Is Something Rotten in Le Brassus? Part 2
Natural Aspiration 13: Who Will Be Audemars Piguet’s Next CEO?
In my previous left-field missive about haute horlogerie, I wrote about the critical inflection point at which Audemars Piguet finds itself. Audemars Piguet, the soi distant master watchmaker, is unique among the other preeminent elite practitioners of its craft by virtue of its ownership: Audemars and Piguet family descendants own the majority of the company’s shares nearly 150 years after its 1875 conception.
Despite this enduring independence and the families’ controlling ownership stakes, it is conceivable that Audemars Piguet could fall into the clutches of Bernard Arnault’s LVMH empire. Another development that could precipitate such an eventuality is the impending vacancy in Audemars Piguet’s corner office: Current CEO François-Henry Bennahmias - or FHB, as he is referred to - will depart the company at the end of 2023.
Miss Tweed has the scoop (emphasis mine throughout):
Audemars Piguet’s charismatic CEO François-Henry Bennahmias is due to leave some time towards the end of next year. His shoes will be pretty big to fill. The French entrepreneur has strongly imprinted his personality and modus operandi on the luxury watchmaker after more than a decade at its helm. Whoever comes after him will usher in a different era and management style.
Bennahmias will be remembered as one of the only watch CEOs who publicly thanked suppliers and partners, those who traditionally remain in the shadow, for their contribution to Audemars Piguet’s success. Bennahmias is a natural-born leader who needs little sleep and excels at getting the best out of people. Thanks to him, the company is a well-oiled machine. Whoever replaces him will have less of a say about its strategy, several sources close to Audemars Piguet (AP) predict.
“Bennahmias has been such a strong personality and he worked well with Jasmine (Audemars) and the board,” one company insider said. “No matter who they hire to replace Bennahmias, the minute he leaves, I think the board will be much more involved on a day-to-day basis,” the source added.
In August, Jasmine Audemars, great granddaughter of the watchmaker’s co-founder Jules-Louis Audemars, announced she planned to resign in November as chairman of the board after nearly 30 years. As Miss Tweed reported last week, Olivier Audemars, who is in fact a Piguet, is furious about the choice of Alessandro Bogliolo as new chairman. Jasmine Audemars was not in favor of Bogliolo either, several sources said.
One wonders the degree to which these personnel changes are connected and intertwined. Miss Tweed broke the news of FHB’s departure in early 2022, months before other sources reported on the development. Then came the Jasmine Audemars announcement in concert with the Bogliolo Trojan Horse. FHB has presided over a stunning decade of revenue growth and elevation of the Audemars Piguet brand; why leave now, unless the company’s focus is shifting away from value creation toward harvesting?
Bogliolo is the antithesis of what Jasmine and Olivier stand for,” one senior industry source said. “They want the company to remain independent and in the hands of families. They do not want financiers to take over. Bogliolo is the wolf who’s entered the sheep pen.” Bogliolo has experience selling luxury businesses and none running a watch company, particularly one of the size of Audemars Piguet. At around two billion Swiss francs in annual sales, analysts estimate AP is the world’s fourth or fifth watchmaker in terms of revenue, roughly on a par with family-owned Patek Philippe.
Note that Patek Philippe is owned by the Stern family, which has been at the controls since 1932; the Sterns, however, have no familial connection to the Patek or Philippe founding families.
Bogliolo, ex-CEO of Tiffany & Co, secured the sale of the U.S. jeweler to LVMH in 2020. Before that, he was CEO of Diesel and worked at LVMH’s Sephora and Bulgari. Today, he sits on the board of New York-listed candle and body care products maker Bath & Body Works and on the board of trustees of the Whitney Museum of American Art in New York. He is known for his charm, for rubbing people the right way and telling them what they want to hear. He is not a charismatic leader who likes to take risks (unlike Bennahmias), industry sources say. Bogliolo did not reply to requests for comment.
I wonder what the Venn diagram overlap of Audemars Piguet and Bath & Body Works customers resembles?
The 57-year-old Italian businessman lives in New York and is not planning on moving to Switzerland. He will visit AP from time to time, several sources said. This is another strange element behind the choice of Bogliolo. Such a detached attitude is a world away from Jasmine Audemars, who was very present and actively followed everything that went on at AP, people close to the company said.
Perhaps Bogliolo views this as a short-term, low-commitment appointment?
Bogliolo was chosen to help some of AP’s shareholders evaluate their options regarding a potential sale of their minority stake, several sources said. He was not picked to run the Swiss watchmaker, as Miss Tweed reported last week. The very fact that the choice of Bogliolo was imposed on Jasmine and Olivier raises questions as to whether Jasmine may have sold part of her stake to other AP shareholders such as Oliviero Bottinelli. He was the one who lobbied in favor of Bogliolo, some sources said. If Bottinelli borrowed money to finance that deal, with borrowing costs going up, he may be keen to cash out in the not-too-distant future to pay off his loan.
This is the crux of the entire saga; how did the long-time majority owners of Audemars Piguet end up with a new Chairman not to their liking?
As for the new Chief Executive:
The new captain will build on the strategy Bennahmias crafted together with the board and which he has masterfully executed since 2012. His replacement will be expected to continue expanding the watchmaker’s production capacity and network of boutiques. In terms of image, AP could up the ante in terms of special events for media and top customers now that the worst of the pandemic seems to be over. It could also spruce up its advertising campaign, some industry experts said.
I question whether the FHB stratagem will be continued under new leadership (at both Board and Executive levels); otherwise, why change?
But if some shareholders want to sell their stakes, they will want to keep marketing expenditures under control so that margins and profitability remain high, analysts predict.
The bulk of luxury brand advertising and marketing activation is focused on long-term brand building, not driving immediate sales. Paging through an issue of, e.g., The Economist, you will find numerous print advertisements for brands of similar stature and rarefied cost of entry as Audemars Piguet; the message is not to spur readers of The Economist to rush out to purchase a Royal Oak, or a Loro Piana baby cashmere sweater, or a Princess R35 Performance Sports Yacht, but to establish to anyone browsing the magazine that worldly, informed consumers with demonstrable financial acumen own - or aspire to own - such products. Crimping such expenditures in the short term would have no downside revenue impact to Audemars Piguet, because their products are all pre-sold to clients, at least in the current marketplace paradigm. Swing by your local Audemars Piguet boutique and see if they have any watches available for you to purchase or even to “test drive” while in-store; you will almost certainly be disappointed.
When estimating how much AP is worth, one should remember that in addition to its real estate and investments in various suppliers, AP also owns 20 percent of Richard Mille, the industry’s most profitable watchmaker. Richard Mille’s annual sales just passed the one billion Swiss franc mark (1.045 billion Swiss francs to be precise) and should reach more than 1.2 billion next year. Richard Mille commands the highest average prices among luxury watches, more than €150,000 each.
Analysts say AP’s valuation is closer to €10 billion than €6-7 billion as Miss Tweed reported last week, if one takes into account profitability and the revenues it receives from other activities and the value of its stake in Richard Mille. AP and Richard Mille work together on research and development in various areas from materials to movements.
I had believed, mistakenly it appears, that Audemars Piguet owned 10% of Richard Mille instead of 20%. For some time, it has been my expectation that Richard Mille would eventually belong to LVMH.
Who’s going to inherit FHB’s corner office (if not the bibelots that currently decorate the space)?
One oft-cited potential replacement is Louis Ferla, CEO of Vacheron Constantin, which is part of Geneva-based Richemont. Ferla is described as quintessentially Parisian, refined and cultivated, the type often seen wearing jackets and moccasins, with a high opinion of himself. In an interview with Forbes earlier this year, Ferla said Vacheron Constantin had become “client-centric” and the brand stood for “art, culture and authenticity.”
Ferla is credited with being the first CEO who’s managed to make the Swiss brand’s sales reach nearly €1 billion this year. Vacheron Constantin is on track to surpass this important benchmark in 2023. Several industry sources said Ferla was motivated to take the executive reins at AP. After five years at Vacheron Constantin, he is ready to move on. Also, he knows that he will make more money at AP than he does now.
“Partner, let me upgrade you, Audemars Piguet you / Switch your necktie to Purple Label”
If Ferla is hired to help sell some of AP’s shareholders monetize their stake, he stands to pocket a significant windfall.
“Ferla has a pretty big ego but he is a smooth operator and I think he will be able to handle well relations with the family shareholders (of AP),” one person who worked with him told Miss Tweed on condition of anonymity. “He has done a good job at Vacheron Constantin – that no one can contest.” Ferla has raised Vacheron Constantin’s profile with hard-hitting advertising campaigns and championed the brand’s repair and resale services. Ironically, Vacheron Constantin has also done very well in China, where it derives the bulk of its sales. This was partly due to the fact that Audemars Piguet has had trouble shipping stock to that all-important market during the pandemic, several industry sources said.
I contend that the recent enhancement of Vacheron Constantin’s profile is largely attributable to the elevation of its Holy Trinity brethren - Audemars Piguet and Patek Philippe. Many who experienced a pandemic era windfall - whether from crypto gainz, PPP grifting, frothy exit multiples, juicy advisory / consulting fees, or otherwise - sought to reward themselves with a statement timepiece, only to find that two thirds of the Holy Trinity were absolutely unattainable at retail. The natural alternative for those customers was Vacheron Constantin, the boat of which was lifted by this rising tide.
If Ferla were to replace Bennahmias, he would have to wait for a year before he could start due to a non-competition clause in his contract. Hence, the earliest Ferla could start would be early 2024. Most candidates who are currently working for a luxury brand will have the same problem. This explains why Bennahmias has accepted to remain at AP for the best part of 2023.
Recall once more that news of FHB’s departure broke in early 2022, which makes for essentially two years of lame duck status.
Another name in the hat is that of Guido Terreni, CEO of the privately owned watch brand Parmigiani Fleurier since January 2021. Terreni, of Italian descent, is now a Swiss citizen and is good friends with Bogliolo, several industry sources said. The two men go way back. They worked together at Bulgari for many years before LVMH acquired the Roman jeweler in 2011. When Bogliolo was managing director of Bulgari, he thought so highly of Terreni he put him in charge of watches. Bogliolo may want to hire someone he knows well, understands watchmaking and is a solid executioner.
However, one senior industry source expressed doubts as to whether Terreni had the right stuff to become CEO of AP. “I am not convinced that Terreni has the stature to become the next CEO of a brand as important as AP. It is someone who is competent from an operational and technical point of view, but who has limits in terms of leadership, managing teams and developing talents — which is why he left Bulgari more than two years ago now.”
Provided Terreni gets the nod over Ferla, we’ll know that Bogliolo is well and truly in control.
Whomever the board picks, “the new CEO of AP will have less freedom than Bennahmias, that is certain,” one senior manager at AP said on condition of anonymity. The identity of his replacement should be known before the end of the year to ensure a smooth transition. Hence, Bogliolo and members of AP’s board have little time left to pick the right person.
Tempus fugit.
An additional item pertaining to Audemars Piguet:
After Miss Tweed reported last Sunday that some shareholders in Audemars Piguet were exploring a potential sale of their stake, one [equity research] analyst asked whether LVMH would possibly be interested in investing in the luxury watchmaker.
Guiony ducked the question and repeated that the group remained opportunistic when it came to acquisitions. “We have the largest portfolio of brands in the world. There is no particular gap as it is,” he said. However, he added that if the group found a brand it could “do something with,” it would consider investing in it.
A final postscript relates to Patek Philippe’s new addition to the Nautilus line, dubbed the Reference 5811, which replaces the discontinued Reference 5711. Whereas the “basic” 5711 was a steel sports watch, the 5811, which arrives in a 41mm - or 1mm larger - case, will be available only in white gold, at least initially. The 5811’s list price will be $69,785, which is roughly double the 5711’s retail price.
Why? Well… (emphasis mine):
“It was an important choice to make it in white gold,” said Patek Philippe president Thierry Stern in an interview with a handful of journalists, including Robb Report. “My objective at Patek Philippe is to stay independent and to do that, I need to be profitable so that I can reinvest in Patek Philippe with a new building, with new machines and with people. Making only steel watches, like a lot of people have been asking for with the Nautilus and other lines, is dangerous because the price average will be too low, and this could put my whole business in danger,” he explained. “So we have to be careful. I have learned at Patek Philippe that there is a limit in terms of what should be produced in steel. This Nautilus is white gold because I had to raise the average price a little bit. Not just to make more money to be happy, but to make more money for my shareholders—of course, I don’t have shareholders, but it’s important for me to do it because I need to survive in this world where I’m surrounded with big groups with a lot of competition.”