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Target: middle class

VERBATIM

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March 2017


Target: middle class

3 CEO speak out: Alain Zimmermann, CEO BAUME & MERCIER; Alain Spinedi, CEO LOUIS ERARD; Rolf Studer, co-CEO ORIS.

THE EXAMPLE OF BAUME & MERCIER

While in the past many looked down upon Baume & Mercier as though its reasonable prices made it something of an ugly little duckling come to frolic in luxury waters, all eyes were on Richemont’s ‘mid-range’ brand at this year’s SIHH. Presenting a perfectly-balanced range available at ‘fair’ prices and well-prepared to survive the troubled waters of 2017, Baume & Mercier has shown the way. Alain Zimmermann, CEO of Baume & Mercier.

Alain Zimmermann, CEO

  • What is the mid-range?

"I really don’t like the term mid-range! From a client’s point of view, I wouldn’t like to be considered in the mid-range. So I would prefer talking about accessible luxury. It’s more dignified to explain: there is this notion of an accessible range; there’s also the implication of an initiation, a starting point. When someone has just spent 1,000 or 2,000 CHF, that might be a huge sum for them. It’s not an ordinary thing to do. That said, the heart of accessible luxury is around 2,000 to 4,000 CHF, but it can sometimes go beyond that for iconic pieces that use a special movement, special materials (such as gold), or particular finishes. Finally, we have strengthened our range of 1,000 to 1,500 CHF gift watches for special occasions.”

  • Price changes?

“This definition of accessible luxury applies to all markets. But depending on the currency, there are psychological thresholds you have to respect. Today, the franc, dollar, and euro are all very close. Exceed 1,000 francs, for example, and you move into a price range where there is no longer the same rate of engagement. Especially for gifts. We have always focused on maintaining reasonable prices. This is why we haven’t increased our prices in seven years and we have no plans to raise them. This strategy has enabled us to attract a younger clientele looking to enter the world of luxury watches. So I don’t need to change them! I am, of course, playing a central role in the debate, and this is opening up real opportunities for us.

That said, we obviously cannot ignore the context. But we always ask ourselves questions relating to our criteria for quality – we don’t make short-term opportunistic compromises. But there are other solutions, such as quartz, for example. The new My Classima is a perfect alternative for smaller budgets, without making any concessions. It has been pre-launched in the United States and the results are very promising!”

  • Mid-range = middle class?

“I don’t think so. That was previously the case. But today, many people have significant purchasing power, without actually necessarily buying expensive watches. They no longer have ostentatious tastes, but are comfortable with fair and reasonable watches. Equating the mid-range with the middle class seems a little too easy. Nevertheless, in China, when the economy allows a certain section of the population to buy more than the essentials, we talk about the middle classes. And I think this segment will grow significantly in the coming years.”

  • Mass-production versus exclusive?

“Perceived value is very important. There are several ways to develop it. Firstly, through tradition and history: it’s a way of reassuring the end customer, of reassuring them that they are doing things properly. Then there are iconic pieces, separate from our usual collections. Through them, we show that we are capable of going the extra mile. You also have to surprise, by looking for partnerships such as that with Shelby Cobra, which are logical and complementary. In this way, watches become unique and you can treat yourself and feel good. That’s accessible luxury!

Everyone wants to own a beautiful watch. Over the past five years at Baume & Mercier, we have been working hard on the Clifton collection: for 3,200 CHF you can have a small complication, which provides high perceived value. Is this still classed as mid-range? Obviously, this changes from one market to another. Not forgetting ladies’ watches, which are a market of their own. What counts is creativity. That’s at the heart of success.”

  • Style changes?

“At Baume & Mercier, we talk about the characteristics that form the brand’s signature. Adapting our style is very important if we want to stand the test of time. But there’s also the idea of brand recognition. Baume & Mercier is quite a classic brand. But when I look back at previous models, things have totally changed! Only the brand’s hallmark characteristics remain. Studio Design, our in-house design workshop, is the gatekeeper of these hallmarks.”

  • The impact of smartwatches

“We have to monitor every trend. But I have a problem with planned obsolescence. Function will never supersede the emotional symbolism of a watch worn for status or to commemorate a celebration. Nevertheless, it’s worth analysing this market to know if it merits exploring.”

  • New distribution opportunities?

“We change our approach from one continent to the next: we’re very secure in the United States and Europe. In Asia, i.e. China, we are in the process of entering the market with specific strengths. There are also opportunities in e-commerce. But that remains complementary. We have established some projects with partner retailers. Above all, this highlights changes in consumer habits. Not just in e-commerce, but also in e-retail. We need to monitor this movement, which opens up a fundamental debate as to how we can reach out to customers.”

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LOUIS ERARD, THE TRIBULATIONS OF AN INDEPENDENT WATCHMAKER

“More than a brand, we are Made in Switzerland at a reasonable price,” Alain Spinedi likes to say, after successfully relaunching Louis Erard, a brand founded in 1929, with a small group of investors in 2003. Since then, he has faced the market as an independent watchmaker, often at a handicap, to bring his beautiful range of classic, understated, and superbly- designed watches to this difficult market. Alain Spinedi, CEO of Louis Erard.

Alain Spinedi, CEO

  • The middle classes have less money now than in the past

“Louis Erard is positioned between 500 and 3,000 CHF, and the latter figure is well into the upper mid-range. When I revived the brand in 2003, at first I positioned us between 600 and 2,000 CHF, which is the true mid-range. But obviously, this definition varies depending on the market. However, I have neither the resources nor the staff to conduct sociological analyses in the various countries where we sell our watches. I concentrate more on the exchange rate: the euro has lost almost 50% of its value, and the rouble is worth three times less than before! In Russia, where we were well-positioned, sales have waned. The product mix – with quartz watches – has also changed. The middle classes have less money now than in the past. In Asia, on the other hand, many young people from the middle class are willing to spend money on a mid-range watch. My definition of this segment applies to Switzerland. In Italy, where the minimum wage is close to €1,000 in the south, things are different.”

  • An essential segment

“The mid-range harbours great potential! I have always stayed in this promising segment. The watch industry must imperatively resemble a pyramid. Otherwise, we’ll return to the situation we saw in the 1980s.”

  • Accessible luxury

“Louis Erard produces fewer than 100,000 watches a year. So, that’s not what I would call mass production. It allows us a certain exclusivity within the segment. But obviously, that doesn’t work in every country. For that to work, Louis Erard needs to remain a niche brand. The demand for limited editions is ever greater. For example, in the Middle East, a regulator is not a mid-range product, but rather topof- the-range. But as a limited edition, it can work very well. That’s what we call accessible luxury, and this idea perfectly describes Louis Erard. Luxury means a certain rarity. However, many top-of-the-range brands inundate the markets! At 1,200 CHF, our products can certainly be considered luxury. We incorporate elements of sophistication.”

  • Local strategies

“More and more, we are prioritising a local strategy rather than an international one. We play around with prices and models. But obviously, that requires far more work with our partners. And so in Italy, where we are now distributed by Eberhard & Co, we sell more ladies’ watches than men’s.

Before moving into the watch industry, I worked for Bolex video cameras. In this sector, there were very precise market studies. However, none of that existed in the watch industry, apart from export statistics. In this field, you choose your direction using the understanding you have of such and such a market. This naturally leads to discussions with partners, to understand on-the-ground realities.”

  • Classic style and coherence

“We have always worked with a classic style, and we’ve always remained coherent. Recently, however, I released a chronograph that’s a bit sportier than the others, to try and attract a younger audience. But that doesn’t mean that we’re going to go totally crazy! I have nevertheless noticed that we may have become too similar to our competitors, a bit monotone. Now, am I expanding the range to break this monotony or to counter the drop in sales? I think something was missing from our collections.”

  • Quartz

“We make approximately 75 per cent mechanical watches and 25 per cent using quartz. Quartz has enabled us to expand our clientele in the Middle East, which now makes up 30 per cent of our sales. In Switzerland, on the other hand, we don’t sell a single quartz watch! Nor in Malaysia. It’s all down to reputation.”

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ORIS, THE DEMOCRATIC PATH

Historically, Oris has always focused on a ‘democratic’ offering. Established 113 years ago with the aim of producing high-quality mechanical watches for mass distribution, Oris produced up to 1.2 million watches a year before the quartz crisis disrupted the entire industry. Taken over in 1982 by two of its former directors, Oris immediately stood out by focusing only on mechanical watches when everyone else used quartz. Its hugely successful slogan explains its ambition: ‘Real watches for real people’. Rolf Studer, co-CEO of Oris.

Rolf Studer, co-CEO

  • Products that make sense at a price that makes sense

“I don’t really like the term ‘mid-range’. It’s purely theoretical. 2,000 francs for a watch is a lot of money! Defining that as mid-range is almost arrogant.

You can’t lose sight of the fact that it’s a purely Swiss definition – in other countries, 2,000 francs is whoa! The last time I went to the United States, I spoke a little with the immigration officer. When I showed him my 3,000-franc watch, he told me: “I could never afford one like that. Or maybe in 20 years’ time. For us, that’s top of the range!” It’s all subjective, you have to put yourself in the customer’s shoes! That said, if you’re asking for a definition of mid-range, I would say it’s around 1,000 to 5,000 francs. The phrase ‘accessible luxury’ isn’t really accurate – if it’s accessible, then it’s no longer luxury! I prefer to say that we have products that make sense at a price that makes sense.”

  • Staying credible

“The most important thing is to offer good value for money. It applies just as much to Patek Philippe as it does to us! We are really pleased to be in this segment, really pleased that we weren’t too extravagant with our prices when we could have been, and really pleased to not have to lower them today. In a word, we’re credible.”

  • Customers no longer want to be frivolous with their money

“Yes, we’ve increased our market share in recent years! That’s partly down to our products; and partly because consumers no longer want to be frivolous with their money. The drop in prices at some of our competitors has made customers furious, because they paid full price for their watches.”

  • A global price structure

“We have a global price structure, which is of course influenced by our competitors. Except for Great Britain, where we increased our prices by 10 per cent eight weeks after Brexit. Many waited a long time before following suit.”

  • Functions that make sense

“Our customers ask for functions that make sense, useful mechanical complications. Other brands focus more on appearance and embellishments. When it comes to us, we haven’t changed. On the contrary, we have to continue what we think is right for the brand, and not be swayed by particular circumstances.”

  • No hybrid products

“They’re not a competitor for us. Quite the opposite: what would be dangerous is if young people stopped wearing watches altogether. Smartwatches might encourage them to wear one. As for making hybrid products, we have no plans to do so. The mechanical watch is an emotional product, and we only make pure mechanical watches.”

  • The web is bigger than our stores

“We haven’t made any changes regarding our retailers, but we have reviewed the allocation of sales resources for our stores, traditional points of sale, and online sales. For several years, we have been supporting retailers who also have a web presence, for example Tourneau in the USA and Goldsmiths in England. We have to acknowledge that the web is bigger than our stores. But we want to maintain control over certain things: we can talk directly with customers online, and direct them to our stores for after-sales service.

Not all retailers are online yet, but we can already see a clear difference. And we are also thinking about other sites that aren’t owned by retailers.”

Illustration: DRAWING ARCHITECTURE STUDIO www.d-a-s.cn