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    Brands tweak strategies for tough markets

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    The world’s biggest jewellery and watch brand in terms of combined sales, , generates more than two thirds of profits for Swiss parent , but watch revenues have dwindled relentlessly while jewellery sales have boomed. Like other high-end watchmakers is suffering from a drop in demand in big markets such as Hong Kong, mainland China, Russia and the United States, as are many other brands. Here’s an analysis…

    Lack of innovation has been a problem for global brands

    spruces China Operations

    Yum Brands Inc’s China division is simplifying menus, speeding up service and increasing convenience ahead of next year’s planned spin-off that aims to tee up the business to eventually triple in size. “We’re going to double down on easy,” Yum Brands’ Chief Executive Officer Greg Creed told Reuters in an interview, saying that the company plans to make ordering, payment and delivery more seamless for customers and employees. Creed was in Dallas where Yum hosted its annual investor and analyst meeting.

    China has been the main driver of growth at Yum since the restaurant operator was spun out of Pepsico in 1997. But the last two years have been a roller coaster ride for the division, due to food safety scandals, marketing mishaps, intensifying local competition and cooling economic growth. Those disappointing results helped fuel the decision to make Yum China a separate, publicly held franchisee that will pay a more predictable royalty stream to its sister company. Yum China in turn aims to recruit more franchisees to fuel expansion. There are currently only about 100 franchisees operating Yum restaurants in China, said Yum China CEO Micky Pant. High-volume KFC restaurants, such as those in Shanghai’s high-speed rail station, have improved results by simplifying ordering with pared-down menus that offer just a handful of meal bundles, Pant said.

    A move to accept Alibaba Group Holding Ltd’s Alipay mobile payment service has also sped service up. In fact faster service boosted same-store sales. Yum executives said they are investing in online ordering and trying to cut the number of keystrokes required to enter a customer order. China economic pressure also has led the company to offer more items that are “easy on my pocket,” said Creed. China’s more upscale Pizza Hut Casual Dining restaurants are switching away from special offers of premium items such as steak.

    Yum China, with 6,900 restaurants, aims to grow to 20,000, long term, mostly through new KFCs and Pizza Huts, said Pant. Next year, Yum China plans to build 600 new restaurants, 100 fewer than in 2015.

    Nevertheless, China is preparing another test for Yum’s Taco Bell chain. The move comes about a decade after the country’s unsuccessful experiment with “Taco Bell Grande,” which featured mariachi and servers sporting sombreros. Yum Brands Inc’s China division is simplifying menus, speeding up service and increasing convenience ahead of next year’s planned spinoff that aims to tee up the business to eventually triple in size.

    Cartier to Tweak Strategy

    Cartier is finding it difficult to market watches to men since the gold and diamonds of its jewellery are so popular with women. Some of Cartier’s problems are specific to the brand, setting up a challenge for Cyrille Vigneron when he takes over the leadership next month. Improving Cartier’s image as a watchmaker in China, where wealthy women love its red boxes but men prefer pure watch brands such as Rolex, Patek Philippe or Vacheron Constantin, may be top of his to-do list.

    Lam Tung-hing, General Manager of Hong Kong Retail Operations of Oriental Watch Holdings Ltd was quoted as saying in a media report: “Cartier is popular among fashion-focused customers in Hong Kong. Consumers will regard it as a piece of jewellery when they hear the brand, it is particularly popular among ladies.”

    Among men, first time luxury-watch buyers generally choose a Rolex, which is practical and good looking. Richemont said last month that watch sales were down mid-single digits in the six months to September, dragged down by its biggest markets, Hong Kong and the United States. It had already stated a similar decline for Cartier watches in the full year to March. Shares have fallen over 12 per cent this year. Comparisons with competitors are hard to make. Rolex is privately owned and at LVMH, watch and jewellery sales rose 10 per cent during the first nine months but it does not give a separate watch figure.

    Swatch Group shares have fallen 18 per cent, partly due to competition from smart watches and the drop in demand from China. Watch exports from Switzerland, where Cartier and other watches are made, fell 3.2 per cent during the first ten months of 2015 with shipments to Hong Kong down 22.7 per cent and rising just 0.1 per cent to the United States.

    , who is responsible for watch-making at the Swiss union , downplayed any talk of a crisis. “There is no real crisis in the Swiss watch industry today. Exports are down a bit, but probably still above 20 billion Swiss francs for the whole year,” he said in the media report. But he noted the subdued Asian market was causing problems for some companies and a few had laid off staff. Cartier said last year it introduced shorter working hours for some employees and would not say if the measure was still in place.

    Some analysts estimate that the high-end watch market in mainland China is down 60 per cent since its 2012 peak. This is partly due to the government’s crackdown on the tradition of gifts-for-favours which often involved watches. Richemont also highlighted difficulties in Macau where the casino industry is suffering from the crackdown on corruption, the weak Yuan and Chinese government restrictions on travel. The strong franc has made Swiss exports more expensive while Tiffany & Co forecast a bigger fall in full-year profit than previously expected as a strong dollar kept tourists from spending in its showpiece U.S. stores.

    But for Cartier, whose sparkling creations adorned royal heads around the globe in the early 20th century and more recently Kate Middleton’s at her wedding to Prince William, the challenges are bigger than for most. analyst Luca Solca said Cartier is particularly exposed to China. “Cartier is facing a relatively subdued luxury market, as the bulk of the other mega-brands. Additionally, Cartier is suffering from the step back in the Chinese watch market / gifting practices. You could argue Cartier has not been the strongest innovator in recent years,” he said in the media report.

    Lack of innovation has been a problem and Vigneron, who replaces Stanislas de Quercize, a 25-year Richemont group veteran who stepped down last month, will need to focus on this. Many of Cartier’s new watches have been based on existing versions with innovation focused on the most expensive models. In January, Cartier unveiled its first new model in eight years, the Cle watch, but so far only gold models costing more than 10,000 Euros are available.

    “The way to be successful is, first of all, with product innovation because in a subdued environment that is the way you can maybe get the consumer to buy a new watch,” said analyst Mario Ortelli in the media report. The company is also a relative newcomer in “in-house” watch movements, the mechanisms that make a watch tick and are beloved of collectors.

    When Swatch Group, the world’s largest watchmaker, started phasing out delivery of watch movement components to the rest of the industry, competitors were forced to develop their own manufacturing tools, now an important part of the prestige of high-end watches. In fact in China Cartier chased the mass market on the mainland and paid less attention to the top technical design required by buyers in Hong Kong.

    In marketing as well, Cartier could do with a few fresh ideas. While Omega’s name is omnipresent at the Olympic Games and each new James Bond movie and Rolex cultivates its image as a sports brand, Cartier relies on its signature panther and other more traditional attributes. It has sponsored polo for more than 30 years but competitors such as Hublot have been a bit more adventurous by doing deals with soccer teams and ski schools in resorts such as Courchevel.

    Richemont thinks Vigneron, a music composer and guitar player who was rehired at Cartier after heading LVMH’s operations in Japan, is the right man to lead Cartier back to growth.