It may not seem so from all angles of the watch industry right now, but many companies that produce luxury watches and sell them online will soon face a stark reckoning in the form of having to adopt entirely new practices, modes of expertise, and expectations when it comes to selling their products online.
I regularly study the interactions among watchmakers, third-party retailers, and consumers to look for weaknesses and areas of unsustainability (as well as what works, of course).
I’ve noticed a huge problem between the mentality of companies who make luxury products and those who sell them – especially in the online space. This rift of beliefs and practices means that for either of these entities to do well when it comes to selling luxury watches online, serious changes need to be made. I will break down the issues into:
a) problems related to the creation of demand (for the products/brands)
b) challenges dealing with competition.
None of these problems are new, but the state of the watch industry economy has (in my opinion) now forced luxury brands and specialist online retailers to form new areas of understanding. Brands that stubbornly hold on to old ways will either be left behind or will need to dramatically alter some of their larger marketing practices to adapt to today’s business landscape.
A few brands will, indeed, get lucky with their own solo strategies and need not enlist the help of others to sell their goods — though, practically speaking, this “soloist situation” will be rare, and also highly expensive for the brands that choose a more vertically integrated approach to business.
Let me repeat my strong position: The future of the watch industry is not one in which most brands sell direct-to-consumer. Companies that are successful at this will continue to be the exception and not the norm. The future of the watch industry (like its past) is in some companies making the products and other companies selling them to end consumers.
Part of the context for this larger discussion about online retail is the now-regular news that often European-based online luxury sales platforms are failing.
On her website, Miss Tweed, my colleague Astrid Wendlandt, regularly covers the high-profile collapses of huge multi-brand online luxury retailers. Mind you, not all of these platforms sell watches, but the issues between these retailers and luxury fashion brands is relevant to the problem they face with luxury watchmakers.
If you read Miss Tweed’s coverage regularly, you will come to the conclusion that there is nearly no synergy between the expectations of luxury brands and the third-party online platforms set up to sell their goods.
The irony is that, in many instances, these platforms were set up exclusively to pander to the whims and concerns of the very brands they are carrying.
What goes wrong, then?
There appears to be a major disconnect between what consumers want/expect and what brands decry and demand when it comes to how they are positioned in an online retail context.
The result of this disconnect is low demand, and thus poor sales. This has led to online retailers failing because they simply cannot find enough customers willing to do business with them. In other words, despite having a supply of goods, their marketing reach and incentive to get consumers to buy is relatively weak, especially when coupled with how a luxury brand envisions that its product should be showcased online.
The bottom line is that, when pandering to the expressed needs of the luxury brands they carry, these retailers, in turn, ignore the expectations of consumers. In many instances, those expectations are to simply offer a good price and to create excitement around the product — in other words, to create and facilitate demand.
This reminds me of circa 2008, not long after I first got started covering the luxury watch industry. Major companies back then either had no functioning websites or absolutely no interest in selling their products online. Managers were vehemently against the proposition of selling their products online because they claimed it could not include the traditional luxury buying experience.
My counter was that, en masse, consumers no longer wanted the experience of having to travel to a luxury shopping destination and deal with the pomp and circumstance of buying a nice watch. That said, what the brands realized that I didn’t is that the “traditional buying experience” was crucial to their delicate system of creating demand and commanding their higher-than-necessary prices.
Luxury managers nearly 20 years ago intuitively understood that they simply could not compete with the kinds of shopping environments online retail presented them.
They saw the online space as not being conducive to creating demand for their brands and goods (especially when considering competitive products) and also not allowing them to string a customer along and taunt them into spending high amounts of money. They were correct, despite the fact that consumers have decried these relatively manipulative sales practices for quite a while now.
Even though most luxury brands have yet to really adopt an online luxury sales strategy, they have consistently made it clear what they don’t want.
What they do want are “partners” willing to help them “grow” and who can adopt a “long-term vision.” These are all buzzwords for, “Please don’t expect to make a lot of money with us any time soon. We want you to showcase our products and make them sexy so that buyers will see the inherent virtues of our goods. As long as you don’t discount our products and only sell to those people who want them most, we will be happy.
Also, we reserve the right to pull our products from your store at any time, with or without reason.” This mentality doesn‘t work for the practical realities of running a third-party watch store, whether it is in-person or online. Accordingly, the basic needs of a luxury watch marque and a modern online retailer do not overlap enough for there to be a long-term business success.
Let’s step back a bit and look at the two basic flavors of online watch retailer right now.
One is the type of company that grew out of successfully appealing to at least one consumer demographic. These companies are founded on successful sales strategies and seek to bring in new goods they can sell with those strategies. These are inherently consumer-focused retailers with business models that take into consideration what people want when buying a luxury timepiece online today. These retailers tend to have smaller, more open-minded watch brands that allow the retailer to mainly call the shots — if business is to be done.
Contrast that with the opposite type of online watch retailer that, from the outset, is formed to consider the needs of the brands it carries more so than appealing to any specific customer base. These companies attempt to create familiar, comfortable retailer spaces (online or otherwise) that luxury brands feel showcase their value and prestige. There is little focus on what consumers want or how they actually behave and more of a desire to create a “safe” place for brands to display their goods. “Safe,” unfortunately, also seems to translate into entirely unprovocative experiences for consumers.
Let’s get a bit more practical. Online retailers need consumers to do business with them sooner rather than later. When a visitor comes to their website, their incentive is to get a sale on that visit. Brands, on the other, hand feel no such rush. They are content with consumers seeing their products and their relative positioning.
Brands use retailers not only to make money but also as a means of creating demand for their goods by showing how expensive they are and the other types of products that they are surrounded by. Brands, in other words, are often content with safe positioning of their product and care less about immediate sell-through.
But retailers lose money the longer inventory sits and remains unsold. Thus, the drive to discount products is not about disrespecting them but rather related to the practical reality of needing to sell those goods. An important maxim to state here is that nearly all luxury products will sell — at the right price.
This leads to another conflict between watch brands and online luxury retailers: Who is ultimately responsible for demand creation and competitiveness?
Retailers and distributors used to assume this duty, at least historically. When a luxury brand’s products were sold in a particular market, that retailer had lots of freedom to market, advertise, position, and price a product.
Today, those same retailers are either not allowed to do those things based on their agreement with brands, or simply not commercially incentivized to do so. Creating demand is an expansive and time-consuming marketing exercise. Brands seem to expect retailers to do this, and those same retailers laugh when brands expect them to do so without money or the necessary creative freedom.
Thus, more often than not, the only tool a retailer has to create demand and move a product online is to discount, further enraging the brands whose watches they carry, and that, more often than not, fundamentally misunderstand the business of mass online retailers, entirely.
An interesting trend I have seen is luxury brands in Europe mostly trying to work with homegrown European online retailers, which is ironically where much of the business failure is coming from.
My suspicion is that it was believed the European or UK-based retailers would better understand the cultural needs and expectations of luxury retailers and thus do a better job than, say, American multi-party online retailers. The result of this has been a wealth of online platforms that look great but that few consumers want to use.
There was some limited success when it came to the sale of women’s luxury clothing and accessories, but for the most part, these platforms have entirely failed to move the needle when it comes to selling brand-new luxury watches online. Given the core incompatibility among the expectations of retailers, brands, and consumers, I don’t see this changing anytime soon.
Let me spend just a minute on the topic of competition, which is another massive obstacle watch brands need to overcome when understanding the realities of online retail. While none of these issues are unique to the online retail (versus in-person) side of the industry, the internet environment amplifies things like competition for price and selection. Internet users are empowered with much more ability to shop around and view competitor s’ products online than they are in an in-person retail environment.
This begins with the highly problematic mentality held by many luxury brand owners, which is, “Our product is so good that the right consumers will eventually find us. We don’t need to loudly extol our virtues because that makes us look weak.”
That all may be true, but it ignores a few realities. The first is that most of today’s luxury watches are qualitatively excellent. Your product might be amazing, but so are the products of your five leading competitors.
What is also true about the traditional logic is that it often takes painfully long amounts of time (decades) for consumers to organically find out about quality products and actively reject the competition.
Without active messaging campaigns, brands will sit on excellent products for many years without enough consumers hearing about them. Again, this is related to the sheer quantity of competitive messages consumers are hearing. So, if a brand is not actively communicating with a consumer, it is losing out because at least one competitor is probably having an active relationship with that consumer.
What is to be done? The current state of things is not working, nor is it sustainable. Online retailers cannot simply grow with investment money only to collapse when their business models turn out to make no sense because consumers don’t want to do business with them (despite their online store looking beautiful in the eyes of brands).
The companies that make watches cannot simply keep shopping around for the next trendy online sales strategy without understanding the larger context of the market and what it actually takes to do business selling watches online.
Brands need to accept two important things. One is that silence is a death sentence. If you or someone on your behalf is not talking about your brand and product, you are dead. Another is that competition is fierce and only getting tougher. As good as your watches are, they probably aren’t the best. Even if they are, not enough people likely know that. More importantly, merely announcing new products for sale does not go very far when it comes to explaining to consumers that your brand is desirable; that takes an actual communication strategy which takes time, money, and patience.
Let me end this discussion with some advice. I cannot help sort out all of the complicated economic realities between watch brands and retailers. I can, however, encourage them to fully understand the expectations and business models of one another before doing business. This will actually require both sides to be patently more open about what they want, what they fear, and what they expect.
That however is not my main piece of advice. What I do want to advocate for is the wisdom of marketing messages that reach consumers to not always be about “buying something.” A hallmark of the luxury industry has been to tantalize and tease consumers, not applying high-pressure sales tactics. What luxury brands “offer” is desire. The experience of desiring something, and then ideally being able to satisfy that desire, followed by the ability to wear the manifestation of that desire like a trophy.
This requires a highly motivated consumer who really wants your product and is proud to own it. None of this psychology is formed in a high-pressure “buy me right now” environment. That said, online retailers will only ever care about immediate sales and will never be able to create the type of deep desirability that is required prior to a consumer making the willing decision to spend luxury money.
My advice, then, is for brands to consider where they can make ongoing investments in reaching consumers with message that are pretty much anything other than a plea to make a purchase.
My estimate is that 20% or fewer of the messages a consumer gets from a brand should be related to a purchase opportunity. 80% of the messages should be about why a brand is cool, desirable, well-made, well-designed, popular, culturally relevant, collectible, etc.
This is not unprecedented in the space, but it is rarely talked about. All I hear about is brands cutting marketing budgets, wanting to offset marketing responsibilities to third parties, and generally not wanting to communicate much about their products.
This mentality is entirely unproductive and antithetical to the foundation necessary for any online retail store to be successful. Brands need to stop assuming their retail partners will do all the heavy lifting for them just because they stand to earn a bit of money, as well, when a product is sold.
Brands need to become realistic about both the competition out there and the very challenging practical reality of getting consumers to separate from their money in the finicky, fast-paced environment of online sales. Only then will we see harmony between watch brands watch retailers.
Ariel is correct in his analyzation of the Internet dynamic as a Sales deliverer for a Brand. As was said so many years ago, “one must know who one is”, be able to define it, be true to it and stay with it. To Luxury, their are true models out there, but unlike the 1990’s when the term “Affordable Luxury” came into vogue, there is truly, no such thing, simply a mindset by individual Brands thinking they were making short term progress climbing the ladder that takes years of patience, consistency, quality and a pent up demand to own, that only comes through time, pun intended! Without naming names Brands who have come and gone and return again, need to have the confidence of conviction as to who and what they are, if, just to make a quick hit and sell-off, maybe 10 years works, and choosing the vehicle to distribute through can vary. The Department Store Trade Class, has never been my choice, the Fine Jeweler was, but expensive to get into, and space was always at a premium, as existing Inventory Brands had proved successful, and placing one’s product with some adjacency added credibility to one’s Brand. The trick of course was consistency of distribution and the fraternity of these like minded references. The Internet has always been mono-dimensional, with the romance of the product, the environment that oozes luxury, exclusivity, the offering digitally becomes cold, and despite possibly offering availability, at days end becomes about price, and it is here, that the divide is, “one cannot have two Masters”, resonates. Over the past 40 years, we seen the carnage, from Catalog Showroom, Mass Distribution Trade Classes, that had the Store, more important then the Brand, matters not Nieman or Sak’s, or Macy, May Co, Penny, if the Brand goes where they are looking for short term returns in volume, they will forever scar their being. The Internet, sadly is the ultimate in ‘Mass’, it now contains, the Brand itself, creating what it thinks it is, the Retail Partners experimenting to grow their market in ever changing and shrinking times, and Digital Retailers without Bricks and Mortar, who’s sole goal is to move product from under one roof as quickly and at as good a profit as possible. This step is enabled by the greed, which the manufacturer takes part in by offering at reduced margin, their product to be sold at perceived lower prices, possibly more realistic to where they should be, before building Marketing and Distribution into the formula. Sadly, we have just turned the page, as with everything in life there is flux, but to understand who one is and why, first, will simplify the codification of Luxury, Niche, Affordability, but there is no Affordable Luxury or New Luxe, Time is the Cure in that exercise of choice.
“Part of the context for this larger discussion about online retail is the now-regular news that often European-based online luxury sales platforms are failing.”
50+ year watch enthusiast: Just my opinion… Purchasing a fine watch is a unique, highly personalized “experience” that can never be duplicated online. In most cases, such a purchase is a special, noteworthy event in a buyer’s life. After all, a fine watch remains a unique, personal artifact which may be prized over a person’s entire lifetime, and possibly passing it along to loved ones later on.
Having spent a great deal of time in Geneva over decades, and attending many SIHH and Basel Fairs, I have grown to greatly appreciate the importance of fine timepieces. Friends occasionally ask me to help advise them on a watch purchase. One of my phrases I like to use is that the purchase of a fine watch should be taken very seriously. Homes, cars, jobs, yachts, airplanes, buildings. businesses, investments, friendships, relationships, and even spouses and fortunes, may come and go, but a fine watch always remains a faithful, loyal companion through this journey called life. A fine watch, since it is worn on the person, is a constant reminder of the life experience itself, something to be cherished over time.
A wonderful video with Mr. Jean-Claude Biver on You-Tube, where, decades ago, he was invited to visit the Ferrari factory in Italy to personally select the options he desired and observe his car being built. I will never forget how excited he was to experience this once in a lifetime opportunity. He will never forget how he was welcomed and treated by the staff at Ferrari, and the same holds true during the selection and acquisition of a fine watch that will last a lifetime.
I don’t think many Rolls-Royces will be purchased online, but then again a Rolls-Royce, Ferrari or a special watch deserves a special experience to firmly bond the client and manufacturer. Such an experience creates positive emotions in the mind of buyers, and it should always remain a event to be remembered to insure long term brand loyalty.
In my opinion, what has dramatically changed in the 50+ year era described by Alex, are 2 things:
A) Prices to acquire a luxury timepiece have increased to a point where consumers have no choice but to become price-sensitive and search for the best discount possible.
B) And at the same time, in-store availability has decreased so much that consumers had no choice but to look elsewhere.
I think that the Brands need to:
A) Work hard at educating the consumers and their retailers about what differentiates them, how and why they bring added-value. B) Work hard at balancing and prioritizing their produced output and their new releases vs what the market can take.
C) Invest and support the retailers in developing a successful brick-and-mortar/on-line hybrid experience that would result in costs
cost-saving in the supply chain. Consequently, a reasonable portion of these savings should be reflected in the retail pricing.