The power behind the pen

Deals, resignations and contracts lend truth to this writing instrument's label of 'power pen'.

Clients brows the Montblanc store in the Dubai Mall.

It would be safe to say that June 23 1963 was an important day for Konrad Adenauer. Less than 20 years after the end of the Second World War, the late German chancellor was hosting a visit by the then US president John F Kennedy, who was in Cologne as part of a five-country goodwill trip to Europe. As he prepared for their historic meeting, at which Kennedy would be signing the city's Golden Book, one can imagine the last-minute checklist running through Adenauer's mind as he patted down his pockets to ensure he had not forgotten anything. "Keys - check. Wallet - check. Golden Book - check. Right; time to meet the president." It was not until Kennedy was about to sign the Golden Book that Adenauer realised he had forgotten that vital tool of every politician: his pen. Fortunately, Kennedy had come prepared, saving the day with his own Montblanc Meisterstück pen. Mikhail Gorbachev reportedly used a Montblanc pen to write his resignation in 1991, the reunification of East and West Germany in 1990 was signed with one, while Prince Charles and Diana, the Princess of Wales, sealed their ill-fated marriage in 1981 with a Montblanc. From Ernest Hemingway to Anne Frank, Japan's Emperor Hirohito and Indira Gandhi, Montblanc pens have been used for more than a century by some of the world's most powerful and creative people. "I think this is why Americans call the Meisterstück the power pen," says Lutz Bethge, the chief executive of Montblanc, who was in town recently for the opening of the company's Middle East flagship store at Dubai Mall. "You see it basically at every merger or acquisition, or a treaty between states. The executives or the heads of state are executing their power by signing a document, which, of course, has helped the brand a lot." Founded in 1906 as a simple pen making company, Montblanc transformed itself into a luxury goods maker in the mid-1990s, adding such lines as limited-edition watches, jewellery, leather goods and perfume to its repertoire. These days, the writing instrument side makes up less than 50 per cent of the company's total production, while the number of its boutiques has swollen to 330 worldwide. The company's diversification received a boost in 1998, when it became a subsidiary of the Switzerland-based Compagnie Financière Richemont, the world's second-largest luxury goods company after LVMH and ahead of the French conglomerate PPR. Other Richemont subsidiaries include Cartier, Chloé, Piaget, Lancel, Vacheron Constantin and Van Cleef & Arpels. "Montblanc was basically a writing instrument manufacturer, which was catering to its customers through traditional trade customers, some jewellers and some department stores through distributors all over the world," says Mr Bethge, who joined Montblanc in 1990 as the chief financial officer. "In those days, we took the chance and we had been investing all around the globe, setting up our subsidiaries, which was extremely important for the brand to develop to the level where it is today. "We decided that it would be time for us to yield to boutiques. This was a major milestone because we could display the brand in a different way to our customers and we soon started to diversify into products like the watches, the leather products and the jewellery." Whether this strategy continues to succeed for the company during the current financial meltdown, which has seen consumer confidence plummet and sent global retail spending into a tailspin, remains to be seen. On Nov 14, Reuters reported that Richemont posted a better than expected 11 per cent rise in first-half net profit to ?543 million (Dh2.49 billion), but consumers held back on luxury buys last month as the financial crisis started to bite. Sales declined most sharply in the Americas region, and Europe was also weaker last month, despite strong sales to non-European customers there, said Richemont, which is owned by South Africa's Rupert family. Asian sales grew 12 per cent last month after growing 30 per cent in the first six months of the year, while the company had not seen any signs of a slowdown in the Middle East or Russia, Reuters added. According to Milton Pedraza, the chief executive of the Luxury Institute, a New York-based research group that tracks the luxury market, Montblanc's transformation into a luxury goods company placed it in a highly competitive sector. "There is no question that writing instruments were in a lull, but yes, the growth engine they went into is highly competitive," Mr Pedraza says. "It doesn't have the same credentials as it does with writing instruments, when you rate them in terms of watches and jewellery. They will do well, but not as well as [for example] Harry Winston or Tiffany. "They have to earn their reputation and hopefully they will do something innovative. That is very hard to do... but I don't think these [new lines] will drive their growth. They won't become market or prestige leaders, but they do have a strong brand." A recent report by Bain & Company, a consulting firm headquartered in Boston, found the luxury goods market would face its first recession in six years in 2009, with global luxury sales declining by as much as 7 per cent. The study, commissioned by Altagamma, the Italian association of luxury goods companies, said the growth of luxury goods sales would slow sharply to 3 per cent this year, reaching ?175bn, compared with 6.5 per cent growth last year and 9 per cent growth in 2006. "The impact of the financial crisis will bring some sectors into a recession," says Claudia D'Arpizio, a Bain & Company partner based in Milan and lead author of the study. "How much and how long depends in part on how companies react. The most resilient will be those with strong international and diversified brands." The one bright spot for luxury goods, however, is emerging markets, including the Middle East, India, China, Brazil and Russia. "A surge in spending by high net worth individuals on luxury goods over the next five years... in emerging markets including Brazil, Russia, China and India" will "fuel optimism for the long-term outlook of the worldwide luxury goods market", the study says. Mr Pedraza agrees, saying there is bad news for the sector in the short term, but the long-term outlook is positive. "There has always been a desire for luxury, but it is cyclical," he says. "This has to do with the fact that many people in the US are self made. And that is also true in emerging economies, such as China, Brazil and Russia. They are sensitive to economic downturns. "The emerging markets have seen the fastest growth areas since 9/11. The Middle East is an exception because you have the oil money and it is resilient. Now that luxury has entrenched itself in the Middle East, it is one of the few areas where you will see growth. Once the cycle goes up, it will be the fastest growing area." Emerging markets have become a core growth area of Montblanc's strategy to ride out the current financial storm, says Mr Bethge. "I believe the Middle East, India and China, still, will help us to sail the waves," he says. "Development in China is very successful and China has [in three years] become the number one market for Montblanc. The United States used to be the number one market for us. "In the Middle East in the past five years, we have more than tripled our turnover. And this is why we have opened our flagship store [in Dubai]. There will be a lot of opportunities [here] whatever the crisis will hold for us. "I believe that our strategy should not be altered just because of external influences. And I believe that the stronger brands will survive better than the others, which will give us an opportunity once the crisis is over." [e-mail]