The latest news here is that the market is changing under the influence of large groups manufacturing watches. But besides manufacturers, there are other players on the watch market: wholesalers and retailers. Now I would like to elaborate on how wholesalers react to the pressure of manufacturers and on how the behaviour of the former influences the market. Despite the relative youth of the Russian watch market, there are some illustrative trends. The wholesalers' attempts to protect themselves, trigger off new changes. And the harder the manufacturers' pressure, the greater the market's counteraction.
It's common practice that a large manufacturer actively cooperates with local wholesalers at the stage of entering the market, but as soon as their sales have achieved a certain level, the manufacturer opens a subsidiary thus leaving the wholesalers empty-handed. Strange though it may seem, the greater the success of a wholesaler, the faster the manufacturer rejects his services. Having realized that, wholesale companies are now working out countermeasures, which are aimed at protecting themselves against manufacturers' 'treachery'.
One of the possibilities is the alliance of wholesalers and retailers. Some wholesale companies set up their own stores, others become shareholders of their retail clients. In this case, even if the brand decides to break up with the wholesaler, the points-of-sale remain the same. Another benefit of also being a part of retail sales is the opportunity for the wholesaler to increase profits by adding the shop's margin. The maximum economic effect is achieved if several stores operate.
These projects are not always successful. But if conditions are favourable, a wholesale company often turns into a retail network. In Russia a good illustration is the example of the Optime company, which began as the Citizen distributor and transformed itself into two retail networks covering different price segments.
The result of this strategy is the ousting of separate watch stores by retail networks and, therefore, retail sales expansion. The manufacturer, who has planned to deal with several wholesalers and a lot of small shops upon whom he could exercise his pressure, enters the market controlled by several influential retail networks, which can dictate their own terms. Having a larger turnover and thus being a more important client, the retail network is almost immune to the manufacturers' pressure.
In Russia, the process of creating networks is in full swing. By now, almost all the biggest players of the watch market present a symbiosis of a wholesale company and a retail network. Despite the increasing number of shops, it is networks that dominate the markets in many Russian cities.
The second possibility is the so called 'backwards integration'. It takes place when a wholesale company buys or launches its own brand. The advantages of this scheme are 'loyalty' of the brand to the distributor and higher profits due to the addition of wholesale and manufacturing charges. But the promotion of a brand with a team of designers, market specialists, and engineers supporting it and the creation of a brand on one's own, are two different things. The wholesaler has to run risks and face such problems as restrictions to the minimal quantity of each model, manufacturing deadlines, etc. It rarely happens that the wholesaler's own brand gives the highest turnover.
Sometimes, for fear of running risks, a wholesaler starts distributing some small local brand. The weak position of the brand on the global market becomes its forte. Having an insignificant market share, such a brand can be profitable for the wholesaler.
Some years ago, Russian wholesale companies included only famous international brands like Tissot, Longines, Citizen, Casio, etc. Having 3-7 distributors, each wholesaler nevertheless tried to sign a contract with eminent brands. Today, the situation is different: all companies are competing for exclusive distribution rights and are offering their clients unknown brands which seem to have a bright sales future.
An exclusive or 'personal' brand in the assortment demands the maximum of the wholesaler's attention. He vigorously starts promoting it. When the number of such brands on the market grows, they begin ousting former leaders. Trying to get hold of a larger market share, the manufacturer increases the quantity of wholesalers and exercises greater pressure on them. In return he gets a counter effect, i.e. a growth of a small brands market share.
Besides group concentrations, there is another tendency. Local brands will multiply and some of them will become famous in the global market.
In theory, the manufacturer and seller must work together. But in practice, their interests often contradict each other. Who will win this battle? Personally, I hope a compromise will be found.