Now that the Downturn Is Ending, the Watch Industry Wonders If Retailers and Big Brands Can Get Back in Synch
At the start of 2008, the Swiss watch business was coming off its best year ever. Exports in 2007 totaled 16 billion Swiss francs, reflecting a 16.2 percent growth over the prior year, the highest growth spurt in 18 years, according to the Federation of the Swiss Watch Industry. Despite signs that the economy was beginning to falter, there was no reason to believe that demand for high-end timepieces would slacken.
Then came the Lehman Bros. collapse and the subsequent global crisis and, suddenly, all bets were off.
“An entire decade’s worth of growth was wiped out by this recession,” says Joe Thompson, editor in chief of New York City–based WatchTime magazine.
Now that the clouds are beginning to clear, the watch industry is looking at a vastly changed landscape.
Brands have slashed distribution. They are aggressively pursuing not-always-popular plans to open their own boutiques. Some have even tiptoed into e-commerce. All of which has left traditional retailers—who also weathered a tough few years—stranded in the middle, between choosier and more self-sufficient watchmakers and still-frugal consumers, who are often seduced by discounts and the siren call of the “grey market,” the term for distribution channels that allow genuine brands to be sold at discounted prices because they come from overseas or from authorized dealers who are selling them surreptitiously.
“The retailers I talk to are feeling besieged,” Thompson says. “They will complain they used to be partners. But this recession has aggravated the frictions and brought them to the fore.”
Some of these disputes involve manufacturers selling directly to consumers. For the past decade or so, companies like Chopard and Breguet have launched mono-brand boutiques, generally in big cities like New York City and London. The Swatch Group even hatched a multibrand chain of high-end boutiques, Tourbillon. While the recession put the brakes on some of these plans, they will likely now resume; Omega just announced plans to open 20 boutiques in 2011. (Going against the grain: Movado, which shuttered its retail division in May.)
The companies claim these showcases do not compete with traditional retailers, but rather promote the brands and the category in general.
Timekeeper: Tourneau’s Andrew Block
Andrew Block, executive vice president at the 40-store chain Tourneau, doesn’t disagree. “Within a 10-block radius of our flagship store, there are probably a dozen of them,” says Block, whose flagship boutique in Manhattan, the Time Machine, is the world’s largest watch store. “But they tend to attract customers of their brand, not of watches in general. All the research says consumers want a choice of at least three brands when making a decision.”
Yet some draw the line at Internet sales. While most companies forbid jewelers from selling their products online, a few have rankled retail partners by experimenting with e-boutiques. For instance, Bell & Ross USA began selling directly to American consumers over its website in September 2010, following on the heels of its European division. Online buyers have the option of picking up the product at an authorized retailer. But if they don’t choose that, the company ships the product directly. Bell & Ross USA president Stacie Orloff feels that, as with the mono-brand stores, the e-boutique allows the brand to present its merchandise in the best possible manner. “We want to discourage grey-market dealers that are selling online without warranties,” she says, admitting reaction from jewelers has been all over the map. “Some stores realize we are not trying to undercut them,” she says. “But some are worried that we are trying to take sales from them.” She notes that the company hasn’t made any online watch sales yet—only accessories, and only in areas where they are not available at brick-and-mortar locations. “I still think the customer prefers to get romanced.”
Many retailers agree, describing Internet shoppers as a breed apart. “If you buy on the Internet, good luck to you—you’re probably not my customer anyway,” says Ruediger Albers, president of Wempe, the German chain with a boutique on New York City’s Fifth Avenue. “When you buy from us, we make it special with champagne. You recall that when you look at your watch. Opening the FedEx box, it’s not as sexy.”
Timekeeper: Hublot’s Jean-Claude Biver
Other companies, fiercely protective of their image, worry that selling online will cheapen their product. “Our distribution network is based on exclusivity,” says Hublot CEO Jean-Claude Biver. “But the Internet is open to everybody.”
Steven Kaiser, an industry consultant and recruiter, says that, with so many grey-market products online, the Internet is not the ideal place to sell at full retail. “If tomorrow, seven brands wanted to go direct on the Internet, they wouldn’t be successful,” he notes. “They would be seen as overpriced.”
In any case, many retailers’ greatest fear is not companies selling to the public, but being axed from their hottest vendors’ networks. “We don’t have issues with boutiques, just when they are opened at the expense of the retailer,” Block says. And, yet, that’s become a real possibility. During the recession, big names like Cartier slashed the number of stores to which they sold.
“We had the same thing happen in the recession of ’90, ’91,” Thompson says. “Rolex and Cartier both trimmed stores. You grow in the boom and then eliminate during the bad times.” Even store owners admit that the contraction was a long time in coming and will help eliminate discounting, which, in the wake of the recession, has become a scourge on the business.
Timekeeper: Bell & Ross USA’s Stacie Orloff
“We all have to learn again how to sell at full price,” Orloff says. “It’s kind of a reeducation.” And while no one denies price is very much an issue today, veteran store owners like Marc A. Green, of eight-store Connecticut chain Lux Bond & Green, feel that retailers need to brush up on their old-fashioned salesmanship. “We sell the store, our service, and tell the brand’s story,” he says. Others are offering expanded warranties and assorted extras as a way to maintain the price and still nab the sale.
Beyond dealing with the quasi-legal grey market, which was deluged with watches when demand collapsed, the more salient concern for high-end watch retailers is how to beat smartphones and other handheld devices for share of consumer wallet, no doubt the category’s biggest obstacle in years to come.