The watch business may be lucrative, but it’s also demanding. JCK offers a primer on growing your stake in the booming timepiece trade.
The recession? Ancient history—just ask anyone in the Swiss watch business.
Buoyed by a booming luxury sector and strong demand in Asia, Swiss watch exports for the first 11 months of last year tallied a steady growth rate of 19 percent compared with 2010, for a cumulative total of 17.4 billion Swiss francs, or $18.7 billion, according to the latest figures from the Federation of the Swiss Watch Industry.
The outlook for 2012 has been tempered by the European debt crisis and a sharp slowdown in the Chinese economy. Still, the industry is expecting exports to maintain record levels this year. Richemont—the owner of such high-profile names as Cartier, IWC, and Panerai—saw 2011 third-quarter revenues climb 28 percent worldwide and 36 percent in the Asia-Pacific region. Swatch Group—the behemoth of Swiss watchmaking, with brands such as Breguet, Blancpain, and Longines under its umbrella—is predicting between 5 and 10 percent growth in 2012. And LVMH Moët Hennessy–Louis Vuitton, the group behind TAG Heuer and Hublot, reported a 26 percent jump in watch and jewelry sales for the first nine months of 2011.
Steve Kaiser, president and CEO of New York City–based consultancy Kaiser Time, puts it bluntly: “I think if you’re a retailer and you’re not doing watches, you’re kind of crazy.”
If you’re a watch seller looking to increase your product assortment, to go after a specific brand, or to break into the watch business altogether, the numbers are indeed seductive. However, today’s watch business is anything but simple.
“The reality now is that consumers like brands, they like names,” Kaiser says. “You’re not going to get them in without brands.”
Here in the United States, postrecession consumers are selective with their dollars, placing a high emphasis on perceived value. Reluctant to invest money on niche brands, they’re more inclined to choose a mark with heritage and longevity—essentially the tried-and-true. “If I lose my job or if the market crashes, [consumers] want to know the value of their watch will hold up in the secondary market,” Kaiser says. “The more powerful the name, the more people will believe they can turn it into cash, if they need to. [Price points] under $1,000 increased last year and, obviously, the pull comes from the fashion brands. And over $10,000 did well. It’s that middle that didn’t do as well, which is not that surprising.”
In short, brands—in high-end watches, that invariably means Swiss brands—run the show. As far as independent jewelers are concerned, the key is to create alliances to ensure steady product flow as well as alliances to implement merchandising ideas and to leverage corporate advertising campaigns.
The challenge of the watch business today comes down to a classic supply-and-demand scenario. Brands aren’t producing enough product to satisfy global desires. They are increasingly requiring sizable investments in product commitments and display space. For jewelers wanting to break into the market, the startup budget can be enormous, say experts, easily totaling hundreds of thousands of dollars, if not millions. Other obstacles abound. For example, many suppliers, like Richemont and Swatch Group, are turning vertical by opening their own stores, often carrying exclusive pieces, which can create additional headaches for independents.
Abe Sherman, CEO of the Buyers Intelligence Group (BIG), recommends that retailers interested in starting or growing a watch business ask themselves the following questions before deciding on a mix of brands for their market:
- Are you already a watch store and adding more to protect that position, or are you primarily a jewelry store looking to get into watches?
- Is there a watch store in your marketplace, and do you want to take that market position—in addition to promoting yourself as a bridal or custom design store, for example?
- Why is a line available? (In other words, have other jewelers in the marketplace given up the brand or has the brand walked away from the jeweler?)
- Are these watches readily available online? If so, what is your expected margin?
- What is the exit strategy if the line doesn’t sell?
Aside from these questions, Sherman advises that you ask yourself how you can manage a product supply shortage, arguably the biggest factor affecting U.S. watch sellers. A recent court ruling allows the Swatch Group, whose ETA and Nivarox units maintain a quasi-monopoly over critical watch parts and movements, to cut supplies to rival watchmakers, raising the specter of further delays.
“We’re all fighting over pieces,” says Jeremy Oster, owner of 20-year-old Oster Jewelers in Aspen, Colo. To put it in perspective, Bloomberg recently reported that Vacheron Constantin, one of the oldest Swiss watchmakers in operation, sold out of its entire expected output of 19,000 timepieces in 2012 by Jan. 18. Whether the 257-year-old company could not or would not meet demand—watchmakers admit to being cautious for the coming year—the end result is the same. “We tend to produce less than the demand,” the CEO of independent watchmaker Parmigiani, Jean-Marc Jacot, told Reuters. “We like to remain conservative because we don’t want to end up in the same situation as 2008–2009.”
Oster has found a recipe for making it work. “Making a significant financial commitment has always assured we’ve had very good luck with pretty much any brand,” he says. “Building relationships, our knowledge of the industry, and our reputation ensure our future.”
Many in the industry say that relationships speak louder than dollars. A jeweler hoping to break into the watch business will have an easier time with vendors if he is a third- or fourth-generation owner of a store with an established track record than if he is a jeweler with ample backing alone.
Exquisite Timepieces in Naples, Fla., places an enormous emphasis on relationships. “There’s a lot of product going to Asia, but we still get our fair share,” says owner Steven Richardson, adding that he sells pieces that range from $3,000 to $200,000. “There’s not an excess, but it’s a fair share. If you’ve built a relationship and pay your bills on time, they will take care of you.”
Along with cultivating relationships, educating yourself on watchmaking is also an integral part of success in today’s business. Richardson devotes a healthy percentage of funds to education—e.g., making visits to Swiss factories several times a year and providing in-house training for sales staff. “I think it’s important to see where [watches] come from,” he says. “To me, you really have to be interested and appreciate the brands that you choose for the store. Otherwise, you might as well be selling tomatoes.”
Where brands are concerned, merchandising watches is no longer a matter of setting up attractive display cases. “Many of the watch brands are going to a mono-brand concept,” says Richard Granatoor, general manager of William Barthman Jeweler in New York City. Richemont brands such as Vacheron Constantin, Montblanc, and Van Cleef & Arpels, for instance, might prefer to be grouped together rather than paired with a set of Swatch Group brands. “Today, brands have become very specific about placement and where they fit in,” Granatoor says. “You don’t want to put Swiss Army next to Rolex. Brands like to be partnered. They like to be kept in the same company.”
That’s true even for fashion brands, according to Julia Linder Bell, owner and gemologist at Jewel Mark in Santa Fe, N.M. “We don’t mix them,” she says. “Cartier built their own case for us. Gucci, the same thing. Everyone gets its own case. The collections should stand on their own.”
Many brands require jewelers to set up shop-in-shops featuring their entire collection. “They view you as representing them,” Richardson says. “They want to make sure they are getting a true representation. Image is important. So is the way you display, care for, respect, and handle the watches.”
As for how much of your jewelry business should be allocated to watches, experts say you simply have to find the balance that works for your business. JCK found that independent retailers were devoting anywhere from 30 to 100 percent of their businesses to timepieces. On the flip side, Michael Finn, owner of E.B. Horn in Boston, says his sweet spot is less than 10 percent. “We sold a number of prestige brands, and we found that it’s a double-edged sword,” Finn says. “On the one hand, you feel lucky to have them and, on the other hand, you’re at their mercy.”