Japan’s Watchmakers Focus on ‘The Bright Spot’

Some of the most noteworthy moves by top Japanese watch brands to expand their business, especially among young adult and female consumers, are occurring in the United States … but not quite in ways the parent firms in Tokyo had planned.

The U.S. market is the most important and lucrative one for Japan’s watches. In the words of Katsuaki Noji, president of Citizen Trading Co., which sells Citizen watches worldwide, it’s “the bright spot for all of us”—especially in light of sluggish sales for Japanese brands elsewhere around the globe. The United States accounts for a third of Citizen’s total watch business, 23% of Seiko’s, and 20% of Casio’s (which wants to expand that to 30%). Not surprisingly, then, Japan’s watchmakers pay close attention to what happens here.

Recent changes in Seiko Corp.’s worldwide operations, for example, are aimed at boosting the company’s image—and business—with U.S. watch retailers, especially jewelers.

In the late 20th century, Seiko’s mass production, volume sales, and simultaneous worldwide debuts of watches created a “gray market” for its timepieces in the United States. This network of unauthorized sellers obtained new Seiko watches from overseas sources and sold them here at prices below those of authorized Seiko dealers. While volume business created healthy profits for Seiko, the parallel distribution it spawned angered its U.S. retailers, especially jewelers, many of whom dropped the brand in the 1980s and ’90s. The “gray market” hurt Seiko’s image and—in the long run—its business, say company officials now, and in the past 18 months Seiko has acted to correct that.

“We’ve shifted our priorities back to jewelers,” says Chushichi Inoue, president of Seiko Corp. “Being identified with them—both independents and chains—is the image we want in America. They are a primary customer for us, again.” (Seiko also sells to U.S. department stores and mid-tier merchants like Sears, but not to mass merchandisers such as Kmart or Wal-Mart.)

To demonstrate its renewed commitment to jewelers, Seiko Corp. and Seiko Corp. of America (SCA) have taken several important steps.

Last summer, Seiko Corp. moved distribution of its mass-market Lorus watches from SCA to a new Dallas-based company called SI Marketing International (an alliance of Seiko Instrument Inc. and Fossil watches). That leaves SCA free to focus on developing Seiko’s image as an upscale watch brand and to develop and promote upscale Seiko watches sold by jewelers—for instance, the mid-priced Kinetic Auto Relay series, whose $2,500 chronograph is SCA’s highest-priced timepiece, or the new Lassale collection, retailing for $750-$1,052 at select jewelers.

To make it easier for jewelers to do business with SCA, the company initiated “unified multi-brand marketing.” Retailers now deal with only one salesperson, who handles all SCA brands (Seiko, Pulsar, Lassale, clocks, etc.); use only one purchase order for SCA products; and receive orders in one shipment, on one SCA invoice. SCA implemented a similar procedure for department stores, consolidating national accounts under one account manager.

It has refined its customer service—for example, improving its “fill rate” (the percentage of orders that go out immediately). An inconsistent fill rate once caused difficulties for retail customers and added expenses for SCA. “Our goal for 2000 was a 95% fill rate,” says Rick Vogler, SCA chief operations officer. “We ended the year with 97%.”

Seiko and SCA also have gotten tougher with counterfeiters. Last summer and fall, they filed lawsuits in federal court against several wholesalers of counterfeit watches, stopping their sales and getting court-approved seizures of more than 25,000 fake Seikos.

Eliminating the gray. Perhaps most importantly, Seiko Corp. has revamped its marketing and distribution procedures to weaken—and, if possible, eliminate—”gray market” competition. In the past 18 months, the company recast its international markets into two categories, explains Inoue: “priority” markets (especially the United States), which are “strategically important to Seiko’s future; and ‘secondary’ or developing markets, which may be important in the future but now have potential risk to disturb our priority markets [as gray market sources].”

Seiko also changed when and how its watches are introduced and distributed. “In the past,” says Inoue, “we had no real way of controlling parallel importation of our watches into the United States from other markets, because we used country-based distributorship. Now, priority markets get the new watches first, and secondary markets get them later—when Seiko Corp. in Tokyo decides, and in amounts controlled by the company, so that we don’t oversupply secondary markets.”

Effects of these new policies are already apparent in the United States. A number of Seiko’s retailers in California, for example, recently reported that parallel distribution there has almost disappeared. “We are getting [far fewer] complaints overall” about gray market competition,” says Tsutomu Mitome, SCA president and chief executive officer. “Products coming here from gray market sources are down sharply, especially important high-end products. That’s good for Seiko’s image. It shows that we have our distribution under control and builds the confidence of jewelers.”

“Humming along.” Citizen Watch Co. isn’t tinkering with its U.S. operations, Citizen Watch of America (CWA), because the United States is the one market where Citizen’s watch sales “have grown steadily,” says the parent firm’s 2000 annual report. “While the U.S. is a very competitive market, [Citizen’s] business here is very healthy, and we’re doing very well,” says Laurence R. Grunstein, the longtime president of CWA. It is doing so well in the important U.S. market—”humming along,” in Grunstein’s words—that its business and marketing methods (including advertising and customer service) are increasingly held up as examples to Citizen subsidiaries in other markets. In addition, Grunstein has in recent years been appointed to oversee Citizen’s operations in Canada, the Caribbean, and—in late 2000—the United Kingdom.

A big reason for its U.S. success, says Grunstein, is that while other brands expand into new distribution channels and higher price points, CWA concentrates “on what we do best—the mid-priced watch market. We know that market best and how to make product for it. And it’s important our customers know that [CWA is staying there], rather than confusing them by going in different directions.”

CWA’s three main U.S. distribution channels remain jewelers (independent and chain), department stores (excluding mass merchants), and watch specialty stores. Unlike some mid- and upscale watch brands, the company has no outlet or retail stores, nor does it sell on the Internet. Echoing its parent firm, CWA doesn’t plan to move up the price ladder, even within the mid-priced category, as Seiko is doing. (The highest-priced watch CWA markets in the U.S. is its $595 Eco-Drive Aqualand.) Ironically, CWA’s U.S. inventory has included for several years an over-$1,000 watch line called Noblia, but the company doesn’t promote it. The Swiss-dominated luxury watch category is “so crowded now,” says Grunstein, “it’s very hard to compete with Swiss watches, even those made in China, if you’re not a Swiss brand yourself.”

Leeway. Because of the importance of their American operations, Japan’s watchmakers give them greater leeway in following corporate marketing strategies. This is most evident in the way CWA and SCA are treating the “global watches” their parent firms created in the past 18 months to build up their brand images, sales, and consumer awareness in the global market.

Citizen’s “global watch” is the light-powered Vitro, with solar cells so small they’re almost invisible. The company introduced Vitro with much fanfare in spring 2000 at the international watch fair in Basel, Switzerland … but CWA isn’t marketing it here.

Nor does it have to: The higher sales and brand recognition Citizen seeks worldwide are being achieved in the United States by its other light-powered Eco-Drive watches. Under CWA’s management, annual U.S. sales of Eco-Drive watches have risen from zero in 1996, when they debuted here, to one-third of CWA’s revenues in 2000, and Grunstein expects that to grow to 40% this year. Last year alone, CWA shipped 40,000 of its new Eco-Drive “Modena” fashion watches, compared with a few thousand Vitros sold worldwide. New Citizen timepieces, especially Eco-Drive watches, did so well last fall, that “we oversold on key models, and people were yelling for more,” says Grunstein. “That bodes well for this year.”

CWA is also using its batteryless Eco-Drive watches—which capture light in a cell beneath the watch dial and convert it into energy to power the timepiece’s quartz movement—to build a wider market among young adults. “Some four billion watch batteries are dumped annually into the ocean, and no one [over 40] seems to care,” says Grunstein. “But young people are much more concerned about ecology, and at some point this will become an issue. When it does, the market will turn to alternative energy watches like Eco-Drive.”

Meanwhile, Seiko Corp.’s Wired—a sleek, affordable fashion watch designed for young adult consumers—is a star in Seiko’s international campaign to create its global sales and image. But not in the United States: SCA isn’t distributing it here.

SCA officials evaluated the watch and decided it isn’t appropriate or necessary for its traditional jewelry store accounts. “With our new products and new styles in the Seiko and Pulsar collections, there wasn’t a need for it with our customers,” says Gloria Maccaroni, SCA vice president of marketing.

SCA tested the waters of the fashion-watch market last fall. A collection of four Wired watches was sold by some specialty retail clients (stores, boutiques, and chains that specialize in trendy apparel as well as watches) that already sell Pulsar’s popular Spoon watches designed for young adults.

But after assessing pricing and customer response, “we decided Wired isn’t a priority for the U.S.,” says Maccaroni. “We like how Spoon is evolving and decided we don’t need [Wired].”

SCA officials discussed all this with Tokyo headquarters, and “they understood this isn’t appropriate for our marketplace, though it is for markets in other parts of the world, with different customer mixes and opportunities.” Similarly, while Pulsar is a strong seller in the United States, it isn’t distributed by Seiko in many other parts of the world.

Stressing style. Both CWA and SCA, however, are following their parent firms’ lead in promoting a more stylish image for their watches and publicizing them as fashion accessories, especially for women, and essential additions to any watch wardrobe. SCA recently launched a new campaign in national magazines promoting its Kinetic Auto Relay, Le Grand Sport, and Jewelry Collection as fashion accessories for both men and women. One, for example, shows its Kinetic Auto Relay watches surrounded by men’s ties, with the tagline, “Science, now available as a fashion accessory.” About the same time, CWA also launched its own innovative ad campaign in national news and fashion magazines—the most intensive in its history, at a reported cost of $4 million—showcasing both its batteryless Eco-Drive technology and Citizen’s new focus on fashionable watch designs. It debuted a new Eco-Drive watch every two weeks from mid-September through early December, including its Elektra Collection for men and women, Silhouette Bangles for women, and Modena.

The reaction was better than CWA officials had hoped. “We underestimated the strong response,” says Grunstein. According to Peter Nicholson, CWA’s vice president of corporate communications, “So many people actually tore ads out of the magazine and walked into stores saying, ‘I want this watch’ that existing inventory quickly sold out.” CWA plans to expand the campaign into TV spots, outdoors ads, and other print media.

Casio’s plans. Meanwhile, Casio—already successful in mass-merchant and department stores—is expanding its business to include mid-tier volume retailers in the United States, such as Service Merchandise, Kohl’s, and Sears.

“With more than 2,000 doors and great volume, we believe we have a real opportunity to grow there,” says Steve Kimura, Europe & North America section manager for the Casio Timepiece Division. At press time, Casio was still deciding which marketing and product it would offer the mid-tier chains, but “it will be different from the mass-market and department stores” where Casio already does a strong business, said Kimura. The retail price range will be $35-$80, and Casio’s goal is to have revenues from those mid-tier stores provide more than 10% of its total business by 2003.

Casio currently has two primary distribution channels in the United States: mass market, which sells Casio brand watches that retail for $20-$80 (about 40%-50% of its volume), and department stores, which carry G-Shock and Baby-G watches and some new brands, retailing for $40-$100 (20%-30% of its volume). Jewelers account for less than 10% of Casio’s business, and it has no plans to expand in that arena.

Casio continues to develop and promote its new series of “wrist technology” watches, such as its GPS watch, which tunes in to satellites to find the wearer’s exact location, and its new wrist-wearable digital camera. Company officials describe them as “wrist-worn devices that are highly portable and easy to use.” The wrist technology products are designed to link with personal computers or mobile products like laptops or cell phones. They retail in the United States for $100-$500.

Right now, the United States represents about 20% (and about 10 million watches) of Casio’s total watch business. With its expansion into mid-tier stores and its continued development of wrist technology watches, it aims to boost that figure to 30% in the near future. In fact, Casio officials see the wrist technology devices as the next logical step in watches. “Watches that are just for timekeeping are not a growing market,” contends Yuichi Masuda, general manager of planning for Casio’s Timepiece Division. “But Intelligent Technology (IT) watches will become a major category. These are not just watches as we understand them, but mobile instruments to download and upload information.”