The sub-£500 priced end of the British watch market has been in sharp decline since 2014, and Rotary has been rocked by changing consumer tastes, the rise of smartwatches from the major tech firms and, the company’s current managing director admits, significant operational failures.
This led to sales dropping for Rotary by 26.2% to £10.7 million from 2016 to 2017 and operating losses of more than £10 million across the two years (2016 -£5.5m, 2017 -£4.9m).
As the red ink flowed, Rotary’s owner Citychamp Watch & Jewellery Group (CWJ), promoted Peter McKenna to managing director in the summer of 2017, and he has been executing a turnaround plan ever since.
In refreshingly candid comments to WatchPro, Mr McKenna reveals that 2017 saw the culmination of, “A variety of strategic initiatives from previous years that did not play out well”.
“We took the brunt of the market downturn in 2017. Our cost base was not set up to deal with these shocks, hence the losses,” he adds.
CWJ approved a plan that required tough decisions to be made in 2017 that would likely take more than a year to feed through to improved performance.
For example, Rotary eliminated unprofitable sales channels, which impacted sales. It also restructured the workforce dramatically. “Some of that work impacted our customer service for a number of months in 2017 and that compounded these problems,” Mr McKenna recalls.
Work began in 2017 to reconfigure Rotary’s product families, and the business is seeing the benefit of that work now, according to Mr McKenna.
Product quality was also improved, Mr McKenna continues, and the company put in place a much improved customer service offer to both trade partners and consumers.
The turnaround will not be immediate, but has the full support and financial backing of CWJ. “We recognised our failings and put in place a four year plan to rebuild and recover,” says Mr McKenna. “We did the groundwork to reduce our fixed costs significantly,” he adds.
The 2017 accounts are almost 18 months old, and Rotary has not shared figures on the 2018 financial year. However, Mr Mckenna says: “We have substantially improved performance in 2018, and we believe now we are well placed to grow and generate the organic profitability that our investors demand going forward. We have the full support of our investors at CWJ in pursuing our turnaround plan.”
Ongoing work includes re-establishing trust with retailers through impeccable service, hitting the sweet-spot on price and working on segmentation to protect trade margins on the high street.
There have also been key hires including Duncan Harris, who moved from Timex to take the role of sales director at Rotary at the back of 2018, and the reintroduction of field visual merchandising teams in the UK.
And, “On a product front, AW18 was a huge hit,” Mr McKenna proclaims.