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UPDATE 3-Richemont bets big on China, partnering Alibaba to invest in Farfetch

* Q2 sales fall 2% at constant currency after 47% drop in Q1

* H1 sales in China rise 83%, now biggest market

* Farfetch, Alibaba deal focused on China

* Shares rise more than 8%

ZURICH, Nov 6 (Reuters) - Richemont said a $1.1 billion partnership with Alibaba to invest in online luxury retailer Farfetch and its new Chinese marketplace would further drive sales in its biggest and fastest growing market.

The Swiss luxury group and Chinese e-commerce giant Alibaba said late on Thursday they were investing $550 million each in the fashion retailer Farfetch and its new venture.

“You are either a disruptor or a disruptee and I hate being the latter,” Richemont Chairman and controlling shareholder Johann Rupert told reporters on a call on Friday.

Like LVMH, Kering and Hermes, Richemont saw sales improve in the September quarter after a pandemic slump and it is now trying to capitalise on strong Chinese demand for luxury goods and booming online sales.

The world’s second-biggest luxury group reported sales down just 2% in the latest quarter as Chinese customers turned to shopping domestically and online. Chief Financial Officer Burkhart Grund said the company had returned to growth in August and trends in October were holding up.

The group’s jewellery brands Cartier and Van Cleef & Arpels maintained an operating margin above 30% for the half-year, limiting the decline in the group’s net profit that fell 82%, but less than expected, to 159 million euros ($189 million).

Richemont shares, down almost 17% this year, were up 8.3% at 1126 GMT.

Citi analyst Thomas Chauvet applauded the performance led by jewellery, China and cost control and said the agreement with Farfetch would help accelerate digitalisation in luxury.

Sales in China shot up 83% over the first half to Sept. 30, overtaking the U.S. as the company’s biggest market.

The COVID-19 crisis has accelerated online and e-commerce growth and this trend was set to continue and was the rationale behind the Farfetch deal, Rupert said.

“It is a reset for all of us, not just a pause and we wanted to make sure that we were leaders in that field.”

The deal will give the Cartier maker the technology it needs, but does not signal interest in a merger or in taking over Farfetch, Rupert said.

“We’re dealing with a public company that we hope will remain independent,” he added.

Richemont already has a joint venture with Alibaba. In 2019 the two groups announced the opening of a Net-A-Porter flagship store on Alibaba’s Tmall Luxury Pavilion, a platform dedicated to luxury and fashion brands.

Rupert played down speculation Richemont itself might come up for sale, saying his family planned to remain invested for the medium term. ($1 = 0.8425 euros) (Reporting by Silke Koltrowitz; Editing by Michael Shields and Elaine Hardcastle)

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