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The Swiss watchmaking sector is undergoing a major transformation; retail is under the loupe, albeit in a different way between Europe and the rest of the world, fairs are gradually losing their importance, especially Baselworld, after the Swatch Group decided to abandon the fair’s buildings located in Messeplatz.
The same thing is happening to the SIHH that can still count on the presence of the Richemont Group because it is in all respects their very own fair, but the exposition also has to count two important defections; those of Audemars Piguet and Richard Mille that will abandon the show from 2020.
Figures and feelings; a snapshot of the market according to Vontobel and the current transformation of the watch market
What is currently happening? Let’s try to explain it with figures. The latest report released by the Vontobel Bank that gives us the results of the luxury players, confirms that 2017 marked a trend inversion if compared to the poor results of 2016 and of the previous years. Year on year, volumes and margins are back to growth although, especially in the case of the latter ones, the record was reached in 2013 and has not yet been equaled since.
The independent brands, many of which are family-run and are not even present on the stock exchange (Richard Mille, Franck Muller, and Audemars Piguet) have recorded double-digit growth. If for larger groups the volume/value ratio is balanced, for the top-of-the-range smaller groups the ratio is decidedly unbalanced towards the unit value and their clientele base is more conspicuous in the rich emerging markets rather than in the consolidated and flat growing markets like the Euro zone.
What matters the most is that the market seems to have returned to a healthy growth (we will have to see how the year 2018 will eventually close), but the customer’s behavior and business models in general are undergoing a transformation; retail sales are shrinking in favor of e-tail. This trend is quite evident from the strategic choices made by the larger groups that are currently buying or creating from scratch online platforms. The same can be said of the communication and management strategies aimed at the end customer that are moving from the traditional channels to more digital ones. Italy is still lagging behind because change is a concept that Italians accept very slowly; we are a people of traditionalists who struggle to abandon their own faiths.
The origins; ETA turns off the taps and several brands seize the opportunity to position themselves to a higher level
It is not possible to describe the history of the sector crisis in a few lines and to do so for such a complex sector would be a big mistake. It is however interesting to try and identify the drivers that led to the last ten years’ change and there are some of these that, from the point of view of an external eyewitness, could be defined as ‘triggering’.
A clear example was ETA’s decision to reduce its movements supply to brands outside its own group – this decision definitely shook the market that was only partially offset by Sellita and Ronda. As a monopolist in the production of movements – ETA managed to save the Swiss watch-making industry during the quartz crisis, but it is now almost exclusively devoted to the growth of the Swatch Group brands – the manufacturer’s choice forced many brands to design new mechanical calibers by forcing them to invest large assets in the process.
Before the ETA effect, all the big luxury groups had already started competing towards a more ambitious price and volume positioning; it is a journey that started almost 20 years ago and culminated in what I defined as the “mega–budget season” with ETA being an additional driver of the whole process. The culture that originated in MBA schools that was already successfully applied to other consumer goods sectors has joined the watch-making world by entering the door of the fashion luxury sector. Unfortunately, watchmaking is not like the food or detergents industry, it means the business logics applied to those sectors do not necessarily work once they’re applied to the watchmaking industry.
Increasingly large volumes, ambitious budgets, an increasingly rich bottom line and a product marketing tailored to the individual market have boosted the number of references and encouraged a rise in retail prices. Let’s take two examples coming from two different luxury groups; let’s compare the 2008 retail price of a Luminor Marina or of an Omega Speedmaster to the 2018 retail price. If it is true that in marketing the price of a product is measured according to how much a customer is willing to pay for that specific product, it is also true that the price growth is unfounded if you consider that, often, the technical features have not changed at all.
The gray market and the growth of the pre-owned certified market
Let’s pretend you had big volumes and references at your disposal that couldn’t all be absorbed by the retail network, which is designed for specific geographic areas (meaning that it has a physiological growth limit) or by single-brand boutiques; wholesalers and the gray market have begun to spread widely and to increasingly absorb large product volumes that are sold without an official guarantee. As if we were talking about currency and inflation the “working capital” of watches on the market has grown out of proportion, so much that companies like Authentic Watches and Luxury Bazaar have boomed, but they are only the tip of the iceberg of a bigger phenomenon.
This huge mass of watches has invaded the market and diluted the image of exclusivity of Swiss watchmaking and fuelled an even larger market, the certified pre–owned market. The two stores that I mentioned above sell new watches, and, in some cases, used timepieces too, but the real idea is not that of just saving on a new watch, but rather to handle everything else (like reselling a watch that represents a much more complex process and could offer various options).
WatchBox’s case history: Danny Govberg’s intuition
WatchBox was born from the vision of someone, who was born and raised as a major authorized retailer of the best Swiss brands, someone who understood before everybody else the importance and the growing weight of the certified pre-owned business and who has all the experience of a large authorized dealer of many of the most prestigious Swiss brands (he is also responsible for their after sales processes).
He was the first person to understand the importance of managing all that lies behind a purchasing experience by using advanced customer service processes that, in some cases, are not even used during the sales process of new watches.
Ten years ago a Middle Manager could easily buy a new watch within the € 4,000 – € 5,000 range, but, today, watches within that price range cost about double the amount, thus automatically cutting off this category of people, who haven’t proportionally increased their income, and making the certified pre-owned business a valid option for them (if not the only one available). The same Middle Manager could be willing to buy a perpetual calendar, but before doing that s/he must get rid of two chronos and an automatic watch first.
WatchBox is the answer to their need because it has managed to put together all the options that complement the sale of a new timepiece and are geared towards a lot of watch aficionados that used to buy and sell on online markets, but this new business offers the advantage of a certified experience that is guided from the beginning to the end and is effortless (aka an “effortless experience“) within a sector where you are constantly afraid of being ripped-off.
What makes WatchBox different from the competition?
The first advantage of a certified pre-owned company is that it accepts and offers a larger number of luxury brands; a service that no other brand can directly offer. Audemars Piguet offers a pre-owned evaluation service for instance but, of course, it does so exclusively for AP–branded watches. The adjective “certified” indicates a process that involves the evaluation of your watch and, when it comes to WatchBox, this evaluation process is very fast (I tested it personally about two months ago) and the company provides you with an immediate payment.
The watches sold by WatchBox feature an official guarantee of 15 months, which means about 25% more if compared to what the competition would offer, and the process also involves a rigorous inspection and refurbishment by a staff made up of expert and certified watch-makers that can work on any type of watch, even the most complicated ones.
How much is the market of pre-owned watches worth according to the analysts and how much is it worth according to WatchBox’s estimate?
If you consider the sales volumes of the last 15 years, WatchBox estimates that this market is worth 500 billion dollars; that is to say 100 times more than what the Swiss company Kepler Cheuvreux estimated. WatchBox’s experts have come to this figure by including all the watches that lie, unused, in the drawers of big and small collectors all over the world and that represent a huge potential market. The company’s business model is based on a multi–channel approach that relies on the most advanced digital technologies, such as an extremely advanced App and an algorithm used to objectively evaluate your watch without leaving aside the value of human contact, as shown by the offer of a direct customer-retailer relationship.
Could you ever picture a scenario where you can buy a complicated Patek without even having to talk to someone? It would be impossible. If you travel to Neuchâtel – where WatchBox opened its European headquarters – this experience has been taken to the next level; customer service activities (via telephone and email, also in Italian) are managed in the exact same place where you can trade-in your own watch face to face to an expert, while, in a separate room, a blogger is video-presenting all the features of a watch that has just been brought in as stock and that will soon join the online shop.
(Photo credit: courtesy of WatchBox, Govberg. Horbiter®’s proprietary photo-shooting)
Gaetano C @Horbiter®
