is surely being played well over the top (most articles go on to say that the movements and other parts will be recycled - never let the truth get in the way of a good headline, eh!) some people are still offended by what they perceive as Richemont's heavy handed tactics and the denial of grey market bargains for the consumer. I even read where some idiot commented that the company should be taken to court by the monopolies commission... yeah, because there aren't any other wristwatches available!
Leaving aside the obvious potential marketing exaggeration (the bigger the better when it comes to making headlines) when you look at this it really isn't as bad as it looks from Richemont's perspective. Indeed, it's entirely possible that Richemont might even have made a profit on the deal.
Lets round the figures for easy maths and say it's $500M. Without a doubt the figures are retail prices, so let's assume the AD's got 40% discount, so they actually paid $300M for the watches. No way did Richemont give the AD's cash back and I would highly doubt that they gave the full amount either, most likely they offered to take back old stock and provide brand new stock of lovely new desirable models to a lower value.
Stock cleansing is nothing new and many business people know how this works, yes you take a hit on the returned stock but sometimes you need to clear house and doing so gives your shop a 'Wow! factor' which can encourage visitors to come in and spend money on the new pieces (which are likely to sell at retail).
So let's assume Richemont offered the AD's an 80% buy-back, meaning at this point Richemont have made $60M on the deal. Of course these figures are plucked from thin air, but I'd be astonished if Richemont offered anywhere near full refunds. Besides, when the Richemont rep came around he'd be sure to phrase it in exactly the right way, you know - "we're looking to do this with everyone", "we'd appreciate your support", etc etc... with the tacit understanding that anyone who wants to hold out will be at the back of the queue when it comes to getting support and preferential pieces in the future.
Sure you have to take the original manufacturing cost of the watches into account, and the cost of the new pieces, so let's assume a manufacturing cost of $80M for the lot. So far Richemont have actually cost themselves $20M, a far cry from the headline figure of $539. And that's assuming that they offered the AD's 80%, from my experience with stock cleansing it's possible the percentage offered was more like 70% if not less... if so then Richemont could well have made a profit on the deal.
Then, as we know, the movements and other parts will be recycled, which will put more money back into the Richemont coffers. So even if it did end up costing $15M, for a company with a $10billion turnover... that's completely irrelevant.
And let's not forget the obvious upside, not only have Richemont got the names of their brands in the press, they've also reinforced the idea that if you want a Cartier or a Vacheron Constantin then you need to buy from an AD at or near full retail, and at the same time put the message out there that the same watch won't be available cheaper elsewhere. Not to mention they will have lots of lovely new stock on the high street for those reassured customers to browse and purchase.
Sure, Richemont's cash flow will take a dip in the short term, but come the next financial year this will all be water under the bridge and (I'm sure) largely paid for by the AD's.
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