It has been 10 years since DM London, the former name of The Watch Gallery, took over the watch selling area of Selfridges in London. Under the stewardship of chairman David Coleridge, the concession has grown to become one of the most valuable spaces in the entire store, with average transaction values for watches topping £3000 in 2016. What has been the secret of The Watch Gallery’s success, and what are its plans for future growth? WatchPro’s Rob Corder sat down with Mr Coleridge to find out.
WatchPro: How has trading been for The Watch Gallery this year (2016)?
David Coleridge: We are 3 weeks from the end of our year and +42% versus last year. Prior to the Brexit vote we were about 15% up on the year, so we had already had a strong start.
WP: And that compares to revenue of £54 million in 2015. That is exceptional growth, and well above the rest of the UK watch industry. It even exceeds other retailers in the luxury watch sector in London.
David Coleridge: It has been an extraordinary year. We had no expectation that Brexit would have this level of impact. If I’m honest I did not think we would vote to leave, so we made no real plans for Brexit. We did not ask ourselves, if we vote to leave, what will we do about it?
WP: Did you not even alter your buying plans?
David Coleridge: Not prior to Brexit, because we buy every week. We go to events like SIHH and Baselworld and look at annual allocations, but we order on a weekly basis from the majority of brands.
The vast majority of brands, perhaps because of the poor performance in the rest of the world, have had available stock whenever we have needed it. So we have had no problems with supply from a single brand other than Audemars Piguet.
It was fortunate for us that there was plenty of stock available because the speed of sales increase would have been a problem otherwise. It is a year the like of which I have never experienced in 35 years in the business.
Retailing is normally a very precise business. A normal year you might forecast being 10-12% up, and be within a percentage point or two about the numbers. This year has just been transformational.
In the summer we had a perfect storm. Brexit happened; two weeks later Ramadan finished, so the Arab customers arrived in London; and London was so much cheaper because the Arab economies are all based on dollars [currencies of all GCC countries pegged to the dollar].
There was tremendous publicity on the fact that the pound had dived, so all tourists perceived that it would be cheap. So, not only did we have plenty of people coming, but also even those that might not normally have shopped while here were thinking, why wouldn’t I?
That created this perfect storm. We even sold watches to Americans, which is not something we normally do. For tourists from outside the European Union who can reclaim VAT as they leave, the watches were materially cheaper than in their own countries.
Since summer, nearly all the major brands have raised their prices. But they remain, because of the low pound, competitive against other countries. Today London costs a little bit less, where historically London has been a little higher than the rest.
WP: Do you factor in tourist numbers when you are drawing up forecasts for future business?
David Coleridge: The absolute number of tourists to London has not, as we understand it, materially changed. It has just been that people visiting here have bought more. Next year (2017), the forecasts for tourism numbers are very encouraging, so there is every reason to expect those numbers to be strong again.
WP: If the pound remains worth around $1.25, that will certainly make the UK appealing to people in dollar-based economies looking to book their holidays in 2017.
David Coleridge: Yes, it is attractive to tourists, but while we love tourist spending here in London, 60% of our business is domestic. The challenge for the brands is not to ‘kill’ the UK consumer. Some brands haven’t put up prices at all, some have increased once, and some twice. As the Swiss exports data states, the UK market is growing strongly, and the brands need to consider first the UK consumer, and secondly the tourists.
Our business will never just be selling to tourists. If you are selling to a UK consumer and you put the price up 20-25% inside 6 months, then that consumer is going to be put off. Naturally retailers will support the brands that consider the UK consumer.
Price differences [caused by currency fluctuations] around the world are here to stay and if brands spend their entire lives trying to adjust prices in every market to keep them in line, then all you will do is antagonise local consumers. Its worth noting brands are never as quick to lower prices when currencies move the other way.
Brands need to market in each country, and they need to control their businesses in each country so that they don’t have excess stock in the secondary market. The UK market is, I think, a very clean market, in general, so a small price difference here need not be a concern to the brands.
WP: There used to be a considerable level of grey market importing into the UK.
David Coleridge: I don’t think there is much now. I saw statistics from WatchPro that said that the UK was the third biggest importer of Swiss watches in the world in November. That is partly due to the tourist business, but primarily due to the local customers. The size of that tourist business in London is far smaller than Paris, and more robust and healthier for it. So, what I would say to brands is, if they want to keep this country strong, focus on marketing to the UK consumer.
WP: I interviewed [Aurum Group CEO] Brian Duffy a few weeks ago and he said that he has been surprised this year by the strength of domestic demand. He said it has been very resilient despite the price rises since the summer.
David Coleridge: He sees that across the UK. Our domestic demand is almost entirely in London, and London is a bit of a bubble economy. I have no idea what business is like in Leeds or Newcastle, but I would imagine it is pretty tough. Local customers in London have been very strong for us.
WP: I wasn’t given a breakdown of the figures, but he did say that, for the whole of Aurum, sales were up 25% this year, and outside of London growth was lower at 10%. You can’t quite work out the growth in London from those two figures, but we can say it is higher than 25%.
David Coleridge: The last statistic I saw from GfK was that London represented about 35% of the country. It might be more than that now and I believe that the higher the price point, the greater advantage London has. The key thing for me in 2017 is that brands don’t see the UK’s performance in 2016 as a one-off but that they continue to market themselves to UK consumers.
WP: 2016 has certainly been fantastic for the luxury watch industry in the UK, but the percentage increases are a little flattering because 2015, when the pound was strong, was a more difficult year.
David Coleridge: We had a decent Christmas in 2015, but the middle of the year was very tough. Overall we achieved modest growth in 2015.
WP: One thing I feel very strongly about is that British watch retailers are among the best in the world. If you compare London to Paris or New York, we have far better stores in the very best locations.
David Coleridge: I couldn’t agree more; and I think it has improved significantly in the last few years; with London leading the way. It is also interesting because the role that the major department stores, Harrods and Selfridges, play in that mix. In London, department stores are the key destination to buy luxury. That is really not the case in many other cities in the world. We therefore have a hard job explaining to the brands’ head offices that these are the best luxury destinations in the country, and need to be core to their distribution strategy. They think it is the same as going into a department store like Galleries Lafayette in France or Macy’s in the US.
And it is why we have done particularly well out of Brexit. If you are a consumer visiting the UK the question is, why would I go anywhere else except Selfridges to buy a watch?
Right now Selfridges is spending £300 million redeveloping the entire store. It is being transformed over the next 18 months, thanks to the investment from the Weston family.
So, you are right that London is a fantastic place to shop, and Selfridges and Harrods are dominant within that landscape. A few years ago, people were sounding the death knell for multi-brand luxury watch retail, but today it has never been in better health than in the UK.
When we have finished the refit here in Selfridges, we will offer around 25 brands, giving the consumer the widest and best choice. Our challenge, with 20 million people walking through the door every year, is to give them a luxury environment where they are relaxed and able to choose to suit their own individual tastes.
WP: What is your average sale price today and what do you think will happen when you have fewer brands occupying more space?
David Coleridge: On the Selfridges floor it is around £3,600. After the refit, that will probably go up. When we built the room, which was almost exactly nine years ago (September 2007), the average transaction value was £800. 10 years ago we occasionally sold a watch for £20,000. Today we do so very regularly, and occasionally for over £100,000.
WP: Would you agree that London today is a match for Geneva when it comes to buying fine Swiss watches?
David Coleridge: I would like to think so. I have to complement Brian [Duffy, CEO of Aurum Holdings]. I think 155 [Watches of Switzerland on Regent Street] is a fabulous store. Our challenge here is different: to create a retail environment that suits Selfridges and the brands. That is very different to 155, which is a specialist watch store only – by that I mean customers who walk in are interested only in buying a watch. At Selfridges our opportunity is to introduce watches to someone who came in to buy cosmetics – but when they come back next month may buy a watch.
Like all good multi brand environments, arguably here it is not the watch brand that is the issue, it is what the customer wants that matters, and that is what we are trying to give them here.
WP: Do your staff here in Selfridges specialise in the watch brands they sell?
David Coleridge: Everybody is a specialist in one brand but must be able to sell all brands. They have to be because, in order to find what the customer wants, our people have to match the customer to the brand, not the other way round. Our business is to understand what the customer wants, and to offer it with the best knowledge and service.
WP: How does Selfridges differ to your other London stores in Covent Garden, Westfield shopping mall and the Rolex boutique in Knightsbridge for The Watch Gallery? Are they substantially different businesses?
David Coleridge: We design each store and the product mix to fit with the location, and the target market. For example, with Covent Garden, our target market is the local working consumer. There are 40 million tourists that go to Covent Garden, but they are not really our target customer.
WP: Any other expansion plans in terms of real estate?
David Coleridge: Firstly the Selfridges space will be 35% bigger, so that that will dramatically increase. We have expansion plans in Westfield, which we will refurbish in the late spring to early summer.
The other area of the business that is rushing along fast is the online. I remember going five years ago to Brietling’s head office, to Cartier’s head office, to all the brands. We had a presentation called ‘Listen to your customer’. We told them, don’t bury your head in the sand, your customer is searching and will want to buy on the Internet. At the time, to them, it was like heresy.
But recently I read that IWC was selling on Net-a-Porter. That would have been completely unimaginable even 12 months ago. Suddenly, they’re all rushing to be transactional. How the next 12 or 18 months will pan out is far from clear, but we can be certain that online will ‘disrupt’ the existing business, we just don’t know how at this stage.
WP: What have been the greatest challenges and opportunities of expanding online?
David Coleridge: In a steady and thoughtful way, we are trying to be the first truly omnichannel luxury watch retailer. It’s not so much about selling online or not selling online, it’s about trying to respond to what the consumer wants. The UK is leading the world in developing the online market. In all retail last Christmas, about 20% of all retail sales in UK were made online. The next highest country in the world was about 11%. This is why we’re attracting the best web developers in the world, and why we will continue to lead the development of the market. We are constantly experimenting to see where to develop next.