Tom Ford Richemont Jv Proposal

Tom Ford Watches | ESSEC MBA Luxe

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Tom Ford

Richemont

Company Overview: founded in 2005 by Tom Ford

Positioning: High end luxury

Legitimacy: Connected to Tom Ford and his stylistic griffe

Products Line Range: Clothes, shoes, ties, perfume and sunglasses

Watches: offer a product to complement the whole outfit, matching and actually enhancing it


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Tom Ford

Richemont

Company Overview: founded in 1988 by Johann Rupert

Positioning: 3rd biggest luxury goods company - Jewellery, Watch, Writing Instruments and Clothing

Legitimacy: Leader in the watches segment, mostly centennial brands

Brands: Watches - Cartier, IWC, Jaeger-LeCoultre, Piaget, Vacheron Constantin, Panerai, Baume & Mercier, Ralph Lauren, Dunhill


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Tom Ford

Richemont Joint venture: Tom Ford Richemont Ltd.


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TFR Ltd.

Oportunities: Allows Richemont to enter unrepresented market

Richemont brings to the table: Swiss engineering Manufacturing facilities Manufacturing know-how

Tom Ford brings to the table: Fresh design Robust portfolio New target customer


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5 Forces


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Market Overview

Key Indicators for 2010

oWristwatches accounted for 94% of Swiss exports

oTimepieces between $550 and $3300 grew by 22%

oAsia absorbed in excess of 50% of the exports

oSteel and Bimetallic watches were the materials by choice


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RICHEMONT

Global jewelry & watches market leaderwith range of luxury brands Wide geographic spread of POS (nearly 1400stores) in Europe, Asia and AmericaThe strong portfolio of brands attracts moreand new customers and hence thecompany’s business and revenues grow

TOM FORD

Tom Ford is a luxury brand based on hispersona 46 POS in Europe, Asia and AmericaThe watch is destined for a fashion forwardcustomer who wants to leverage style andfunctionality and put the whole outfit look

Leverage on the strength of both partners to build an image of the high quality watch with style and function Distribute in Richemont’s and Tom Ford’s POS

Relative strengths


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Year 3Year 2 Year 5Year 4Year 1

25 M

Investment Plan

Company Structure

100 % owned by Richemont. 20 years initial agreement5 member Board of Directors 1 representative from Tom Ford company HO costs sharing from 3rd year No dividends for Richemont in the initial years10% of Revenue >> Tom Ford’s fees No major debt financingLaunch into Accessible luxury segment Evaluate moving into luxury segment @ Year 3Launch Men’s range of watches Introduce women’s range in the 3rd yr of operation


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HO Structure

3 Tier Level OrganizationKey Takeaways

1st – 2nd year

Flat OrganizationUtilize Richemont’s resources

3rd year onwards

Invest in local officesIncrease Manpower - HR & Training / Commercial


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High-tech

Spido

Sport

1. Skeletonised titanium case and dial2. The most expensive piece of the lifestyle collection

using rose gold and alligator strap (different colors);3. Automatic mechanical movement.

1. Skeletonised titanium case and dial2. The most expensive piece of the lifestyle collection

using rose gold and alligator strap (different colors);3. Automatic mechanical movement.

Collection plan-Lifestyle-


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High-tech

Spido

Sport

1. Skeleton dial sapphire crystal case back with automatic mechanical movement;

2. The surface will be treated with a black Diamond-Like-Carbon coating

3. Strap – spido textile material.

1. Skeleton dial sapphire crystal case back with automatic mechanical movement;

2. The surface will be treated with a black Diamond-Like-Carbon coating

3. Strap – spido textile material.



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1.Skeleton dial sapphire crystal case back with automatic mechanical movement2. Basic silver titanium color3. Strap – spido textile material

1.Skeleton dial sapphire crystal case back with automatic mechanical movement2. Basic silver titanium color3. Strap – spido textile material

High-tech

Spido

Sport



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Collection plan-Elegant-

Analog dial displayDifferent colors,Quartz movement;Sleek, elegantTitanium bracelet;Or interchangeablebracelet – leather indifferent colors

Same displayvariantsKautschuk bandbraceletLight cedar woodkautschukbracelet;Kautschuk and dialmay come indifferent colors

Both elegant and lifestyle lines are starting lines

The portfolio will be diversified with time and extended into ladies watches after year three


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Collection plan-Elegant-

Both elegant and sports lines are starting lines;

The portfolio will be diversified with time and extended into ladies watches after year three

Analog dial displayDifferent colors,Quartz movement;Sleek, elegantTitanium bracelet;Or interchangeablebracelet – leather indifferent colors

Same displayvariantsKautschuk bandbraceletLight cedar woodkautschukbracelet;Kautschuk and dialmay come indifferent colors


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Market Segmentation


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PRODUCTServe the accessible luxurymarkets of the watchindustryEmbody a blend offunctionality style andcraftsmanshipBe fit for an urbangentlemanHave a masculine and freshstyle2 lines5 modelsMaterial, color, strap,function variants

PRICEBetween $1000 to $3000Flagship product ( gold one) will cost $4000No close competitors inthis price rangeAccessible luxury = pricesensitive customer

PROMOTIONLeverage on Tom Ford's reputation asa designerVIRAL campaignWorldwide PR 2 months before launchRichemont leverage on its editorialbuying power to support the launch

PLACESelling within Tom FordPOSMirrored by distributionwithin the RichemontnetworkRegional and areamanagers are going toeducate the salesassistants (Richemont)

WATCHINDUSTRY

Marketing


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Departmental Stores

DOS

Distribution Highlights


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Multi-Brand Shops

Total Shops

167

263

327

383428



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Revenue per Store by Region

% Revenue vs. % of Shops by Region - 2017


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P&L Statement 2013 2014 2015 2016 2017

Comments for

2013 Comments for

2014 Comments for

2015 Comments for

2016 Comments for

2017

Revenues 119 216 309 409 498

COGS 33% of Rev 39 32% of Rev 69 31% of Rev 96 30% of Rev 123 30% of Rev 149

Gross Profit 80 147 213 286 348Selling and Distribution

Expenses 23% of Rev 27 23% of Rev 50 22% of Rev 68 21% of Rev 86 20% of Rev 100

Communication Expenses 8% of Rev 10 8% of Rev 17 7.5% of Rev 23 7.5% of Rev 31 7% of Rev 35

Administrative Expenses 9% of Rev 11 9% of Rev 19 8% of Rev 25 8% of Rev 33 7% of Rev 35Other Operating (expense ) /

Income 3 5 7 9 13

Operating Profit 29 56 90 128 166

Tom Ford % Payout 10% of Rev 12 10% of Rev 22 10% of Rev 31 10% of Rev 41 10% of Rev 50

Profit before Taxation 17 34 59 87 116

HO Costs Fixed 25 Fixed 25 Fixed 25

Taxes13% of Net

Profits 213% of Net

Profits 413% of Net

Profits 413% of Net

Profits 813% of Net

Profits 12

Net Profit 15 30 30 54 79

Dividends 0 0 0 0 0

Transfer to Balance Sheet 15 30 0 30 0 54 0 79

P&L Realistic


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Multi-Brand Shops by Region - 2017

Revenue by Region - 2017

Realistic Pessimistic Realistic Pessimistic

-31

-18

-11

-53 -98

-9

-42

-22

Scenario 2


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P&L Statement 2013 2014 2015 2016 2017

Comments for

2013 Comments for

2014 Comments for

2015 Comments for

2016 Comments for

2017

Revenues 78 141 202 268 326

COGS 33% of Rev 26 32% of Rev 45 31% of Rev 63 30% of Rev 80 30% of Rev 98

Gross Profit 52 96 139 187 228Selling and Distribution

Expenses 23% of Rev 18 23% of Rev 32 22% of Rev 44 21% of Rev 56 20% of Rev 65

Communication Expenses 8% of Rev 6 8% of Rev 11 7.5% of Rev 15 7.5% of Rev 20 7% of Rev 23

Administrative Expenses 9% of Rev 7 9% of Rev 13 8% of Rev 16 8% of Rev 21 7% of Rev 23Other Operating (expense ) /

Income 3 5 7 9 13

Operating Profit 18 35 57 81 104

Tom Ford % Payout 10% of Rev 8 10% of Rev 14 10% of Rev 20 10% of Rev 27 10% of Rev 33

Profit before Taxation 10 20 36 54 72

HO Costs Fixed 25 Fixed 25 Fixed 25

Taxes13% of Net

Profits 113% of Net

Profits 313% of Net

Profits 113% of Net

Profits 413% of Net

Profits 6

Net Profit 9 18 10 25 41

Dividends 0 0 0 0 0

Transfer to Balance Sheet 9 18 0 10 0 25 0 41

P&L Pessimistic


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Conclusion

Must Enter Accessible Luxury Segment

Profitable business

Gain knowledge

Richemont - Accessible Brands


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Appendix

TFR LTD - Statement of Cash Flows - 5Yr Projection 2013 2014 2015 2016 2017 Cash Flow from Operating Activities Profit before tax 17 34 59 87 116Depreciation 1.0 1.0 0.7 0.3 0.0Change in Working Capital 7 0 -1 2 8HO Expenses 0 0 25 25 25Taxation Paid 2 4 4 8 12Net Cash from Operating Activities 9 30 31 52 71 Cash Flow from Investing Activities Property, Plant & Equipment -3 -3 -2 -1 0Other Investing Activities 0 0 0 0 0Net Cash (used) / (generated) from Investing activities -3 -3 -2 -1 0 Cash Flow from Financing Activities Proceeds from borrowings 0 0 0 0 0Repayment of borrowings 0 0 0 0 0Shares Issued 25 0 0 0 0Dividends paid 0 0 0 0 0Payment for treasury shares 0 0 0 0 0Capital element of finance lease payments 0 0 0 0 0Net Cash used in Financing activities 25 0 0 0 0 Net Change in Cash & Cash equivalents 31 27 29 51 71Cash & Cash equivalents at beginning of period 0 31 58 87 138Exchange gains on Cash & Cash equivalents 0 0 0 0 0Cash & Cash equivalents at end of period 31 58 87 138 210


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Appendix

TFR LTD - Statement of Cash Flows - 5Yr Projection 2013 2014 2015 2016 2017 Cash Flow from Operating Activities Profit before tax 10 20 36 54 72Depreciation 1.0 1.0 0.7 0.3 0.0Change in Working Capital 9 2 0 3 9HO Expenses 0 0 25 25 25Taxation Paid 1 3 1 4 6Net Cash from Operating Activities 1 17 10 22 32 Cash Flow from Investing Activities Property, Plant & Equipment -3 -3 -2 -1 0Other Investing Activities 0 0 0 0 0Net Cash (used) / (generated) from Investing activities -3 -3 -2 -1 0 Cash Flow from Financing Activities Proceeds from borrowings 0 0 0 0 0Repayment of borrowings 0 0 0 0 0Shares Issued 25 0 0 0 0Dividends paid 0 0 0 0 0Payment for treasury shares 0 0 0 0 0Capital element of finance lease payments 0 0 0 0 0Net Cash used in Financing activities 25 0 0 0 0 Net Change in Cash & Cash equivalents 23 14 8 21 32Cash & Cash equivalents at beginning of period 0 23 37 46 67Exchange gains on Cash & Cash equivalents 0 0 0 0 0Cash & Cash equivalents at end of period 23 37 46 67 98


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Thank You!