#Resilience


Watchmaking’s “pre-Netflix” moment

CORONAVIRUS CHRONICLES

Français
April 2020


Watchmaking's “pre-Netflix” moment

The pandemic has led to the accelerated digitisation of our daily life. However, the watch industry finds itself still stuck at a stage similar to that of film or music, before the emergence of Netflix and Spotify – a vast digital jungle where counterfeiting and piracy prevail over the few authorised spaces. As inventories pile up and online outlets begin massively discounting, it’s high time the digital landscape was properly structured and legitimised. But how is the watch industry to go from Napster to Netflix?

W

ho didn’t download a song or a movie from a pirate site during the 2000s? At the time, it was difficult to find authorised sites: “illegitimate” platforms, such as Napster, dominated the digital field, and a lack of agreement between the parties concerned meant that concerted solutions were slow to emerge. For want of anything better, illegal downloading became the norm for the internet’s early adopters, as the most convenient way to access the content they wanted to consume. The pirates had set up their own ecosystem, and it was a lawless jungle.

Convincing consumers to switch back from free (but pirated) content to paid (but legitimate) content is a hard sell. We in the media know this better than anyone, having finally turned a corner after years of making free content available. Yet, gradually, the music and film industries have seen the emergence of mega-platforms featuring authorised content, with millions of paying users: Netflix, Spotify, Apple Music, Amazon Prime, Hulu, Disney+, etc... All these platforms are based on the recurring revenue model, funded by paid subscriptions.

For want of anything better, illegal downloading became the norm for the internet’s early adopters, as the most convenient way to access the content they wanted to consume.

The digital offer has grown and expanded, gradually becoming part of our way of life, not only for entertainment, but also for basic necessities. Although Amazon started out as a bookseller, it now offers everything from carrots to furniture! The global pandemic that has led to billions of people being isolated in their homes is accelerating our digital lifestyle, by making the internet itself a necessity, as the only link to the outside world.

From Napster to Netflix

The situation that watchmaking finds itself in today is broadly comparable to the “pre-Netflix” era of the film or music industry: a majority of the online watch offering is available via unauthorised channels, at lower rates than the prices advertised on authorised platforms. It’s a digital jungle, which blithely lumps together a smattering of genuine vintage watches with a lot of “pre-owned” stock that is in fact “never worn”, from unsold inventory.

The mismatch between supply and demand, which feeds parallel markets, has been a problem in the watch industry for years, and it has forced the largest manufacturers to make massive inventory buybacks. However, the closure of watch boutiques around the world due to the coronavirus will only accelerate the phenomenon.

It’s a digital jungle, which blithely lumps together a smattering of genuine vintage watches with a lot of “pre-owned” stock that is in fact “never worn”, from unsold inventory.

In the physical world, watch stocks are overflowing, while demand in the virtual world has also weakened as a result of the pandemic. Unsurprisingly, e-commerce platforms are starting to apply massive discounts (see illustration below).

Unsurprisingly, massive discounts are starting to appear on the main watchmaking e-commerce sites.
Unsurprisingly, massive discounts are starting to appear on the main watchmaking e-commerce sites.

Everybody hurts

It’s a zero-sum game, and one that throws a harsh spotlight on problems that actually pre-existed the pandemic crisis. The watch industry is paying for its lack of organisation online, just as the music and film industries found themselves powerless in the 2000s. What we’re seeing is not a bank run, but rather a highly dangerous “watch run” that threatens the entire watchmaking ecosystem.

We’re not suggesting that digital commerce will replace physical commerce in the watch industry. Far from it. A watch is an object that customers will always want to pick up and touch before buying, and in this respect it is very different from a song or a movie. Nevertheless, preserving the watch trade also means finding fluid solutions for online purchases, by setting up a broader omnichannel model that would appear to be tailor-made for watchmaking, combining the virtual with the physical.

What we’re seeing is not a bank run, but a dangerous “watch run” that threatens the entire watchmaking ecosystem.

What will happen next? Several scenarios seem possible, at a time when the pandemic is accelerating strategic decision-making at watch companies’ headquarters.

Troverie, a pioneering project for a concerted response between watch retailers in the United States to design an authorised platform, was unable to compete with the massive discounts found on unauthorised sites.
Troverie, a pioneering project for a concerted response between watch retailers in the United States to design an authorised platform, was unable to compete with the massive discounts found on unauthorised sites.

Submission or action

With the extension of the “stay at home” policy, inventories will continue to build up. As a consequence, excess online supply could lead to escalating discounts, damaging the industry and the brand image of its major players. Groups could be forced to make costly new inventory buybacks. The damage is already beginning to be felt.

Many brands could loosen their rules on online sales, including those that used to forbid online sales for their retailers, as Patek Philippe did recently. Watchmakers that already have their own e-commerce platforms might promote their online sales. However, the current context presents several major obstacles. On the one hand, logistical bottlenecks prevent deliveries from functioning normally. And on the other, territorial exclusivity contracts are in some cases hindering rapid solutions.

Online market share is already being captured by unauthorised players, as was the case for the film industry in the pre-Netflix era. These giants of unauthorised watch e-commerce have know-how built up over several years, an extensive address book, and expertise in the field.

Nevertheless, that doesn’t prevent us from planning for the post-crisis period, which will probably be different from anything we have known before. But it’s not easy to see how this new landscape should be structured, and the road ahead looks long and perilous. Online market share is already being captured by unauthorised players, as was the case for the film industry in the pre-Netflix era. These giants of unauthorised watch e-commerce have know-how built up over several years, an extensive address book and expertise in the field.

Should the industry rely on existing platforms to tame the digital jungle, as Richemont did when it bought Watchfinder?
Should the industry rely on existing platforms to tame the digital jungle, as Richemont did when it bought Watchfinder?

Might we see a flurry of takeovers, in an effort to legitimise and structure this market on the basis of what already exists? That is what Richemont did when it bought the Watchfinder platform. This kind of approach would provide a direct and controlled channel for the unsold items that are currently accumulating. Other brands are now launching their own second-hand platforms.

An embryo of a concerted solution, Troverie (see our portrait -here), has unfortunately already paid the price of the bidding war currently slashing watch prices online. This platform was intended to bring together brands and authorised retailers around a digital offer in the United States. The founders were unable to keep up with the downward pressure on prices, despite the involvement of some well-known players.

The end of this pioneering adventure should also set alarm bells ringing in watchmaking headquarters. The digital jungle is far from being tamed, and the image of an entire industry could suffer from this unprecedented crisis.

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