Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

The "feel bad factor" has hit the luxury market.

That's the conclusion from Richemont Chief Executive Richard Lepeu.

It is not hard to see why Richemont is so gloomy. The maker of Cartier jewelry and IWC watches on Friday reported sales fell 18 percent in April from a year earlier. All regions saw sales slip, and the company expects no improvement in conditions over the next four months.

Shares in Richemont fell as much as 5.7 percent, while Swatch, which also has higher-end brands Omega, Breguet and Harry Winston, also declined as much as 4.4 percent. Both have recovered a bit.

Richemont has been underperforming of late. Its shares have fallen 30 percent over the past year, worse than the 20 percent drop for Bloomberg Intelligence's luxury peer group. Its forward price earnings ratio of about 16 times is a discount to the BI luxury peer group's 17 times, something that's justified by its focus on watches, where demand is falling in major markets.

Red Flag For Luxury
Richemont's struggles are significant for the broader luxury goods market despite its focus on watches
Source: Bloomberg Intelligence, Bloomberg data
Normalized share prices

Richemont's high-end timepiece brands, such as Vacheron, Piaget and Jaeger-LeCoultre, are just the sort of products being hit by the anti-corruption crackdown and slowing economy in China. This is particularly reflected in a sales slump in Hong Kong and Macau, though sales in mainland China were up 26 percent. U.S. demand has also weakened.

But despite the weaker outlook, which raises a red flag for the broader luxury market, there is one area where Richemont remains strong: cash generation.

The group had net cash of 5.3 billion euros ($6 billion) at March 31, just slightly below last year's 5.4 billion euros, despite the more difficult trading.

Piles of Cash
Richemont's managed to bolster its position amid tough luxury market conditions
Source: Bloomberg

That gives Richemont the scope to restructure its store portfolio -- particularly in Hong Kong and China. It could also swoop on other brands if they become available, something that's more likely as industry conditions remain tough, to bolster its holdings in time for when an upturn eventually comes.

Meanwhile, it will invest more in its top-line jewelry business, which is becoming more appealing to wealthy individuals casting about for places to stash their cash in a world of tiny or even negative interest rates.

What it won't do is buy back shares. This is "off the table," it says.

This strategy is consistent with its preference for the long view, which has put it in good stead over the years. But the refusal to buy back shares looks short-sighted.

True it wants to keep its war chest well-stocked, given the challenges -- and possible opportunities.

But it has an extremely strong balance sheet, so it doesn't need to create an "either/or" proposition out of buybacks versus investments. It can do both. Returning some of its cash to shareholders would at least take away some of their feel bad factor.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at

To contact the editor responsible for this story:
Jennifer Ryan at