1999 Watch Forecast: Sales Gains, Growing Pains
The U.S. watch market at the close of the century is one of vast potential. In light of the Asian economic collapse and slackening sales in Europe, the American market now takes on greater significance among watchmakers. The prospect of a watch renaissance here hinges in large measure on growing consumer sophistication as watches move into the mainstream of fashion sensibility. As that trend progresses, industry observers believe 1999 will see solid growth in U.S. watch sales, particularly among automatic watches.
And yet, a number of thorny issues complicate an otherwise promising picture. Price competition continues to eat away at retailers’ profits. The quality of after-sales service is spotty. Product proliferation breeds growing confusion among consumers. Distributors bemoan the lack of support from overseas manufacturers. Overdue back orders remain a gnawing concern.
No wonder jewelers remain ambivalent about watches. “Retailers are caught in a dilemma,” says Tom Tivol, president of Tivol Jewelers in Kansas City, Mo. “They stock brand-name watch product, which is important to the reputation and image of their stores. Yet overall, watches are far less profitable than other products. Watches aren’t necessary evils; they’re interesting pieces of jewelry that should be lauded. But there are so many problems that it’s difficult to run your business well with them.”
To mitigate risk and enhance profitability, many retailers are stocking fewer brands with more products within each brand. At the same time, jewelers continue to take advantage of the growing sophistication of manufacturers’ point-of-purchase displays (even as some bristle at what they see as “brand overkill”). These and other factors may make 1999 a year in which the U.S. watch market moves closer toward realizing its potential.
Profit pinch. As with diamonds, retailers’ profit margins for watches are increasingly squeezed. This is due in part to Asia’s economic woes, as significantly more imported gray-market goods are being sold through unauthorized dealers, including those on the Internet. Look for online retailers to usurp sales from traditional watch retailers, especially purveyors of luxury brands who covet exclusivity. Worldwide overproduction of timepieces likewise will contribute to the profit crunch.
Owing to price competition from untraditional sellers, watch retailers in the United States will feel heavy pressure from consumers looking for a deal. Yet bargain hunters rarely know whether a competitor’s watch is old or new, legitimate or counterfeit. Retailers who wish to close these difficult sales must assure customers that the higher price is worth the certainty of buying from an authorized source.
Tivol recommends that retailers avoid competing on price against gray-market, used, or counterfeit watches. “The American retailer needs to learn how to lose sales and be respectful while doing it,” Tivol says. “We mustn’t suggest the client is wrong to shop that way. But you simply don’t have an ethical or business obligation to compete against potential unauthorized business or unauthorized product.”
Sources say some watch manufacturers don’t seem to care if watches are sold on the gray market, as long as they sell. But others do see it as a problem, and one sign of that is increased use of serial numbers. Meanwhile, some watch companies are working directly with credit card companies to sell watches through catalogs.
Burgeoning brands. Retailers will remain reluctant to gamble on the cavalcade of mechanical timepieces introduced by unfamiliar watch brands. Small advertising budgets and a lack of quality after-sales service will spell hard times for these fledgling brands, regardless of their unique appeal. “Retailers are confronted with great quantities of watch brands, many of which we haven’t heard of,” says one retailer. “It takes a great leap of faith to develop watch lines with fine manufacturing capability, but not knowing about the after-sales service.”
After-sales service, a chronic problem with mechanical watches, is unpredictable in terms not only of time and cost but also of quality. Mechanical watches are sometimes serviced and returned to the retailer months later and in some cases still don’t work properly.
Distributor distress. Many U.S. distributors are growing tired of what they perceive as a lack of support from overseas, especially from Swiss watch manufacturers. “U.S. distributors are forking out their own money to promote these watch brands, and they receive no support,” says one frustrated source. “It’s time for the Swiss to invest in the United States.”
The Swiss watch industry may well be poised to do that – but at the expense of distributors in this country. As with Japanese brands, more Swiss manufacturers – Rotary, for example – are taking control of their U.S. business by opening wholly owned subsidiaries and squeezing out the U.S. distributor.
Asian aftershocks. The Asian economic crisis may lead to the sale of major brands that were hit hard when business in that market plummeted. According to sources, one such casualty may be Tag Heuer, which saw Asian sales in 1998 drop 21.4% from 130 million to 102.9 million Swiss francs, accounting for the brand’s overall 5.4% decrease. In 1999, watchmakers will lean more heavily on the U.S. market. That means respected U.S. retailers will gain more power as their precious real estate becomes more in demand.
“America is going to be the focal point of the watch business,” says David Marold, president of Michel Jordi USA. “Asia has collapsed; Europe is off. The Swiss retail business is off 30% to 40%. America is the last major strong market. And everybody’s going to be kicking, clawing, and fighting for the American pie.”
The U.S. watch market will be dog-eat-dog for brands entering the market. For their part, existing watch companies will seek new ways to grow their business – via spin-off watch brands in untraditional price ranges or by expanding into new categories such as pens, eyewear, and handbags.
Tracking trends. How much longer can steel steal the spotlight? At least for another year, as steel watches show no sign of slowing down, even on the high end. Slumping gold is another story.
“Steel has been hot for so long and white gold has come on strong, but where is yellow gold going?” wonders Aida Alvarez, watch buyer for Coral Gables, Fla.-based Mayor’s Jewelers. “There’s always a customer who prefers a yellow gold watch.”
Yellow gold watch sales may pick up if there’s a resurgence of dress watches in 1999. That development may well be sparked by an emphasis on elegant women’s timepieces such as Patek Philippe’s new jeweled watches or the trend toward bangle watches.
Sports watch sales will continue their strong showing, but some brands may be squeezed out as look-alike designs saturate the market. Watch licensing is a runaway train. A name by itself no longer guarantees success, but it sure helps. Most watch brands, in fact, are driven by powerful names. In 1999, individual watch collections will carry names consumers can readily recognize: Baume & Mercier’s Cape Land, Concord’s Impresario, Tag Heuer’s Ti5 or Kirium, Citizen’s Eco Drive, Fendi’s Zucca, and Omega’s X-33, among others.
After a high-tech drought in recent years, 1999 looks to be a breakthrough year in technology, especially in the moderately priced category. Swatch’s “Beep Box” beeper watch, for example, links to the Internet. Swatch Talk, a $350 wristwatch phone, is scheduled to hit the market later this year (although not yet in the United States). Also on the horizon are “touch-screen” watches that change from analog to digital at the touch of the dial. And Bulova’s popular Vibra-Alarm watch, featuring a sound and vibrating alarm, is likely to be copied this year.
Advertising avalanche. Consumer watch advertising will continue to soar as in recent years, as evidenced by Tourneau’s current 24-page advertorial inserts in GQ, Vanity Fair, and Architectural Digest. In light of skyrocketing advertising costs, however, some consumer publications may be left in the cold as watch companies reevaluate their return on investment. One watch distributor expressed interest in creating an alliance to strengthen watch brands’ negotiating power with magazines.
Watch brands are relying more on barter advertising. There is even evidence that luxury watch competitors are sharing costs of cooperative advertising and running split ads through prominent retailers.
This could be the year American consumers make quantum leaps in their watch knowledge and sophistication. Pop culture will influence watch buying behavior more than ever. With movie exposure and magazines such as In Style, GQ, and Esquire extolling the virtues of fine timepieces, watches can’t help attracting a broader audience. That’s good news for retailers.
Cyma’s Ads Break All Molds
Cyma is benefiting from increased interest in the dress watch category.
It’s also quietly pleasing jewelers with its focus on jeweler profit and its impressive sales and service, all without much fanfare. But the company’s unique advertising campaign is earning it the most attention. “We’re not a household name, so we better stop them with our advertising,” says Hugh Glenn, president of Glenn Corp., the exclusive U.S. distributor of Cyma.
Cyma’s “Not Just Another Pretty Face” ad campaign is among the most unique in the industry. The ads highlight the brand’s 18k-gold dress watches, an upgrade from its past 14k-gold niche. While Cyma still offers 14k-gold watches, 18k has become its strength. According to Glenn, few brands are specializing in 18k-gold timepieces from the moderate to luxury price point range. He cites Concord and Baume & Mercier as Cyma’s main competition.
Cyma has developed a reputation as the independent jewelers’ watch line. “All our diamond watches have an extra 10% markup,” Glenn says. “Jewelers love that because it means more profit for them. But even with that extra markup, we’re significantly less expensive than our competition. Because of this value, jewelers sell these watches very well.”
Diamond watches constitute 20% of Cyma’s sales. Its best seller is a white gold model with mother-of-pearl dial and sapphire cabochon for $6,000. In recent years, Cyma has added a diverse cross-section of timepieces from $295 to $15,000. Its Imperium line, featuring steel and bi-color watches from $595 to $795, is among that broader collection – as is its popular Charisma line.
With success in watches, Glenn pondered what else tells time. He came up with trees and their rings. Thus, Sequoia was born. Sequoia is a spin-off designer jewelry collection, a Glenn creation. Complementing Cyma watches, Sequoia is a 50-piece collection of 18k gold jewelry from $500 to $6,000. The bracelets, necklaces, rings, earrings, and pendants feature a Truscan style in brushed and polished textures with or without diamonds.
“We already had a good relationship with independent jewelers, and that’s what led to this jewelry line,” Glenn says. Now Glenn Corp. has charisma in both watches and jewelry.
Daniel Mink in Litigation?
The New York-based Montreaux Group and Rina Mink, the former owner of Daniel Mink, quietly have been in litigation since last April, according to reliable industry sources. The Montreaux Group, however, denies it.
The Montreaux Group is the owner and worldwide distributor of Daniel Mink watches, and there may be a dispute over control of the brand or how the transition from previous ownership transpired, sources say.
“I wouldn’t say we’re in litigation,” says vice president Mitchell Caplan. “Rina Mink is basically a former owner. It’s kind of unsettled. She’s in the process of phasing out of the company and selling her shares. Nothing is signed and settled.”
Meanwhile there’s word that Mink, who named the Daniel Mink brand after one of her children, was unsuspectingly forced from the company. The litigation will likely go to trial, according to one source.
Mink has since launched Miami-based JS Designs by Rina Mink, a new company that markets private-label watches and premium and incentive watches. Mink says JS Designs offers elegant, affordable watches retailing from $95 to $195.
The watches are designed in Germany, distributed from Miami, and made in China with Citizen movements, Mink says. She also says the factory has the ability to produce 18k-gold watches with Swiss movements.
“Our watches have Far East prices and European sophistication,” Mink says. “And we have great service in the United States, so customers don’t have to worry about Far East headaches.”
Concord’s Latest Power Play
Concord watch products have been impressive in recent years. Some even speculate that Concord will be the Movado Group’s upscale star brand of the future. With good reason.
As it climbs, the brand is getting an image boost to boot. Taking its creative consulting out-of-house, Concord has hired Arnell Group, whose prestigious clients include Tommy Hilfiger, Samsung, and Hanes. The group is responsible for the global “re-imaging” of the 90-year-old brand, including positioning, advertising, logo creation, merchandising, and package development. A new ad campaign breaks this spring.
“As Concord is poised for major growth globally, the new advertising is intended to generate awareness not just for the product, but to inspire an emotional response to the brand,” says Scott Woodward, chief marketing officer for the Movado Group.
Traces of Concord’s image enhancing are already trickling in. The brand’s Impresario watch made its screen debut in Universal Pictures’ romantic drama Meet Joe Black, starring Brad Pitt and Anthony Hopkins. Hopkins plays William Parrish, a wealthy, powerful media tycoon with refined taste. Enter Concord’s Impresario, which complements his elegant wardrobe.
Concord celebrated its connection to power and style as cosponsor of a Worth magazine reception honoring the power elite. The event, held at Saks Fifth Avenue in New York, kicked off Worth’s first Wall Street issue, which highlighted power brokers. Dubbed “The Power Brokers Meet the Power Brands,” it was also cosponsored by Donna Karan, Valentino Uomo, Giorgio Armani Le Collezioni, Hèrmes, Paul Stewart, Louis Vuitton, and more. Concord presented a watch to a magazine reader and to guest speakers, including Frank G. Zarb, Wall Street’s “ultimate power broker.”
Genender Delivers Bebe
Chicago-based Genender International has a way with pick-up lines. In recent years the privately owned, 60-year-old company has picked up more watch lines, most of them licensed, than any other company: Zodiac, Perry Ellis, Levi’s, Docker’s, Silver Tab, Dr. Martens, and the Kermit the Frog Collection.
Genender International’s latest score is Bebe, a provocative watch collection that the company will manufacture and distribute this spring in department and specialty stores, including Bebe boutiques.
The watches complement Bebe’s distinctive line of contemporary women’s apparel and accessories, which are preferred by Hollywood’s femme elite. Dubbed by some as “sexy yet sophisticated nightclub apparel” for women 18 to 35 years old, the watches are designed to attract the same audience. Bebe watches retail from $45 to $110.
“Bebe will stand out as the must-have timepiece young women have been waiting for,” says Amy Genender, licensing manager for Genender International. “The Bebe customer sets herself apart from more traditional shoppers, refusing to identify herself as ‘junior,’ ‘missy,’ or ‘woman.’ She is searching for her own look to fill that gap. And that gap is going to be filled by Bebe. The Bebe profile customer has been totally neglected, and so the potential is tremendous.”