Thursday, February 18, 2016

When the Going Gets Tough...

The results are in for January, and like Wiley Coyote trying to get out from under the falling ACME anvil, there does not really seem anywhere for the industry to go where it won't get bruised.
Courtesy of Federation of the Swiss Watch Industry
This is not new news, but it will give more than a few retail store owners pause before they write up big orders over the next few months.

The irony in all of this is that while the game has indeed changed, the brand leaders refuse to accept or admit it on a level that actually addresses the issue.  They still play the game in the same way.

It is simple really - watches are not milk, fruit or any other perishable item.  It is time to stop treating them as such.  So here are a few ideas that (I am confident) nobody will like, but might actually work:

1.  Brands scale back production and the number of new SKUs that they are pushing out the door with the insistence that "This one will be different!".  Throw out the current budget because it is clearly based on unrealistic sales numbers which have been predicated on the desire to reach a sales number that will ensure a specific increase in share price, which will ensure a CEO bonus, which in turn will guarantee the bonus packages of sales managers.  It's time to nut up or shut up.

2.  Retailers need to stop treating watches like a perishable item as well.  I want to be clear that this is not how all retailers behave, but many of the big volume retail outlets have a policy of going "deep south" on pretty much any watch from the day it arrives in the store to ensure that cash flow remains high.  The belief that many retailers have is that if a watch is still in their safe after 30 - 60 days they have had it too long.  I appreciate that from the retail store's point of view they are "hosting" the brand, but that is a short-term view.  Do you want a quick fix/smaller gain or a long term/larger gain?  Short term solutions seldom pan out in the long run.

3.  Brands need to end the practice of MEMO - because in all honesty a memo account does not a sale make.  And in most instances a memo account costs the brand more money than you might think.
Not only does the brand deliver the watches, but nine times out of ten the retail partner is not going to go out of their way to notify the brand when the watches have been sold.  So in order to get paid, the brand must dispatch people out to the store to do a safe count.  Only then will they be able to verify what the retailer owes them.  And even then, they will be looking at another 30 - 90 days before they will likely collect it.

4.  Several brands will have to die.  Sorry, but for too many years it has been survival of the "least fit".

5.  Accept that this is the reality for NOW.  It does not mean things won't go back to the way they were, but if the past year is anything to go on, there does not seem to be much sunshine on the horizon.

6.  If watch brands wish to run themselves like fashion or clothing companies, then they need to embrace the idea of the outlet mall.  That way the customer knows that they are getting something at a discounted price for a reason, and it just might thin the herd of the deep discounting retail stores.

7.  Watch brands need to stop the practice of ignoring the reality of "false retail".  The retail store that orders five times as many watches as say, Tourneau is not likely selling all of those watches in their own store.  As many that go in the safe, often twice as many go out the back door.

8.  Brands will have to stop selling directly to grey market outlets and undercutting and damaging their own markets.  The practice used to be more subtle, but now is so obvious it is painful.  It is hard to win the game when your own coach is actively helping your competition by spiking the Gatorade.

Or, things can continue as they are, bleeding a little bit more each month until the patient has completely bled out.

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