Quality multibrand showrooms are showing their value more than ever, and so are specialist retailers, which are outperforming brands running their own boutiques.
Don’t just take my word for it. Richemont appears to agree.
Just look at what the group is doing with TimeVallée in China, South Korea, UAE and Spain, where it is opening multibrands in partnership with retail specialists including Chow Tai Fook and The Omni Group.
This is a reversal from Richemont, which has spent decades extending its control from manufacturing into distribution and ultimately retail through branded boutiques on Bond Street, 5th Avenue and Place Vendôme.
A nervousness has been growing for years among its retail partners that it is only be a matter of time before Richemont walks away from wholesale.
Richemont is not alone. Swatch Group was opening its own Omega boutiques at pace until a couple of years ago but is now partnering with specialist retailers.
Hublot recently opened its own boutique on Bond Street, but LVMH stablemates TAG Heuer, Zenith and Bulgari are firmly committed to working with retail partners.
Direct sales versus wholesale
Selling direct is an attractive strategy for two much-cited reasons.
First, the brands deal directly with customers, and have the opportunity to get to know their tastes and spending habits. The better you know your customers, the easier it is to sell them more stuff.
Secondly, the manufacturers believe they make more money if they do not share profits with retailers or other middlemen.
While a retailer might make a a 50% gross margin on the sale of a typical watch, the manufacturer can trouser more than 75% returns.
Both these beliefs, which have guided the groups for a generation, have been exposed as false for two simple reasons: manufacturers are not particularly good at retail, and retailers are very, very good at what they do.
All the pandemic has done is dramatically magnify these two assertions.
Brands could not have anticipated the end of [Chinese] tourism and the hollowing out of the world’s most expensive city centres, but it is not like specialist retailers had any forewarning either.
The difference has been in the immediate action that retailers took to maintain and even grow sales while the brands shut up shops, furloughed their teams and cut costs as fast and far as possible while they waited for the all clear.
The argument that brands retain greater profits by selling direct has also been exposed as fundamentally flawed.
Most Bond Street watch boutiques lose money even in the good times because of eye-watering rents and rates. CEOs openly admit that they keep these shops open for reasons other than profit.
Hublot’s Ricardo Guadalupe, for example, says the price for running its Bond Street boutique can be justified because it positions his brand in the same club as its neighbours: Cartier, Chopard, Tiffany, Patek Philippe, etc.
Adjacency matters, but this strategy has to be called into question in an era when Chinese tourists may not return for a decade.
Brands can show their place in luxury pecking order in other ways, just as Rolex and Patek Philippe do when they insist on either the first double page advertisement or the outside back cover of glossies like GQ and Harper’s Bazaar or LVMH brands locked in premium positions at the entrance to Hall 1 of Baselworld.
I have a feeling 2022 will be a year when watch brands reach out to retailers, particularly in big cities outside London, to establish partnerships. Those conversations might be very different from those taking place over recent years when brands dictated terms.
This should be the year that brands spend a lot more time listening to expert retailers rather than struggling to acquire that expertise themselves.