Dec. 29 (Bloomberg) -- Montblanc, which has made fountain pens for more than a century, sees the writing on the wall.
The Cie. Financiere Richemont SA unit is tapping a surge in demand for high-end watches to offset slower growth in the brand’s traditional writing-instrument business. The shift reflects Montblanc’s broader transformation over the past decade into a luxury-goods company.
“In the next five years or so, watches have the chance to become bigger than writing instruments” even as sales of high-end pens continue to grow, Chief Executive Officer Lutz Bethge said in an interview at Montblanc’s headquarters in Hamburg.
Pens account for just under half of sales at Montblanc, which has branched out with limited-edition watches that cost as much as $310,000, $1,415 luggage carriers and diamond jewelry for women. Unlike those more conspicuous luxury items, pens stay hidden in pockets or briefcases until they’re used. In the age of e-mail, smartphones and chip-and-pin credit cards, that’s happening less frequently.
Pens “just don’t have the growth characteristics of watches or jewelry,” said Jon Cox, an analyst at Kepler Capital Markets.
Montblanc, which has been making watches for 14 years, is investing in China, where wealthy consumers own four luxury watches on average, according to the Hurun Wealth Report. The company is opening its biggest outlet to date, an 1,800-square-meter store in Beijing that will bring the total number of boutiques to 421, with about a fifth in China.
Montblanc’s growth is being tempered by its exposure to writing instruments, which are gaining more slowly than the watch and jewelry markets, according to Cox. The global watch market probably grew 20 percent to 30 billion euros ($39 billion) this year, double the rate for luxury goods overall, Bain. & Co. estimates. The pen market had “double-digit” growth to 1.2 billion euros in 2010, Bain said.
Montblanc’s sales climbed 22 percent in the last financial year to 672 million euros, lagging Richemont’s 33 percent increase in revenue to 6.89 billion euros.
Sales at the company may increase 9 percent this fiscal year, lower than the 20 percent gain in Richemont’s total revenue, said Rene Weber, an analyst at Bank Vontobel in Zurich.
“What we’ve seen over the past 10 years is a long-term story to reposition Montblanc and it’s now seen as a multiproduct brand with a good reputation, especially on the watch side,” Weber said. He estimates that watches currently account for about 20 percent of revenue.
The brand contributes a 10th of Swiss parent company Richemont’s 6.89 billion euros of annual sales, trailing only jeweler Cartier as a contributor to total revenue. Geneva-based Richemont’s 19 brands include luxury watchmakers Vacheron Constantin and Piaget, as well as jeweler Van Cleef & Arpels.
Richemont shares have dropped 16 percent in the past year because of concerns the economic slowdown will curb consumer spending on luxury products, more than the 14 percent decline at LVMH Moet Hennessy Louis Vuitton SA, the world’s largest maker of luxury goods, and the 2 percent drop in the 30-member Stoxx 600 Personal & Household Goods Index.
Bethge, who became Montblanc’s CEO in 2007 and continued a repositioning of the brand that began under former Richemont Chief Executive Norbert Platt, said the company faced a choice.
“Either we stayed in the functional writing instrument market, which we saw as limited, or there was this other market where people were buying because of a certain message and desire for the highest quality, and this was the luxury market,” he said. “This was where Montblanc belonged.”
While the company still makes pens from scratch in Germany, including 100,000 euro Meisterstueck fountain pens in gold and diamonds, watchmakers in Switzerland’s Jura mountains craft complicated timepieces encased in precious metals such as platinum and white gold. Output at one of two sites, Montblanc’s Villeret atelier, is limited to just a “few hundred” pieces each year, according to Bethge.
Unlike many watchmakers that rely on Swatch Group AG and others for their supply of movements, the motors that drive a watch, Montblanc developed its own. Customers expect the same quality standards that apply to the brand’s pens, Bethge said.
“It was an opportunity and challenge for us at the same time,” he said. “We knew we would never be successful if we just bought the movements somewhere or bought the watch and labeled it with our brand name.”
A part of Montblanc’s efforts to break into the ranks of Switzerland’s watchmaking elite was Richemont’s 2006 purchase of Minerva, a 153-year-old Swiss watchmaker.
The acquisition helped Montblanc, which competes with brands including Rolex and Swatch Group’s Omega, develop movements, as well as balance springs, which help control the speed at which the wheels and hands in a watch turn. Only a few Swiss watchmakers can make the springs, according to Vontobel’s Weber.
Switzerland exported about 16.2 billion Swiss francs ($17.4 billion) worth of watches in 2010. Data from the Federation of the Swiss Watch Industry show that Asia imported more than half of those timepieces.
“Watches are not just about telling the time -- they’re also a jewelry item and therefore a subtle way to display” wealth and style, said Tory Frame, U.K. head of consumer products at Bain & Co. “With pens, there are substitutes now and people maybe aren’t writing as much as they used to.”
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