WHAT’S NEXT?


“Since the pool of customers is not expanding, everybody wants to get into direct selling”

WHAT’S NEXT

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January 2020


“Since the pool of customers is not expanding, everybody wants to get into direct selling”

In our latest report about the transformation of the watch world, we selected six major issues which are having a profound impact on the industry’s present and also on its future and discussed them with about forty stakeholders of the industry. Here is the take of Thomas Baillod, founder of Mercari Academy.

ENTRY-LEVEL
“The mid-range customer is less well-off”

“In the entry-level range, there’s a phenomenon of consumers who are going to move on from smartwatches to mechanical watches. But the effect on the bottom line will be nil, because even more are going to be replacing their Swiss watch with a smartwatch. Which explains why quartz is receding. There’s also an economic phenomenon, with an increase in inequality: a 500-dollar watch is still very expensive at the global level. The mid-range customer is less well-off, they no longer have the means to buy a watch in the $500-$2,000 range, which is suffering. The gap is widening. Moreover, the 60%-Swiss-made standard has had a direct impact on quartz brands without much added value. They used to offset that with the movement. Today, they’re having to raise their prices. On the other hand, the ‘false’ Swiss-made watch costing less than 100 francs will survive.”

POLARISATION
“A brand rationale rather than a financial one”

“The industry is very polarised, with four brands leading the dance: Rolex, Patek Philippe, Audemars Piguet and Richard Mille. Yet they have very different business models when it comes to distribution: the first two work exclusively on a wholesale basis, while the last two are transitioning towards a wholly retail model. At the same time, they share fundamentally identical traits: independence, a certain vision and freedom of decision applied over the long term. They’ve adopted a brand rationale rather than a financial one. In stock groups answerable to shareholders, collectors are well aware of the fact that they lack identity and soul.”

"At the same time, they share fundamentally identical traits: independence, a certain vision and freedom of decision applied over the long term."

Thomas Baillod, founder of Mercari Academy
Thomas Baillod, founder of Mercari Academy

DISTRIBUTION
“Direct-to-consumer sales are moving upmarket”

“As is often the case, the groundswell of ‘direct-to-consumer’ sales first began in the entry-level range, with Daniel Wellington and brands launched on Kickstarter. This phenomenon is slowly moving up through the ranges. In any case, the distribution networks are saturated, so a new brand is almost automatically going to head towards direct selling. Today, some distributors have just abandoned the entry-level segment, because everything is available over the internet. For those brands, the savings made by the ‘direct-to-consumer’ model allow them to do more marketing. That has also sown huge doubts in consumers’ minds: ‘Why should I pay so much for a watch?’
A business always sets out to make profits by the shortest route. But all romanticism aside, watchmaking is still business: people don’t count for much. And today, where distribution is concerned the shortest route is online sales, especially if a brand already has name recognition. A brand will achieve more growth by selling directly online than it can by selling to China or Hong Kong today.”

"Today, some distributors have just abandoned the entry-level segment, because everything is available over the internet."

PRE-OWNED
“That’s signing the death warrant of selective distribution”

“The largest suppliers to the grey market are the brands themselves. And they instigated the crime by forcing their retailers to take more stock. The latter had to expand their customer base via the internet and by using the catch-all term ‘pre-owned’. A large part of the pre-owned market is liquidation in disguise: it’s a term that encompasses a large number of watches that come straight out of the factory and so can be sold without damaging image. But beyond the discount, there’s also a whole, very lucrative market to be developed, because via the pre-owned market retailers have access to products they don’t have in their boutiques. That’s signing the death warrant of selective distribution.

Today you can see more Rolex models in the windows of certain non-licensed retailers than in the licensed ones. Also, the difference between price (displayed in-store) and value (the actual price a consumer is willing to pay) is now plain to see. Chrono 24 and WatchBox have become the Standard and Poor’s of the industry. Today, the curtains have been drawn back and the king is naked!”

OPPORTUNITIES
“We need to be less individualistic, the watch industry has a global battle to fight”

“The current problem is that if the battle to win wrist share and extend the consumer catchment area is going to be global but profitable for everybody, every brand will be fighting for its profit margins in the next quarter. I often use this metaphor for the watch industry: the ice sheet is melting, but every bear tells itself it will survive if the neighbouring bear dies and it gets its fish! The profit equation is margin multiplied by quantity. But the plate isn’t getting any bigger, just the opposite, volumes are falling: 2.2 million fewer watches since the start of the year. As a result, the brands are focusing on increasing their profit margins through direct selling.”