Watch brands hoping to sideline the most successful retailers in the United States and Britain are provoking a backlash from highly respected jewellers on both sides of the Atlantic that have been instrumental in establishing them over many decades.
Charlie Pragnell, managing director of Pragnell, which has stores in London, Leicester and its home town of Stratford-Upon-Avon, says his decisions on which brands to back is influenced by their direct to consumer sales strategy.
During an eight year project to extend his flagship store in Stratford-Upon-Avon, Mr Pragnell looked at his portfolio of brands and took the decision not to continue with A. Lange & Söhne or Audemars Piguet. A. Lange & Söhne opened its own boutique in London earlier this year. Audemars Piguet has said in recent years that it wants all of its watches to be sold from AP boutiques moving forward. It will open its first AP House in London this year.
As an authorised dealer for both Rolex and Patek Philippe, Mr Pragnell — while diplomatically choosing not to specifically name the brands — points to the success of watchmakers that do not bypass their partners and sell direct.
“The decisions that brands make with their strategies inevitably affect our choices when it comes to working out which we want to work with. The brands that do not have a direct distribution strategy seem to be the most successful across the industry. So QED,” he tells WatchPro in an interview to be published in full in the July edition of the magazine.
“There is increasing recognition of which is the more effective path. It does depend on where you are in the world, the quality of the retailers and the nature of the brand. Many brands are realising that direct distribution is rarely the most effective,” he adds.
Michael Pollak, chief executive of Hyde Park Jewelers, which operates multibrand watch and jewellery stores in Denver, Phoenix and Newport Beach, California, along with franchised single brand boutiques in partnership with Rolex, IWC, Breitling and Hublot, says that brands are discovering that buildings their own direct to consumer retail is expensive, complicated, and rarely as successful as executives in Switzerland hope.
“We have already seen some brands that have had very aggressive bricks and mortar retail roll-out strategies begin to re-evaluate. They are either closing stores or slowing down their rate of growth. They have realised that it is not quite as easy as they thought. The investment is significant and it takes a while to grow sales. It does not happen overnight,” Mr Pollak says.
The red hot state of the luxury watch industry in the United States in the past two years has encouraged watchmakers to withdraw from some retail partners and set up in competition with those that remain. This gives the brands control of customer transactions, which means they retain higher margins on each watch sold, and accumulate more data from people browsing and buying in stores and online.
That strategy, Mr Pollak suggests, is high risk, and ignores the enormous cost and complexity of building and maintaining physical and digital stores. It also overlooks the benefits of working with local retailers that are experts in their own communities and have built customer relationships dating back generations.
“Most brands, if they had to depend solely on their own distribution, they would quickly fail. A couple of companies that have gone that way have found that it may work in the very robust market we are in, but will not survive a more challenging time,” Mr Pollak describes.
The current economic high tides are keeping all boats afloat, but the cycle will turn, Mr Pollak warns, exposing low margin business models.
“We are experiencing a market that is unique in the history of America. There will be a time when business slows down and that will be the test for brands that sell direct,” he suggests.
Interesting to see how retailers complain all the time about how big names of the industry withdraw from them, but automatically close the dore to small independant companies that would love to partner with them, but just get blind refusals from the retail network. Hopefully the move taken by the big watchmakers group will open the eyes of the independant retailers that there is much more in the industry that just the usual 10 brands that everybody always want. If the industry is to survive the concentration it has been operating, all partners need to be respectful and support each other, whatever their size and strength. If not, only a few will remain, among brands and retailers.
Good point Jeff. I’m sure there were a lot of complaints when horse drawn buggies were replaced by the horseless carriage. Consumers are demanding more transparency, better value propositions, and quicker access to the brand(s)/model(s) they want. Brands are intelligent to embrace this reality, and have realized that there is more margin available to them to invest in better curating the customer journey, the brand communication, as well as digital marketing and community, access to customer data, and ultimately profit margins. Is it a risk? Of course it is, but risk analysis seems to be telling the brands to get onboard or miss the train, and hence they are hedging their bets that this is the way to go. This does not mean that there is no value in brick-and-mortar, and to Mr. Pollak’s point, even more so outside of major cities. My hunch is that there will be an equilibrium between the two, traditional distribution model and the B2C, but we don’t know precisely where that is yet. And to your point, yes, smaller and independent brands have been given short shrift in most brick and mortar stores, perhaps as much due to pressures from the big groups/brands as to the hubris and/or risk-aversion of the watch & jewelry store owners. Naturally, these small and independent brands are going to react to the rejection by leveraging current technologies and all the advantages of an innovative digital platform, and realize at the same time the significant margin savings over traditional distribution models. This is the dispassionate reality of the markets today, not only with watches, but with luxury. fashion, and nearly all consumer goods today.
Couldn’t agree more with the comment above… Thanks for bringing it up in such a nice, non polemical yet totally exact way. Xavier.
The hard truth is that there is very little reason to represent watch brands at retail today, except for Rolex and Patek Philippe, and even Rolex dealers in the U.S. today find themselves unable to get inventory- and Rolex can represent as much as two thirds of a store’s revenue.
With other major brands, including Breitling and Tag Heuer, you will be competing with the internet, the brand owned boutiques, the brand owned outlet stores, or the retailer in the next town that will give away the product to pay his bills or in the hope it will turn into a diamond sale.
And that is also why the smaller brands, as Jeff, above, bemoans, cannot gain a foothold.. It used to be worthwhile to try to distinguish yourself as a retailer by bringing in new product that your customer was not familiar with, and create a following based on your discernment and ability to curate a collection.
Now the customer to whom you have introduced something new will simply go onto their phone, often right in front of you, and find online the piece you invested in and just romanced and educated them about for close to your cost or below. And then accuse you of attempting to take advantage of them.
The small brands have only themselves to blame for not working more proactively with their dealers and not clamping down on the internet, or, at least finding a way to compensate their dealers for those lost sales to make their investment worthwhile.
Look at the most successful watch retailers today – they are usually large, dominant, and carry either Rolex, Patek, or both. No room for a true curated boutique in this world…..
As far as the brands go – if it weren’t for China propping them up right now they would be in much worse shape than they acknowledge. There is also more smoke and mirrors here than most people understand – brands selling product into their own boutiques to prop up sales, especially the public companies – until there is no more room for back stock in their boutiques and then……
Memories are short- simply recall the Cartier fiasco in Hong Kong just a few years back…..