Montblanc Confronted with“China Problem”

The luxury goods industry which has been used to the massive spending now has to endure the impact from the Chinese market.

The impact comes from the Chinese governments orders of limiting the“public spending” and cracking down on the corruption. How to streamline and fortify themselves in the new mar- ket situation has become a problem for them.

Montblanc， a German luxury brand that started with luxury pens， is a victim of the impact. It is known that its business dropped 70% compared with the year of 2007 when it started its business in China. In addition， the company is also haunted by the internal HR management defects， the infestation of smuggled products and other problems.

Presently， Montblanc， which is a part of the Switzerland-based Richmont， contributes 7% of the total sales volume of the Group.

Falling Business

In 2007， Montblanc established its first flagship store in Shanghai. At that time， no one would expect that the number of employees of this store had reduced from 30 to 20 seven years later， and the business dropped 70% compared with 2007 or went down 20%-30% in 2012.

An experienced employee with this flagship store said that the company even received the prompts from the property owners， urging them to pay the rents， electric power and overdue fines for three months that amounted to 1 million yuan.

This flagship store might be the epitome of Montblancs business in China. Actually， this German brand has had three CEOs for its business in Greater China since 2007. The mid- and high-level management also went through frequent changes as well.

The frequent personnel changes are rare to see in the luxury goods industry.“The headhunters would not come to Montblanc for talents，” the aforementioned long-term employee said. The working experiences with Montblanc would add no value to the employeesCVs， which is no longer a secret in the luxury goods industry.

But staying with Montblanc seems to have no benefits either.

“My officemates keep coming and leaving. We have not issued any invoices for half a month. We have been absent in the annual conference for two years. Previously， every employee is able to take part in the annual conference， now the company selects some representatives. In addition， there are a few training courses now. We used to be trained twice a year， previously，” this employee said.endprint

There are more employees unsatisfactory with the status quo of Montblanc. Last year， the company modified the employee manual. From then on， the long-time employees were busy“signing on the bills of discipline violation and being punished for the loss of sales”. Before that， no employees in this flagship store were punished.

In truth， the HR cost has been a burden that Montblancs Chinese branch is eager to remove. A senior executive of Montblanc said that every employee in the flagship store used to have the monthly bonus of 2，000 yuan and 80% of them had the labor contract with no fixed term. If the company directly fires them， they need to pay a lot of remunerations. Therefore， Montblanc removed the monthly bonus last year and thought of every means to force the employees to leave on their own.

This is closely related to the dropping business of Montblanc in China. According to its latest financial report， Montblanc realized the sales volume of 730 million euros in the 2014 financial year， down 4.7% compared with the 766-million-eruo sales in the 2013 financial year. Nevertheless， the operating profits dropped from 120 million euros in 2013 to 43 million euros in the following financial year， down 46% year on year.

The financial report also pointed out that the drop in the sales and profits mainly came from the Chinese market.

The Chaos in Channels

Most of the employees of Montblancs flagship store in Shanghai blame the massive channels of smuggled goods for the dropping business. In 2005， Montblanc has taken back the distribution rights of all agencies in Shanghai but tolerates the agencies in other cities. And it paid little attention to the source of smuggled goods. There are many sites in Shanghai， no matter online or offline， that sell the products of Montblanc. “Some of the stores were even opened in the office buildings with poor decorations， but the products are real.”

“We have made investigations into the source of smuggled goods. The products they sell have specific codes， from which we can find where these products should be sent to，” said the aforementioned employee. There are no authorized agencies in Shanghai， but agencies exist in other places of China and overseas markets. “Some Chinese people will go to foreign countries to communicate with the agencies there and smuggle a lot of Montblancs products from these agencies.”

The price of smuggled goods is usually only 50%-60% of the ones in the flagship store. “Some customers told us that they can buy the products with 16-18 thousand yuan in other places despite the price tag of 29 thousand yuan in our store.”endprint