PARIS (Reuters) - French jeweler Mauboussin is braced for no better than flat sales next year as it sees higher taxes and the general economic malaise hitting discretionary spending by consumers in its home market, the company’s chief executive said.
French President Francois Hollande has been raising taxes since he came to power in 2012 to help plug the country’s budget deficit but this year the hike has hit middle classes particularly hard.
Mauboussin, one the country’s leading privately owned jewelers, which makes more than 70 percent of its sales in France, said it had become even more pessimistic after people received their tax bills last month.
“I think people will prefer to cut their discretionary spending than eat into their savings after the tax hike we have had,” Alain Nemarq told Reuters.
“So I have prepared a budget for next year based on zero growth,” he added.
With a history dating back to the 19th century, Mauboussin is the type of jeweler favored by upper and middle class French consumers, offering engagement rings for just under 600 euros ($760), diamond wedding bands for 1,105 euros as well as more elaborate jewelry pieces for 15,000 to 25,000 euros.
In a sign of the times, the firm, which had a store since 1946 on Place Vendome, one of the world’s most prestigious addresses for jewelers, said it was moving next door to rue de La Paix where it says there is more traffic.
“I think Place Vendome has become a little intimidating for people, particularly for French consumers, as they think there are only super expensive brands there for only very wealthy people,” Nemarq said.
Also, he said, rents on the elegant 18th-century square had soared in recent years, prompting him to look for a new location. On average rents on Place Vendome have doubled in the past five years, according to some real estate experts.
Place Vendome buildings include France’s ministry of justice, the Ritz hotel as well as properties owned by Qatari and Azerbaijani investors, the Sultan of Brunei and LVMH (LVMH.PA), the world’s leading luxury group.
Jewelry brands there include Chanel, Buccellati, LVMH’s Fred, Chaumet and Dior but also Swiss watchmakers Hublot and Patek Philippe.
Nemarq, 61, has been running the jewelry maker since it was acquired from the Mauboussin family by Swiss entrepreneur Dominique Frémont in 2002 when the brand made 12 million euros in annual sales. Since then he estimated that Fremont has invested more than 100 million euros in developing the company.
He said Fremont, who owns 70 percent of Mauboussin, was not interested in selling, intending instead to pass the business on to his children. Nemarq owns around 6 percent of Mauboussin and French academic Pierre Azoulay, who founded a luxury marketing school in Paris, owns 22 percent.
Branded jewelry is one of the fastest-growing segments of the luxury goods industry, with sales growth estimated at around 9-10 percent this year while the sector average is 5-6 percent, down from 8 percent in 2013 and 10 percent in 2012, according to analysts’ estimates.
Although Nemarq said he expected no growth next year the company has enjoyed a 12 percent rise in like-for-like sales so far in 2014, helped by strong demand in Japan and other countries in Asia.
Mauboussin is expecting sales this year to reach around 65 million euros with earnings before interest, tax, depreciation and amortization now rising to a little over 3 million euros in 2014 and 6.5 million euros next year as the company finally recovers from its ill-timed and over-ambitious expansion during the financial crisis in New York and Tokyo.
Nemarq said the jeweler lost a total of 20 million euros from its four-floor flagship U.S. store on Madison Avenue, which opened in 2008 and closed in June this year after proving too big compared to the sales it generated. The company also suffered losses from making the same mistake in Japan with the opening in 2009 of a grand new store in Tokyo’s Ginza district.
But those errors are now behind it, Nemarq said.
Editing by Greg Mahlich