Ladies and gentlemen, welcome to the fiscal year 2019 annual results presentation conference call and live webcast for Compagnie Financière Richemont. I'm Dino, your call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. If you would like to submit a question in writing, please register to view the webcast on richemont.com. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to the auditorium in Bellevue.
Good morning. Thank you for coming to Geneva to attend Richemont 2019 annual results presentation. For those of you participating remotely, welcome. This is Sophie Cagnard, and joining us today from Richemont are Jérôme Lambert, Group CEO, Burkhart Grund, Group CFO, Cyrille Vigneron, CEO of Cartier, and Nicolas Bos, CEO of Van Cleef & Arpels. Jérôme will begin by taking you through the highlights before reviewing sales. Burkhard will then present the Maison's key developments and take you through the financials. Thereafter, Jérôme will conclude. The presentation will be followed by a Q&A session, and questions will be taken from the floor and, time permitting, from those of you who have submitted the questions via our website, richemont.com. The presentation and company announcements are available on richemont.com, while an archive of this webcast will be available today at 3:00 P.M. Geneva time.
Before we begin, could you kindly switch off your mobile devices? Thank you. Over to you, Jérôme.
Thank you, Sophie. Good morning, ladies and gentlemen, here in the auditorium, and those of you watching behind your screens. Thank you for your time. Before looking at the numbers, let me remind you that 11 months of Yoox Net-a-Porter results and 10 months of Watchfinder results have been included in the group financial statement at 31st March 2019. They are grouped under online distributors, which is a newly presented business area. For the first time, consolidation of online distribution has had a material impact on sales, operating profit, cash flow and net cash, and will have also a newly reported distribution channel, online retail, which will group the sales of Yoox Net-a-Porter, as well the online sales portion of both Watchfinder and the group Maisons. Retail now incorporates only sales from the group's directly operated boutiques. With this now clarified, let's first look at the numbers.
Richemont is reporting a set of numbers that reflect the initial benefits of past decisions regarding monitoring of sell-in and sell-out at the group multi-brand watch retailer, the improvement of distribution network and a generally supportive external environment. The past 12 months has seen growth in most of the regions and across all business areas. The year was also characterized by strong jewelry and watch sales in the group directly operated stores. Sales for the year increased by 27% at both actual and constant rates to end the year close to EUR 14 billion. Excluding online distributors, sales for the year increased by 8% at both actual and constant exchange rates, and increased by 6% when excluding watch inventory buyback in fiscal year 2018. Operating profit increased by 5% to EUR 1,943,000,000.
This EUR 99 million increase reflected the higher sales and gross profit, but also, on the one hand, EUR 165 million of amortization of intangible assets related to the Yoox Net-a-Porter and Watchfinder acquisition. On the other hand, EUR 118 million of one-time charges, mostly related to portfolio transactions and the prior year's inventory buyback. The operating margin for the year was 13.9%, down from 16.7% in the prior year. Including the first-time consolidation impact of the online distributors and the other charges just mentioned, the operating margin improved to 19.5%. Profit for the year of EUR 2,787,000,000 includes the post-tax non-cash accounting gain of EUR 1,378,000,000 on wind-up shares held prior to the voluntary tender offer. The net cash position of EUR 2,528,000,000 is lower than last year, primarily as a result of the cash settlement for the Yoox Net-a-Porter and Watchfinder acquisition.
Let me now walk through the group sales performance, first by region, then by distribution channel, and finally, by product line. With change versus last year, as always, expressed in constant currencies. Let us start with Europe. Our second-largest market, with 29% of group sales. Full-year sales increased by 37% overall, having benefited from the integration of Yoox Net-a-Porter and Watchfinder, both of whom have a strong sales base in Europe. Excluding online distributors, sales increased by 1%, reflecting the impact of the Lancel disposal, the continued optimization of our wholesale network, continued focus to align inventories with end-client demand, and temporary store closure in France. A limited reduction in wholesale sales was more than offset by a moderate increase in retail sales. In our largest market, the United Kingdom, sales were broadly in line with the prior year.
There were growth in Germany, Switzerland, and so more limited in France, while other markets recorded their contracted performance. Growth was led by Jewelry Maison and to a lesser extent, by the Specialist Watchmaker. Let us move to Asia Pacific, our largest region. Sales increased by 20% overall, accounting for 38% of the group total. Excluding online distributors, sales grew by 14% on top of our strong comparative figures in the prior year. The strong growth was broad-based with double-digit increase in all main markets, led by Mainland China and in all distribution channels. Both the retail and wholesale channels benefited from store opening with 20 internal, 19 franchise stores opening respectively. By business area, both Jewelry Maison and Specialist Watchmakers grew at double-digit rates. Let us now look at the Americas, where sales grew by 40% overall and by 11% excluding online distribution.
The significant difference in growth rates reflect the fact that the Americas is a major region for Yoox Net-a-Porter. There was growth in all distribution channels, including a double-digit increase in retail for offline and online, and a high single-digit increase in wholesale. Across our business areas, sales expanding at double digit, led by Jewelry Maison and Peter Millar. The region contributed 18% of group sales, an increase from 16% a year ago, with U.S. remaining our largest country ahead of Mainland China and Hong Kong. Let us now turn to Japan, which generated 8% of group sales and posted a 16% progression in sales, and 8% increase excluding online distributors. There was double-digit growth in wholesale and a high single-digit growth in retail, sustained by both domestic and tourist spending. Jewelry Maison showed good momentum, while Specialist Watchmaker had strong growth, particularly in retail.
Finally, Middle East and Africa region, which represented 7% of group sales rose by 8% overall. Excluding online distributors, sales decreased by 2%, reflecting impacts of the wholesale network optimization and relatively unfavorable currency movements, the latter weighing on tourist spending. Continued growth at the Jewelry Maison and Fashion Accessory helped mitigate lower sales at the Specialist Watchmaker. Let us turn now to sales by distribution channel. First, the retail channel. Sales in our 1,099 directly operated stores increased by 8%, with growth in all regions led by double-digit increase in Asia Pacific and in the Americas. Noteworthy is the performance of Jewelry Maison and Specialist Watchmaker, where sales expanded at a double-digit rate. There was a net reduction of 24 stores in our retail network, reflecting the disposal of Lancel and the selective opening of new stores.
Sales benefited from the first-time consolidation of Watchfinder stores, the reopening of several renovated stores, and from the full-year impact of the internalization of external point of sales in the Middle East at the end of the calendar year 2017. The overall contribution to group sales from our directly operated boutiques was reduced from 63% last year to 53%, mainly as a result of the first-time presentation of the new online retail sales channel. Including these new channels, the contribution of retail sales would have been in line, in fact, with last year. Next, let us look at online retail. This newly reported distribution channel consolidates the sales from Yoox Net-a-Porter and the online sales portion of both Watchfinder and the Groupe Maison. Yoox Net-a-Porter has been consolidated since May 2018, and Watchfinder since June 2018. Online sales in the Groupe Maison continued to expand, registering double-digit growth.
Online retail represented 16% of group sales. Third, wholesale. This channel includes sales to franchisee partners and to multi-brand retail partners. Wholesale sales increased by 7%, excluding the impact of non-recurrence of the prior year watch inventory buyback. They increased by low single digits. Double-digit increase in Asia Pacific and Japan, as well as a high single-digit increase in the Americas, more than offset declines in the other regions. Our wholesale sales were impacted by the continuing alignment of sell-in to sell-out, the optimization of the wholesale watch retailer network. The wholesale channel generates 31% of group sales, compared with 37% last year, primarily as a result of the new online retail channels and the measures just mentioned. Finally, let's move on to the sales breakdown by product line, focusing on the Maison. Most product categories posted growth, most notably jewelry and watch, which both grew by 10%.
Jewelry sales saw progression in all regions and in all channels. Watch sales increased in most regions, with double-digit growth in retail, reflecting strong end-client demand. They remain the two largest product lines at 36% and 35% of group sales respectively. Writing instruments registered a 5% increase in sales, which is a noteworthy performance in a major market. The impact of online distributors is most evident in clothing and leather goods. Burkhart will now take you through the Maison and segment timeline. Over to you, Burkhart.
Thank you, Jérôme. As you know that I come from Jewelry Maison, I'll start with the Jewelry Maison, which after the inclusion of online distributors, accounted for 51% of group sales. The business area includes the total sales of Cartier and Van Cleef & Arpels across all product lines. The Jewelry Maison generated a solid set of results. Sales grew by 10% to EUR 7,083,000, with growth in all regions led by double-digit increases in Asia, Pacific, and the Americas. There was strong growth in retail and good growth in wholesale. Jewelry Maison operating results rose by 16% to EUR 2,229,000, and operating margin improved 160 basis points to now 31.5%. This EUR 303 million improvement can be attributed to higher sales, manufacturing efficiency gains, a relatively favorable Swiss franc, and good cost control, which more than offset investments in retail and communication.
Let us look at the main developments over the past 12 months. There was double-digit growth in both watches and jewelry, the two main product lines of the Jewelry Maison. Growth in watches was broad-based across the collections, benefiting in particular from the successful launch of the rejuvenated Santos de Cartier and from the Poetic Complications at Van Cleef & Arpels. Jewelry growth was sustained by iconic collections such as Love and Juste un Clou at Cartier and Alhambra and Perlée at Van Cleef & Arpels, as well as the introduction of new jewelry creations such as Les Galaxies de Cartier or Frivole at Van Cleef & Arpels. The new corporate campaign at Cartier, the 50th anniversary of Alhambra at Van Cleef & Arpels, an increased presence on social media, for instance, the Santos de Cartier digital campaign, all had a positive impact on sales.
The strong performance in retail benefited from the reopening of renovated stores under the new retail concept at Cartier and three net new stores at Van Cleef & Arpels. There was also high growth in online sales, both on the Maison websites and through the offering of several collections on Net-a-Porter and Mr Porter. In wholesale, inventory management and distribution network optimization initiatives that we introduced in late 2016 have had a positive impact on growth. Let us now review our Specialist Watchmaker business area, which consolidates the results of each watch Maison. They have shown good progress. Overall sales increased by 10% to EUR 2,980,000. There was strong growth in Asia, Pacific, Japan, and the Americas. In retail, strong end-client demand led to double-digit increase, while wholesale growth reflected the non-recurrence of the prior year's watch inventory buybacks. Excluding the impact of such buybacks, wholesale sales declined moderately.
Operating results rose to EUR 378 million. The operating margin increased for the second consecutive year, reaching 12.7% of sales, a 300-basis point improvement compared with a year ago. Higher sales, increased manufacturing efficiencies, relatively favorable Swiss franc, a larger share of retail, the non-recurrence of inventory buybacks, and strong cost control all contributed to this margin improvement. Partly offsetting these positive elements were stock provisions from physical turn of inventory. Let us look at some highlights of the past 12 months for the specialist watchmaker Maisons. There was growth across almost all Maisons. Successful launches during the year included the Polaris, the Jaeger-LeCoultre, Fiftysix at Vacheron Constantin, the Jubilee collection to celebrate IWC's 150th anniversary, Excalibur Aventador S at Roger Dubuis, Possession at Piaget, and the Datograph Up/Down Lumen at A. Lange & Söhne. Retail growth was strong at most Maisons, most notably at Jaeger-LeCoultre, Vacheron Constantin and IWC.
Growth was supported by a net increase of 11 directly operated stores, mostly in mainland China, bringing the total to now 295 stores. Sales of watches online continue to progress, however, from a low base. With the latest introduction of Roger Dubuis, seven of our specialist watchmakers now have a presence in Mr Porter or Net-a-Porter. Wholesale sales were constrained by inventory control and optimization of the wholesale network. The focus on true end demand has led to further decreases of retailers' inventories. Wholesale sales also benefited from the non-recurrence of the inventory buybacks and from the opening of franchise stores, mostly across Asia Pacific. Now let us talk about online distributors and the business area that Jörg mentioned, which, as you know, includes Yoox Net-a-Porter and Watchfinder. Sales made by Yoox Net-a-Porter of our Maison's products are shown under both the Maison's respective business areas and under online distributors.
They are subsequently eliminated under intersegment eliminations. Online distributors post double-digit book sales growth, with sales reaching EUR 2.1 billion or 15% of group sales. Operating losses amounted to EUR 264 million and included EUR 165 million for the amortization of intangible assets recognized on acquisition. The result was also impacted by additional investment in communication and IT, primarily linked to The Outnet and Mr Porter's global technology and logistics platform migration. On an EBITDA basis, online distributors were slightly contributive. Now let us look at some operational developments for these two distributors. In the 11 months that Yoox Net-a-Porter has been consolidated into Richemont numbers, double-digit sales growth was balanced across business lines and regions. Shopping on mobile devices has increased further to represent more than 50% of sales now.
In terms of offering, the fine jewelry and watch suite at Net-a-Porter and the luxury watch guide at Mr Porter were launched in spring 2018. Over the past 11 months, as an example, a watch was sold for more than EUR 200,000 on Mr Porter, and a piece of jewelry for over EUR 165,000 on Net-a-Porter. Yoox Net-a-Porter has also introduced Design Guardians to foster emerging talent in fashion, a kidwear offer in clean beauty in order to meet clients' demands for organic products. Overall, more than 400 new brands and over 135 exclusive capsules and collaborations were launched across the business lines. The joint venture with Alibaba is progressing well. At Watchfinder, the rate of sales growth was single digits, impacted by Brexit uncertainties and strong comparatives. The team is working on raising its visibility in digital outreach.
Building on its reputation of trust and expertise in the pre-owned market, Watchfinder has begun to develop an international presence, starting with France. Already, a dedicated French website and a showroom at La Défense near Paris are operational. They continued adding new servicing accreditations. In total, the Watchfinder service center is accredited by 17 leading brands for spare parts and repairs. This represents a clear competitive advantage. Finally, let us move to other, which includes the group's fashion and accessories Maisons, its unbranded watch component manufacturing and real estate activities. Excluding the impact of the Lancel and Shanghai Tang disposals, sales at the fashion and accessories Maisons rose by 5%, growth in all regions, led by double-digit growth in the Americas. Operating losses amounted to EUR 100 million.
If we exclude net one-time charges of EUR 58 million in the year under review, primarily related to the disposal of Lancel, and of EUR 37 million in the prior year, the operating loss was EUR 42 million in the year under review and EUR 28 million in the prior year. The variance can be explained by increased investments in communication at some results, as well as costs linked to retail expansion and store renovations. Let us look at the development of the main results. There was growth across all Maisons, though the rate of growth varied from one Maison to another. Montblanc and Peter Millar registered notable increases. Benefited from good demand for its new technology products, for the second version of the Summit smartwatch, for its leather offer with its new trolley line, and for its writing instrument offer, notably in the Meisterstück Le Petit Prince collection.
Alfred Dunhill has recorded good progress in sales and new offerings at Chloé, notably the new Chloé C bag and shoes collection, have shown positive early results. Retail sales posted growth when excluding the impact of the disposals of Shanghai Tang and Lancel, and the first time presentation of the new online retail sales channel. Retail sales were supported by store openings, notably at Chloé and Montblanc, and by the reopening of stores and the new retail concepts. Montblanc reopened its flagship store in Geneva and Tokyo under its new concept, resulting in increased productivity and visibility. Online retail sales were strong, with the highest growth coming from Asia-Pacific and the Americas, and in particular from Chloé and Van Cleef & Arpels. Online retail sales represented 7% of the eternal maison sales. Wholesale sales grew overall with varied performances by maison.
They were led by Montblanc and Perter Milar and supported by the net opening of 17 franchise boutiques, nine of which are within the duty-free network. This concludes the review of the Maisons. Let me now walk you through the rest of the P&L, starting with gross profit. Gross profit increased by 20% overall. The main drivers of this increase were manufacturing efficiency gains, a higher share of retail and online retail, and slightly favorable currencies overall. This resulted in a gross margin of 61.8%, a 340 basis point decrease from last year. Excluding the integration of Yoox Net-a-Porter and Watchfinder in the current period's results, gross margin reached an all-time annual high of 66.3%, an increase of 110 basis points compared with last year. Let us now look at our operating expenses. Overall, expenses increased by 26%.
Excluding online distributors, the increase was limited to 7%, below the 8% growth in sales of our maisons. Operating expenses also included one-time expenses of EUR 95 million, primarily related to the Lancel disposal, and EUR 165 million of amortization for intangible assets. Together, these charges amounted to EUR 260 million. I will now walk you through the expenses by category. Selling and distribution expenses, which account for 51% of total operating expenses, increased by 11%, excluding online distributors. Sorry, including online distributors, selling distribution expenses rose by 6%. The growth in expenses reflected the increased renovation of our global distribution network and the opening of 41 directly operated stores. Communication expenses rose by 21%, mainly due to the first-time integration of online distributors and increased communication initiatives at the jewelry and fashion and accessories maisons.
A new expense line, fulfillment expenses, amounted to EUR 229 million, represents the costs related to the fulfillment of online orders at the online distributors. Administrative expenses grew by 36%. This growth mainly reflected the inclusion of online distributors and continued investment in technology development and maintenance. Other expenses amounted to EUR 280 million and included the EUR 260 million charges previously mentioned. Net operating expenses represented 48% of group sales, broadly in line with a year ago. This leads us to operating profit, which rose by 5% to EUR 1,943 million, excluding one-time net charges of respectively EUR 180 million in the year under review and EUR 208 million in the prior year, as well as this year's first time consolidation of online distributors, operating profit for the year would have increased by 13%. The current year's one-time charges primarily relate to previous year's inventory buybacks and portfolio transactions.
The operating margin of 13.9% compares to 16.7% a year ago. Excluding the consolidation of Yoox Net-a-Porter and Watchfinder, the EUR 118 million of one-time items, operating margin increased to 19.5%. Let us now review the P&L items below operating profit, starting with finance costs. Net finance costs for the period amounted to EUR 183 million compared with EUR 150 million in the prior year. The EUR 33 million overall increase can be primarily explained in the EUR 69 million interest expenses linked to the EUR 4 billion corporate bond issued in March of last year. There was also a loss on monetary items compared to a gain in the prior year due to unfavorable year-end exchange rates when we translate cash investments at balance sheet closing rates, as well as a negative impact on the currency hedging program. Now, let us turn to the profit for the year. Profit for the year rose to EUR 2,787 million.
Strong increase was due to the EUR 1,378 million post-tax non-cash accounting gain on the revaluation of YNAP shares that we held prior to the tender offer. Excluding this gain, profit for the year increased by 15% to EUR 1,409 million as a result of higher operating profit. The effective tax rate for the year was 21.7% compared to 25.5% in the prior year and 22.5% two years ago. I would now like to focus on our cash flow from operations. Cash flow generated from operations decreased by EUR 392 million to EUR 2,331 million. The reduction reflected a working capital absorption of EUR 530 million compared with a EUR 234 million inflow in the prior year. This reversal is mainly due to two factors. First, lower creditors and higher debtors following the use of credit notes that we issued as part of the prior year's watch inventory buyback program.
Second, high investment in inventories at both our Maisons and online distributors. These impacts were partly offset by a stronger operating profit. Gross inventories amounted to EUR 6.2 billion at year-end, an increase of EUR 1.2 billion from the prior year level. It represented 17.7 months of cost of sales, an improvement of 3.1 months compared to the prior year. Excluding online distributors, inventories represented 21.1 months of cost of sales, broadly in line with the prior year. Receivables portfolio is healthy at about 95% current. Let us now turn to our gross capital expenditure, which amounted to EUR 826 million, representing 5.9% of group sales, compared with 4.4% a year ago. The EUR 339 million increase in capital expenditure was mostly related to Yoox Net-a-Porter. Looking at CapEx by nature, 40% was related to investments in points of sale, including internal and franchise boutiques and corners.
Investments were focused primarily on store renovations and relocations. The most notable projects were the renovations of the Cartier New Bond Street boutique in London, Montblanc's Heritage boutique in Hong Kong, the relocations of Cartier on One Peking Road in Hong Kong, Van Cleef & Arpels in IFC Pudong in Shanghai as well, and IWC and Panerai on Ginza in Tokyo. The most notable openings were for Cartier, Piaget, Van Cleef & Arpels, and Alfred Dunhill at Hudson Yards in New York, for Van Cleef & Arpels in Chadstone in Melbourne, and for Piaget in Dubai Mall, Fashion Avenue. 9% of the gross expenditure was related to manufacturing investments, primarily for machinery and research and development. Other investments accounted for the remaining 51%, and comprised mainly the Villars-sur-Glâne logistics center in Switzerland and the global technology and logistics platform for Yoox Net-a-Porter in Italy.
Let us now discuss free cash flow. Free cash inflow amounted to EUR 1.146 billion, an increase of EUR 56 million compared to the prior year. The 6% improvement reflected the lower cash generated from operations and higher capital expenditures, offset by lower spending on investments and investment property. Let us now turn to our balance sheet. Our balance sheet remains strong, with shareholders' equity rising to 51% of total equity and liabilities, up from 57% a year ago. Net cash at EUR 2.528 billion was down by EUR 2.731 billion from the prior year. This was mainly due to the EUR 2.894 billion cash outflow for the acquisitions of Yoox Net-a-Porter and Watchfinder. Richemont's net cash position comprises highly liquid, highly rated money market funds, short-term bank deposits, and short-duration bond funds. Our overall cash resources are primarily denominated in Swiss francs, euros, and U.S. dollars.
Let us now look at our dividend proposal. Our fiscal year 2019 dividend proposal, to be confirmed by shareholders in September, is 2 francs per share. This represents an increase of 5% over last year in Swiss franc terms and reflects the performance that we have seen during the year and our strong net cash position. I will now hand back to Jérôme, who will conclude our presentation.
Thank you, Bukhart. In closing, allow me to underline again the main highlights of the fiscal year 2019. There were, first, I would say, growth across all our business, in almost all regions. Most specifically, there were strong growth in Asia-Pacific, led by Mainland China and in the Americas, and in terms of channels, in our retail network for our Jewelry and Watch Maison. Jewelry Maison showed strong performance, and the Specialist Watchmaker, good progress. We are starting to see the positive results from a number of decisions taken in the past few years, including the alignment of sell-in with sell-out, the buyback of watches inventory, the quality improvement of distribution network, and the focus on key accounts. Finally, the appointment of our Head of Specialist Watchmaker Distribution.
Within Other, mostly comprised of Fashion and Accessory Maison, Montblanc and Peter Millar recorded good growth, while the other Maison progresses with more varied performance. We have continued to refine the quality of our products and the environment in which they are sold, while further investing in digital marketing initiatives. Growth in expense, nevertheless, has been contained below sales growth and excluding the impact of online distribution and the one-time net charges of EUR 180 million that Burkhart mentioned, Group operating margin increased to 19.5% of sales. We have strengthened our portfolio with Yoox Net-a-Porter, leader in online luxury retail with a strong digital capability and with Watchfinder, which provides access to the important secondhand watch market. As Yoox Net-a-Porter business now approaches its 20th year, growth is now normalizing around a low-digit rate.
The joint venture with Alibaba is operational is expected to bring new scales for the Net-a-Porter and Mr Porter brands, opening up the relatively untapped potential in China for online multi-brand luxury shopping. After initial integration, migration challenges at The Outnet now are successfully overcome. We are progressing with Mr Porter replatforming, which is expected to be completed this summer. In addition, Yoox Net-a-Porter has developed a multi-year roadmap for integrating the other Maison online services of Richemont, with a particular to offering omnichannel capabilities. These initiatives will benefit Yoox Net-a-Porter as well as the Group as a whole. We are pleased with the performance of Watchfinder, given the uncertainty surrounding Brexit. They outperform the U.K. watch market and generated healthy profits before amortization of intangibles. Building on their leading position in the U.K., Watchfinder has begun its internationalization, starting with France this calendar year.
To remain compelling with our clients around the world, we continue to evolve the way we engage with them and the way we distribute our products, favoring direct interaction with end clients, a more upscale retail environment, both online and offline, a boosted presence on social media and adapting to local changing needs. To that end, as our Chairman, Mr Rupert, commented, we remain focused on offering products with the highest level of beauty, creativity, heritage, and craftsmanship. Quality of our team, portfolio of assets, and balance sheet support us in this ambition. Here I would like to thank everyone at Richemont for their hard work and continued dedication. We now open the floor to questions. Thank you.
Yeah. Thank you, Jérôme. The Q&A will start very shortly, but can I kindly ask you to announce your name and your company's name just before asking the question, and limit yourself to two questions, please. Since all the hands are up, what I suggest is we start from that side and we go, oops, all the way down. We start with Francesca. Thank you.
Yes. Hi, good morning. It is Francesca Di Pasquantonio from Deutsche Bank. I actually have 20 questions, I will choose two. The first question is a quite open question. If you can give us some granularity on digital strategy, I was actually expecting to see some slides on the presentation, maybe not sharing targets, but sharing a journey and some details of the journey. Maybe you can share with us your considerations about the opportunities for Yoox, for Net-a-Porter, Mr Porter as individual businesses, the opportunities for the mono brand businesses of the online platform, how your online strategy will develop into omnichannel, how long the journey will be, how expensive the journey will be in terms of-
What happened to the notion of two questions?
A very small question on Q4 and retail performance. My math may be wrong, I have calculated a slight deceleration in your Q4 retail performance across currency, I was curious to understand where it is mainly coming from. Thank you.
Thank you for your question. There are many answers in your question, sorry. About digital at Richemont. First, I would like to name that digital at Richemont is not only digital distribution. Indeed, we consider that there is a global innovation agenda for all activity, from our logistic supply chain to the distribution part of our business. We invest significantly in research and development in the depth in our activity of watchmaking to constantly improve quality. To give you an idea of the magnitude of the investment of R&D that we do, that's the equivalent of one manufacturer per year. That's a strong proof of our belief that innovation progress towards better quality and sustainability of our products is important. Moving to our people, because if we speak from innovation, of course, it means as well that we have constantly to invest in learning and in developing our team.
In that dimension, Richemont has always been a pioneer, developing its own schools. It started a long time ago with Cartier, with their first retail school activity. It moved to the old Richemont facility, and we opened a first school in China, Shanghai, a couple of years ago. We'll open this year another two schools for retail activities, in the U.S. and Hong Kong, to tackle the challenge of innovation throughout the route of Richemont. Finally, when it come to our development in term of digital distribution. Here, you have seen throughout the acquisition of this year that we believe in that new dimension. Indeed, we do believe that the investment done is the best preparation for the future. That's a very dynamic roadmap for Richemont.
It's very important for our brands, because you mentioned in your question omnichannel, that indeed, I would say there is a strong omnichannel agenda for our Maison. We have engaged, as we are seeing, a very ambitious road map between the Maison of Richemont and Yoox Net-a-Porter in a global technical platform approach, that we mean that we use our advanced technical capability at Yoox Net-a-Porter for the Maison of Richemont to promote a very intensive omnichannel activity. Said that, it goes along with the investment and efforts done by Richemont within the last years in term of having more digital presence in our workshops. We invested as already for more than two years in very advanced tool in all our retail network with the project called Bear.
When it comes to Yoox Net-a-Porter itself and its dimension, that for sure are a very strong opportunity for the group to create new dynamic. First one is a geographical dynamic out of the replatforming and the technical aspect and the omnichannel. As mentioned here, you know that multi-brand luxury shopping is an untapped potential in return in one of the two first market for luxury goods, namely China. Here we are entering in a world of opportunity. For that, not only that Richemont has been deciding to invest with Yoox Net-a-Porter and Watchfinder, but has been engaging in a journey of building a stronger joint venture with Alibaba. If you combine these two elements plus a global replatforming happening at Yoox Net-a-Porter, you see that we put a lot of emphasis, a lot of effort in that part of our business.
We do believe that's how we prepare the future at best. We believe that technical improvement in the platform, a new geographical presence, and working on synergies between Yoox Net-a-Porter and the rest of our group maison will create, I would say, a stronger leverage.
Sorry, if I can follow up. The 19.5% margin that you would have achieved without the online consolidation. Is this a target for the future or do we need to continue to model a similar dilution from online going forward, excluding one-offs? Is this a new normal that we need to consider? This is a very basic question, but it's an important one for deciding.
Francesca, I'm trying to walk mentally through that question. The 19.5% is what we have achieved as a profitability for the Maisons business. Going forward, if you say, well, do we have to model that well until we sell? I think the online distributors will stay a reality in our group because we bought them for a reason. Obviously, what we expect for a growing business, and it depends on many factors, including the always famous exchange rates because 50% of our business is tourism-driven. We expect with the top line growth that we produce further leverage out of the business. I think that's a given. The online distributors are a new element. We're speaking a lot about it in our numbers now, because we want to kind of help you along this way to understand, because these impacts have been quite material.
If we just retreat behind the reported numbers without giving the breakout within or including, excluding, et cetera, we think that's not a very helpful presentation of our results. We do that. I think if you look at the online distributor business, which is a new experience for you, but also for us, at least in this combination. We look at the roadmap, let's say, that we inherited, that we have made our own, that we've enriched, and we'll probably talk about that a bit more with our own initiatives. That this acquisition makes sense once again for our Maisons for the long term. Look on it at the short-term view, meaning the roadmap for the next three to four years. It will see and has seen this year already, I mean fiscal 2019, significant investments in technology.
You probably remember what they were guiding on the CapEx side. It's about 8%-10% before the acquisition. This is where we have landed, around 10% CapEx, meaning tech spend. If you look at it with this in mind and you see there's an EBITDA contributive performance, I'd say as a picture as of 31st of March, we're quite satisfied with that. Especially we that have insight now into the significant amount of work that is being done by our new colleagues. That we have to appreciate its true value. We've had challenges in the migration of The Outnet, which are part of a learning curve. Which are part also of a re-platforming that not only targets to merge the two businesses, the former YOOX and the former Net-a-Porter business, but also re-platforming is done first and foremost to increase and enhance the customer experience.
We've overcome the difficulties with The Outnet. The numbers have redounded, which is a positive sign that the technology is contributing positively to it. Now we're taking these learnings and apply them to the Mr Porter migration. That is right now progressing, and we expect it to very positively germinate or finalize in the current fiscal year. In that context, EBITDA positive is what we have, and this is what we're targeting. Now, going forward, life is made of ups and downs, we know that. I also will not really comment on that. I'm not a big fan of that to say, "Well, for Q4, the exit rate, et cetera." I'm not a fan of that, you know that. I appreciate that you tried. Let me just give you some elements of context on that.
retail, and no offense to our other colleagues in the group, who are all doing a great job, but we obviously focus first and foremost on the two biggest product categories that we have. That is watches and that is jewelry. Now, both of those categories in the specialist watchmakers and the jewelry Maisons by segment have had a very strong retail performance. Throughout the year, yes, there are ups and downs, as we always have. They have something to do with the H2 previous year's comparables, et cetera. I will not bore you with that, even though you might not be bored. We depend on a feel-good factor that is very clear in our business as well. Look at the stock exchange performance at the end of the last calendar year. Look at the performance in the first quarter of this calendar year.
There is a link, undeniably. There is a link with exchange rates. There is a link, obviously, with let's say, political discussions between, I would say, a power in the East and a power in the West. All these have an impact. You strip all that, you put all that aside, what remains is very strong, positive performance in the retail channel and in the wholesale channel, meaning mainly the watch wholesale channel. Minus the self-inflicted pain that we believe was necessary to qualitatively upgrade our wholesale distribution network. We're extremely satisfied with the work that has been done and the results that we've achieved, both in retail and in wholesale.
Thanks very much. Good morning. It's John Guy from MainFirst. I had two questions, please. Jérôme, if I could start with you and just follow on a little bit more on the online strategy. I'm particularly interested in the JV with Net-a-Porter and Mr Porter and Alibaba. You put out that small press release back in October last year. You said that the talks are progressing seven months down the line. I'm just trying to get an understanding of why we haven't seen a little bit more today on this. It's a potentially very exciting JV. If we think about the 640 odd million registered users on Tmall, 14 million or so on the Luxury Pavilion.
If you can convert at even on a calendar 2017 average order or average selling price of just under EUR 670. Say 1% of that total registered base, that's over EUR 4 billion in revenue. I'm trying to understand the opportunity here. Can you give us a little bit more around that in terms of timing? Have you got a CEO in place now for this business, and where are we? That'd be great. My second question is for Cyrille. Good morning, Cyrille. Just on Cartier. Could you give us a little indication so far as to how the launch of Clash has gone? It looks like you've had a very strong campaign around this accessible jewelry launch, which is, I think, the first in about 10 years. What's the potential for the line? Is this a EUR 300 million-EUR 500 million potential?
Good to see that we have waiting lists at the moment, at least for the Blue Dial Santos, I think 6- to 8-week waiting lists. Can you talk a little bit about how the watches offer has improved and where you're seeing some of the best results? Thank you.
I will answer to the first question. Thank you. Indeed, the Alibaba JV is, I would say, for us, an exciting journey. We are clearly aligned with the agenda that we fixed with Alibaba late last year. Meaning what? Meaning we are focusing on this fiscal year. You know that creating a JV, that's not creating just, I would say, a corporate organization that's organizing or that's recruiting a team. We speak from, I would say, a number of people. We finalize the top position. We have recruited the CEO of that JV, but we have another couple of high-end positions to recruit there. Of course, we have to create and to set up a logistics system. Of course, we have to create a technical element for that. That's new. There is nothing, I would say, as such existing on Alibaba today.
That's also not only, I would say, the traditional dimension of PFS store. That's a wider extension. To open a pavilion or a shop or so-called PFS, it takes you 9 months. Here, I would say, being capable between November and this fiscal year to achieve it, I would say that's a remarkable operational challenge. We're progressing well, and we are very confident with the progression we do. We have also very much advanced in the onboarding of the maison because that's a multi-brand distribution organization, Yoox Net-a-Porter. That's a few hundreds of maison that we are taking for the journey and for the trip. The team of Yoox Net-a-Porter is very active to do the purchase, to fit the volume of the year. You know that to be capable to sell this year, you have to organize the buying before.
It means you have to work with every single maison to identify for every single maison the proper inventory that you will be distributing in China in that dimension. Yes, that's a big journey. Here we're very happy that we can leverage Richemont as well in the structure because to create companies, building a logistic network, recruiting, I would say, a lot of people, here we can say already that we leverage our local presence. Alibaba is an amazing organization, and the work with them, I would say, is progressing very well.
I will answer the other question. Clash is doing super well. It's probably 15 months ago and has been way beyond our expectations. Of course, we have to be careful. If it's doing too well, then we have production issues that we have to adjust later on and have to see also whether this cannibalize or not the rest. Far we're extremely happy, but we see probably with 6 months or a year how it goes with the rest of the portfolio. The other launching we have done on watches in 3 years, repositioning the collection and doing super well. Both on Panthère continues to doing well and Santos doing well. The Santos for this year is very promising. It's just starting now to releasing now, and we already have some waiting list. Also we revamped the Baignoire, also doing super well.
The leather category, we started last autumn with Guirlande de Cartier, is doing also super well, and we are short everywhere. These are positive signs. The question also linked to the one that Francesca had, where can you get some leverage? As far as we can, product lines that are successful and can be durable because they had been in the market an inflation about novelties that were not lasting. If you can have some that can last over time, then you have leverage about your development cost. As far as you can stay in the same production facility and same visual network, we don't expand our network, we renovate without expansion, then we can have at the end some leverage possibility, provided that currencies, that other economic factors and things and not political tension, do not disrupt that.
Overall, as far as we can do that in the term, and as far as key clienteles can be still in demand, like Chinese especially, which are the most promising clientele of the future, then there is a good expectations. Short term depends on whether we can build on top or whether it cannibalizes, and whether you can follow up in the demand without problems. So far, Clash is super positive. The fastest launch we ever had on kind of such a launch category.
Thank you very much.
Thank you, John. Luca?
Good morning. Luca Solca at Bernstein. Two questions. The first one on specialist watchmakers. Your organic growth in specialist watchmakers, excluding last year's inventory buyback, is 2%, and your operating margin is a fraction of what it used to be. Why would investors be wrong expecting that you engage in a major cost restructuring program in order to right-size quickly your cost profile to the reduced size of the business? Or is it correct to anticipate that the operating margin of this division is going to be structurally lower for years to come? The second question is on the online distributors. There was a lot of emphasis in your presentation about getting the technology and the back office right, as well as potentially integrating this business with the core business in watches and jewelry.
When I look at the overlap you currently have between watches and jewelry and the online distributors, this is probably between 5%-10% of their sales. What is the specific commercial goals that you have in order to develop as a standalone business the activity of Yoox Net-a-Porter? Could there space be there for a conception business model on the side of the wholesale model that you have? In general, why is the head of Yoox Net-a-Porter not with you today to tell us about that? Thank you very much.
Good morning, Luca, just congratulations on your new job, first and foremost.
Thank you.
First things first. Let me explore a bit further the specialist watchmakers. First, a bit of historical perspective when we talk about the margin structures and compared to historical comps. I would say if you refer to the high point about four years back in 2015, that is obviously before we have had an impact of the Swiss franc impact. Let's add another element of context that was built based on a wholesale business, which definitely had run its course very strongly up and had excesses in its business, which actually impacted the top line, but obviously fed all the way down into the operating margin. That is nice to have, but you have to decide at one point in time in which structure you want to continue to run your business.
We came to the conclusion, we've gone through the last few years and have explained at length, and for some of you probably ad nauseam, that we were engaging in a phase by deploying a playbook in order to clean up our wholesale distribution from, let's say, business that we do not want to see playing out in the end on the gray market, which is linked to oversupply, which is linked to distribution, which is mainly playing out to unauthorized distribution, which is playing out online with high discounting. The logic has always been over the last few years, and it's painful to sit and have investor feedback for 3 years, to say, "Well, aren't you destroying value by buying over the period of 3 years, by buying back half a billion EUR in watches?" Yes, short term, that is the view. What is the long-term view?
The long-term view for us has been all the way through this process that we care about long-term brand equity, because we believe long-term brand equity will create value over time. That has been our mantra. That is what we have applied first and foremost at Cartier. Buybacks, shut down of, or optimize the distribution network, and basically restrict or eliminate supply that might end up in the gray market. This plays out over 2 years, then we have seen at Cartier that the market normalizes when the market is clean. We've seen that the first stage now, we've applied exactly the same book with the specialist watchmakers. We have seen we've done significant efforts that obviously are not reflected today in the numbers, at least not visibly so.
Just give you a hint, if you look at last year's inventory buybacks that we did, which then physically flowed through our P&L this year, we've done roughly a similar amount of, shall we say, distribution optimization in the current year, where we decided to take these measures to make sure that there is no further product, let's say, availability in these gray market channels. That'll feed through. Once again, we expect it's the same playbook applies with Cartier in the same condition or set of conditions today, we would expect in the current year that the inventory equation normalizes. We're happy with the level today. We monitor and we're happy with it.
If you take that as a context, I think if you look at just at the reported numbers, I think that the performance of these specialist watchmakers is underappreciated, let me just dwell on that a bit. A very positive double-digit performance in our retail store network. I've said it before, I've said it last year that the playbook is keep the cost base and grow your retail sales, because we have installed the retail network already. We have a store count of 295 stores now. The upfront investment has been done. Now this network will have to produce leverage. Double-digit growth in the retail network. We look at the cost base for the specialist watchmakers. There is no cost increase of the underlying cost base of the specialist watchmakers this year.
I tip my hat to my colleagues, to our colleagues in the specialist watchmaker maisons, which have done a fantastic job on that one. No increase of the cost base, both on the communication side, both on the operating expense side. There's a margin improvement because also the retail business that we have had in the last year not only has seen strong growth rates, it has also improved on a qualitative way by reducing discounts in our stores, et cetera. Having a very healthy and positive relationship with our customers. I think, in a context where if you strip out all the wholesale self-imposed measures, you come to a very low single-digit growth. You see a 300 basis points increase of the operating contribution.
I think that's a very positive, shall we say, second step in the journey, where we still expect going forward the operating contribution of these maisons to improve over the midterm. Once again, if we maintain the course and we benefit from the same positive, I would say supportive environment in the markets. That's what I think we needed to dwell a bit on, Luca, to also give justice to the performance that our colleagues produced.
I will now answer to your first question on the second question on online distributors. I will just add here head to what your card said about the performance of the specialist watchmaker that is also correlated with a very strict follow-up of the sell-out, at wholesale level, that we are now monitoring over 90%, within 30-45 days or after each month of operation. That we can say again this year that our sell-in is lower than our sell-out in the wholesale network, and that we have again significantly reduced the inventory level, this time with our buyback, at wholesale level. That's as well, I would say for the future, a more line correlation between the sell-out of our partners and the numbers that we have in our profit and loss.
A better guarantee probably for the future, if you are speaking from where do we go in the future with that activity. Now on online distributors. The first thing, it's interesting that there is a lot of opposition in appreciation between business model where we see more and more convergence. In somehow concession wholesale, there is probably a concept, I would say, which is if not dated, I would say at least speak from an age that is less and less relevant as we enter more and more through omnichannel and omni-stock in more fusional models. Luxottica has launched their first initiative in omnichannel with a new era, with a couple of new partners. That system rely on omni-stock.
Omni-stock means that you are selling the stock that you have purchased, but also if you don't have the stock available either or, that you can leverage the stock of your partner. Therefore, I would say there you don't have a traditional separation between are you in concession, are you in wholesale, or are you in marketplace approach. I do believe that in near future, it's more and more of these models that we'll see. The Alibaba JV will be also a source of innovation for sure in that dimension.
Thank you very much indeed. It would be great if you had a capital market day on this digital business, which is so potentially exciting and that on which you're working quite a lot and invested also quite a bit of money. Thank you very much.
Thank you, Luca. Edouard?
Sorry, good morning, Edouard from Morgan Stanley. Just actually to follow up, Jérôme, on the wind up. Exactly what you said on the convergence in business model. Am I right in what you're saying is that we could have a situation where the platforms evolve in a 1P, 3P business model that's similar to Amazon, so to speak. Am I right in thinking that you're very early days in terms of the inventory that you described, number one? Just to follow up on YNAP, a question for Burkhart on the IT. What have you seen so far in terms of the rollout, the benefits of the IT platform at The Outnet, and could it lead to a re-acceleration of your growth for the division as a whole as you are going to roll it out to Mr Porter this year?
You mentioned that the growth was around low double digits in fiscal 2019. I know you don't like to give guidance, but could we go back to a scenario where the division goes back to high teens type of flatline growth? On the cost also, if you wouldn't mind, give us a little bit of color on, in fiscal 2019, what you've spent through the P&L on IT investment and also capitalizing the CapEx and what the phasing should be as you make further investment in fiscal 2020 and 2021. If you wouldn't mind. That was my first question. Sorry. Just a small question for Nicolas, because the problem he has is that he delivers so consistently that he never gets any question. The desirability of your brand is extremely high in China.
If I'm right, I think you under-index a little bit in China versus some of your peers. If you could give us your plans in terms of your rollout in China. Is that going to be measured, or if you're going to accelerate your growth? I would be curious to know. Thank you.
I can also let Nicolas answer the questions on the online distributors.
We leave Nicolas out of everything.
Do you want to start, Nicolas, or you want me? No, it's, we're flexible. Edouard, let me just Okay, on the online distributors. There were a couple of questions you asked. One is, and you're pushing for granularity that I'm not 100% willing to give, as you can imagine. I'll try to help you. If I give you granularity on the online distributor cost base, then Cyrille will ask that he has the same speaking time and explain the granularity of Cartier. No, but joke aside, okay, The Outnet, we've spoken about it. The impact, negative, obviously, was from the reduced fulfillment capabilities, obviously, that a big tech/logistics migration entails. That one, that's happened. It's gone down, and then it's come back very strongly after we have fixed the migration, these glitches on the tech side.
We've seen a very strong, significant rebound, which also has something to do with customer retention or customer reacquisition. That's why I think also the management chose to do it not as a big bang across the other four or five businesses that Yoox Net-a-Porter runs, but to start with one business. We, or they, have made the necessary experiences, some positive in The Outnet migration, most of them impacting the customer services linked around that and the customer retention. In the end, that's why sales obviously went down. Once it was fixed, and that's very encouraging, the sales came very strongly back and have normalized and reached growth rates that we are quite proud of, or we should be quite proud of. We're now coming to the next step, which is the Mr Porter migration.
There, some of the learnings have flown in into the way we run the project. First and foremost, once again, not a big bang, switch on the new system, switch off the old system, do it both on the IT and the logistics side at the same time, but do it step by step. We've done a first switchover in a smaller European market, which has done very well. The learnings have been applied, and that seems to work out well. The major migration effort is going to be done, let's say, over the summer, all the way up into the fall, and we expect that with a reasonable optimistic view to be successful. All of this is done, and then, based on that, we'll start working on the NAP in the second half of the year and the first half of next year.
That's more or less the playbook. We are quite optimistic, but that remains to be proven that growth rates will increase because once again, this is something to do with a technology offer that benefits customers in the mid to long term. That's why we're going through this exercise, and the platform that, and the technology level that will come out of it, is what we believe will further enhance the very strong and leading position that Yoox Net-a-Porter has in the market. As to granularity, as to tech spend, et cetera, we haven't touched on CapEx yet, but as said, a big part of the CapEx increase compared to last year was driven by Yoox Net-a-Porter. We're a good EUR 300 million above last year in CapEx. I would say two-thirds of that was driven by YNAP.
When I say YNAP, it's tech and logistics CapEx. You get an idea of the dimension. I said before the acquisition, the Yoox management, that is still around, as you might see, has guided on somewhere in the range of 8%-12% of CapEx, so we're in the middle of that range. That's a significant effort that impacts, through the amortization or depreciation charges, our P&L. We've talked about intangibles amortization in our press release, also in our presentation. It's EUR 165 million. This is here to stay for a while until the amortization periods run out. You know how this is. There's different elements in intangible assets that, the first years, give you a high level of amortization, and then, over time, it significantly reduces. In this case, to give you a better idea, this is an 11-month charge, EUR 165 million.
You top it up to a yearly charge for 12 months. You can do the math. That will stay with us, and will reduce probably over the next, well, now nine years, all the way to half of that amount. Then will drop, after 10 years, all the way down to zero. There is a charge that is not a one-time charge, as some of you or your colleagues have written. It's an intangible amortization linked to the acquisition of those businesses. Apart from that, what has happened at YNAP? Marketing spend has increased, linked to The Outnet. Once again, I was talking about acquiring or reacquiring customers, so that has increased marketing spend. That has happened. Tech spend, yes. Logistics spend, all linked to that. Then, once again, CapEx drives depreciation spend, and that is being recycled or going through the P&L right now.
Well, thank you for your question and for giving me the opportunity to say something. For your comments on the house. I think what we've been doing with Van Cleef & Arpels in China is exactly what we've been doing historically the rest of the world. We didn't look at this market in a very specific way, although it might sound strange in our world. We believe that time and integrity and consistency were definitely the best elements we could bring. We opened the first store in 2005. It was a very, very small store in Beijing, China World, with a partner. Since that, we've developed kind of consistently our presence, but we've never developed any opportunistic approach. We never did specific collections. We never did specific communication campaigns.
Of course, we use the tools that are available in China, and then we try to interact with communities and with the local culture as much as we can. Really trying to explain the brand for what it is and not trying to adapt it to what we think the market is expecting. After nearly 15 years, we have actually 15 stores now in China. We've grown the network cautiously, but still steadily. We've seen the appreciation of the house really developing, also very steadily. Because we brought exactly what we brought in Europe in the beginning of the 20th century or in the U.S. 50, 60 years ago, which is to try to develop an understanding and appreciation for what we are doing, for the patrimony, for the history, for the craftsmanship.
For a brand like Longchamp and Berluti, this vision is working well or seems to be working well. It's good that today we see and we feel quite a high appreciation and a real good understanding of the house. Once again, we've kept an exclusive network. Today we are much more investing in improving our presence or building a presence, rather than developing and opening new stores and going to as many cities as we could. That first store that we opened in China World in 2005, we just opened a new one replacing, which is of a size, which is pretty much the size of the store that we have in Place Vendôme, and with the same type of atmosphere and display. That actually, I think answers the expectations and the reaction that we see from Chinese customers today.
Quite a good journey. We feel it's far from being over.
Patrik Schwendimann, Zürcher Kantonalbank . First question. The Chinese luxury consumer demand was still very good last year. What's your view on the current luxury consumption in China or also with Chinese tourists? Second question. My favorite question for Burkhart since many years. Operating spends have increased +7%, excluding the internet. What's your best guess here for current year? Thank you.
Thank you, Patrik.
For the Chinese and Chinese consumption, it is very steady. It is growing quite well. We don't see any sign that it would reduce. As I say, we have some different views on the part which is from traveling Chinese, because this is much more linked to currencies and fluctuations. The overall consumption, domestic linked to luxury goods, it is increasing. The support from the government for that, both made a reduction on duties, which is making it simpler and also have a serious impact also on the cost of operation in China and reduction of VAT, and also really supporting the local consumption compared to overseas, it really can have a fueling the growth. We see that as a really high double-digit growth last year.
It was double-digit last year, and still in the recent months since the change of VAT in April, we see stimulated as well. We have very good perspective there for the time being.
Chinese tourism?
Chinese tourism is growing in number. Of course, then the purchasing power depends on the value of the renminbi compared to the currencies, Hong Kong dollar, Korean won, and Japanese yen. We had last year a relative devaluation of renminbi, mainly the pressure in Hong Kong. Since January, it has been re-increasing, which is kind of reverting the trend. Numbers of Chinese traveling will soon be 150 million to 200 million, dominantly in Asia and also going to the rest of the world. The appetite to buy, even during trips, is still there as far as the purchasing power is there. There then the hiccups, like political tension with Korea and restriction on visa that can have impact. Other things like natural disasters or things that makes them unsafe to receive as a key concern.
Again, same as currency, there might be some other kind of hiccups or concern that may have impact either on the destination or even on the attitudes towards travel.
Okay. On the expense side, Patrik, I understand you try to guide me towards guidance, which is difficult to do. Predictions are the most difficult when they treat about the future, right? Let me just, as a starting point, give you some guidance on, not guidance, but some better understanding or granularity on what has happened in fiscal year 2019. I would say, if you look at the expense base growth, we've talked about it in the past, if you go through an exercise, let's say budget exercise in our business or in our part of the industry, the budget exercise is more about cost containment than about cost cutting, right? Because the nature of our business, if you look at it, is a fixed cost business. We run close to 1,100 stores around the world.
If you look at a store, the cost base is more or less fixed. We have a few percentage points that are variable expenses, I would say the overwhelming proportion of running a retail store is fixed cost. 50% of our cost base, more or less, is linked to staff costs, personal expenses. The big elements following right after is obviously lease. Lease commitments we want to put, starting this year, as you all know, we're going to show the IFRS 16 impact on our balance sheets. We're talking somewhere in the ballpark number of EUR 3 billion, capitalized lease commitments at the end of fiscal 2020. That we're going to show for the half year. Lease commitments or leases have a tendency to inflate as well. We have the next biggest category is the expenses that are linked to running a boutique.
Just to give you a better understanding of the granularity of our cost base in general terms. Now, what have been the elements that have driven our cost base higher last year? I would say it's three elements. Some of them are pointed out very clearly. I'd say most of them are pointed out very clearly in our presentation and also in the press release we published this morning. It's three elements. It's an increased spend on, in some areas of our business, I would point out the jewelry Maisons, I would point out the fashion accessories Maisons, where we've increased our spend on the retail network. In fashion accessories, it was more about opening the stores, both internal and franchise stores.
The specialist watchmakers, as I said, overall cost base is flat, but they have opened stores, 11 stores, internal, and then I think 17 external franchise stores will also participate in the capital spend. On the jewelry Maisons, it has been apart from three openings in Van Cleef, it has been a stable network, even slightly shrinking on the Cartier side, where the Cartier colleagues have worked on major projects, upgrading the quality of it. There's increased, I would say, capital expenditure in the retail network. That's an obvious thing, as you know. That gets recycled through the P&L, through the depreciation impact that that generates. That's the first element. Second element is A&P spend. We have increased communication expenses at the jewelry Maisons and at the fashion accessories Maisons.
If it's any relief, the spend has been budgeted higher and we, throughout the year, have managed it below that budgeted level. Nevertheless, it has been an important increase compared to the previous year for the many good reasons that our Maisons have. The third cost element is the tech spend. I've spoken about it for YNAP, but we have a big tech operation, which is more on the ERP side. On our side, meaning the former Richemont Maisons side, where we have actually continued investing because we're right now rolling SAP out in mainland China. As you can imagine, with close to 200 stores, that's quite a significant project that we have also undertaken this year. These are, I'd say, the three elements that have driven the cost base expansion.
Just from a CFO perspective, I'm very happy with the work that all our colleagues did in the existing like-for-like network, where costs have remained under very good control or cost increase has remained under very good control. Because that's always a worry when you have quite a big, even highly qualitative retail network, that if your cost base consistently increases for an existing network. That's a big point of vigilance, and that was under very good control.
Thank you. As a best guess, then you should expect a similar increase or less for the current year? I mean, in terms of store openings.
As a best guess, the cost growth ratio would be below the sales growth ratio.
Thank you, Patrik. Actually, we're running out of time. We've got a number of questions through the website. I'll pick three of them. Since you're on guidance, so to speak, could you give some color, Burkhart, maybe on CapEx for fiscal year 2020 and 2021, please? I think the other two questions that maybe could be covered relates to Dunhill. Investors would like management to comment on Dunhill's performance and whether there's a possibility that it may break even, and when. The last point I think was more or less covered already by Burkhart, which is whether you can elaborate on how much more downsizing was done as far as the watch multi-brand retail stores are concerned.
How much was done in terms of the value, which you sort of alluded to, and how much more is to be done in fiscal year 2020? I think it will complete. The Q&A session has been quite long.
Okay, let's go for the CapEx because that is the element that will remain longer in our books. I'll be consistent with what we've said last year. Once again, a bit of color. We've had when we were running through, I would say, investment cycle on the specialist watchmaker side and on the jewelry Maison side, mainly Cartier, when we're running through an investment cycle on the manufacturing side. We have had for some years, I would say all the way up to 2015, CapEx at a maximum of about 7% on sales. This has now, I would say, normalized on the Maison side. Last year, we were at a level of 4.4% of sales, which I think personally would be the low end. I'm much more, let's say, comfortable at about a 5% CapEx spend on sales for the Maisons. Why am I saying that, comfortable?
When you run a store network and you want to offer the customer experience, then you have to have stores that are not only well-built and proper, but that offer the customer experience that the customers are looking for in a very competitive world, to be honest. What we're looking there is we're playing around, it's a bit flippant to say that, but we're playing around on different Maisons on, let's say, novel approaches to be more nimble, more flexible in the CapEx we spend. That you can much quicker adapt your boutique environment with less additional spend to more flexible setups. Put it that way. From a financial perspective, I'm quite happy with the 5% CapEx spend for the Maisons. On the YNAP, Watchfinder, online distributor side. Being a tech business CapEx spend tends to be higher in periods of intense work around re-platforming.
As I said, we're around about a 10% last year. I think we should stay at that level for a while, probably two to three years into the future. Then if we do think well, that should start to level off or decline as a percentage of sales. That all would still fit comfortably in the 5%-7% range on the overall group sales that I quoted before. This fiscal year 2019, we've ended at 5.9% on sales, which sits more or less smack in the middle of that range.
I will first address the point relative to Dunhill. You all remember that the Dunhill three to two years ago went through a massive restoration plan. That plan was about closing countries and closing retail activities. We engaged a new team roughly 18 months ago to two years at Dunhill, led by a real expert of that activity, Andrew Maag. Andrew has been rebuilding a complete team. Firstly, a complete creative team with Mark, he has been capable to design very attractive collections, particularly in the ready-to-wear, where we see already very good results. In that, what we call phase 2 after restoration, the name of the game for us is like-for-like growth. It was what was written on the roadmap of Andrew to demonstrate that the company was capable to recreate like-for-like growth.
We can say for the last 12 months, consecutively, the company has been enduring like-for-like growth, which is, as we know in our industry, I say always a tough challenge, particularly after a big restoration time. That's where we are with Dunhill and their historical territory of Japan, U.K. are expanding. That's also the case now in China. That's indeed promising news. When it comes to our playbook or roadmap for the specialist watchmaker, that was the other part of the question. We use everything with the management team that word of roadmap, of playbook, because in somehow specialist watchmakers are following the roadmap and the playbook that Cartier a few years ago took when it came to cleaning the market or focusing on iconic product and recreating desire and demand, and also building the future.
I would say that when it comes to qualitative improvement of the network, I would say we come slowly to the end of that process. The agenda with our partner in [Ruesse]l is more about partnership and is more about how we can bring together the maison in best conditions. Cath mentioned that we opened external boutiques for called franchisee. Last year roughly 21st franchise boutique were opened, which is a good underlining demonstration of the effort and the positive results of this new partnership, because when you open a franchisee, by definition, you have to be two. You have to be equally believing in what you are doing, believing in the maison future and believing in our capability of our partner to build the future.
We're very happy now that we could turn the two first pages, then we can concentrate on developing a positive momentum along with this partnership. Let me finish on a positive note in that aspect, it is that, Cyrille commented it about the Chinese clientele, all the very positive factors this year for the watch were the comeback of growth in local clientele. Which is as well for in what we believe when we speak from a sustainability of business model, very important. It explains as well why this capability of opening a franchisee and creating a new partnership, I would say, is built on new blocks, not only is very attractive impact that our collection can have on tourist clientele and in one part in particular, but also now, I would say on a solid demand.
It's very correlated as well to the effort done by the maison in shaping collections that are relevant on a global level, and in particular from a local perspective. Thank you.
Thank you, Jérôme. This concludes our results presentation. Many thanks for your time and for the ones who kindly came, refreshments are waiting for you upstairs. Thank you.
Thank you.
Thank you very much.
Thank you.
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