Monday, July 13, 2015

The Canary in the Coal Mine - Maurice Lacroix

Let's start with the facts:

Maurice Lacroix "shared" the news with Bloomberg that they were looking for someone to buy them.  Or more specifically the holding company DKSH has made the decision to exit the watch business.  Essentially, one way or another, DKSH wants to see the back of Maurice Lacroix as well as Glycine.  But the emphasis is clearly on MLC.

Those are the basics.  But I also think it's safe to say that MLC did not get here overnight.  The signs were there for those looking for them.  And perhaps the saddest part about this is that the people who really lose in this deal (or the other deals like this that will be revealing themselves shortly), are the people who bought into the elaborate vision painted for them.  From the customer who paid full price, to the retail partner who bought in, to the regional brand manager who trusted in the company.  Certain others have (or will) un-couple from the mother ship unscathed.  Smiling.  Happy.  On to the next brand or brands.  Others will have this following them, not unlike a stain on their favorite tie that no amount of dry cleaning will remove.  And while that isn't fair, fairness is a pretty malleable notion.

That is the way of business.  Some guys get the golden handshake, some get the fuzzy end of the lollipop.

And if you think this is the ONLY situation like this, the only brand that is in peril, you need to put down the crack pipe.  Others are treading water, sucking wind, hoping for another million or two to be injected.  And this is where the rubber finally hit the road for Maurice Lacroix and DKSH.  Consider this - in less than four years they have gone from the birth of a "super luxury group" buying Maurice Lacroix, adding Glycine, a stake in Bovet, to essentially engendering a yard sale to extricate themselves from the watch business.

I could be wrong, but I suspect that maybe this is one of the events that is going to mark a shift in the way that the watch world operates.   It was coming regardless of Maurice Lacroix's "news" this AM.  It just so happens that Maurice Lacroix rolled on it's back and showed its tummy first.  More brands will follow suit.  It is inevitable.  You will only throw money at a problem for so many years if you have a healthy detachment from you ego.

The DKSH folks enthused that there was "interest"... whether that is fact or hope remains to be seen. Safe to assume that SWATCH and Richmont will pass. Kering is getting ready to lay off people at UN, and JEANRICHARD is on life support. The other Asian players currently owning Corum and Eterna have their hands full. Corum is showing signs of life. With a truly gifted person like Samir
Merdanovic I have no doubt that Eterna movements just might supplant ETA. Eterna watches are another matter, but let's stick to one crisis at a time ; )

If anyone might be able to fix this I would put my money on the Stas family.  But they might not be interested.  Beyond that there is always LVMH, but the lion in winter might give both of these a pass as they are working on fixing Tag Heuer which is not exactly a small task.

So as ever, we will watch, we will wait and we will see.

I would like to leave you with this -

In many vineyards, roses are planted amongst the vines.  Why?  The roses are a bit more "temperate" than the vines.  If there is something "alien" that might infect the vines, the roses will get it first and the vigneron will have time to address it before the entire vineyard follows suit.  In times even further removed, miners kept canaries in a cage to ensure that the air was still breathable.  If the canary died, it would be your signal to head to the surface.  

So while this is regrettable, while it was avoidable, let us hope that it is not something that everyone in the industry will feel compelled to ignore because their hubris and arrogance has whispered seductive words of invincibility in their ears.  

So to "crib" from one of my favorite movies - Patton:

Patton: [voiceover] For over a thousand years, Roman conquerors returning from the wars enjoyed the honor of a triumph - a tumultuous parade. In the procession came trumpeters and musicians and strange animals from the conquered territories, together with carts laden with treasure and captured armaments. The conqueror rode in a triumphal chariot, the dazed prisoners walking in chains before him. Sometimes his children, robed in white, stood with him in the chariot, or rode the trace horses. A slave stood behind the conqueror, holding a golden crown, and whispering in his ear a warning: that all glory is fleeting.


1 comment:

  1. Hi James, I totally agree with your analysis. I would add by saying that one of the fundamental mistakes in the history of Maurice Lacroix has been the decision to turn it into a manufacture.

    The numbers speak for themselves: Maurice Lacroix is currently positioned between Longines and Omega. According to official press releases, Longines employs about 900 worldwide and it is estimated that they churn out 1 million watches per year. In comparison, Maurice Lacroix barely produces 1/10th of Longines, yet it maintains about 200 employees, which is double of what Longines needs for the same job. Maurice Lacroix is the size of Tissot, which produces an estimate 4 million watches in the lower mid-end segment, where Mauric Lacroix began doing business. It doesn't take a genius to figure that Maurice Lacroix has a lot playing against itself.

    Prior to 1975, they were essentially a lower mid-end OEM (Private Label) working for other brands. However by 1980, the success of their lower mid-end trademark introduced five years before allowed them to stop producing for other brands.

    Maurice Lacroix did produce nice upper mid-end limited editions with power-reserve display Peseux or Venus movements during the late 20th century, but by the year 2000 they started flirting with the high-end segment and fiddling with highly customized Unitas movements.

    Since the year 2000 things have been escalading towards the high-end segment under CEO Philip Merk, like the elusive 2008 ML128 memory chronograph, of which we only saw digital renderings. I think they are one of the brand most severely hit by the recession caused by the Subprime Crisis. After the acquisition by DKSH, instead of regrouping and focusing on what made their success (the lower mid-end segment), management continued to aim at the high-end segment.

    In the end, a brand is not as malleable as one may think, and it looks like the turmoils of the last two years (Chinese crackdown on luxury gifts and geopolitic turmoil) are more to blame for the brand's apathy than the sudden rise of the Swiss franc.

    Whoever takes Maurice Lacroix off of DKSH's hands should make sure to avoid overpaying for it. There is probably a lot of cleaning up to do: terminating most lower high-end models to focuse on fast-selling lower mid-end models, and why not: resume the Private Lable side of the business. In any case, there is a lot of potential with a staff of 200 employees.

    Any entrepreneur worth (his or her) pinch of salt should be able to go back to double-digit growth, and what is really needed is a solid retail network to start selling lower mid-end watches fast.