Friday, April 29, 2016

Tupperware Comes to the Watch Business

Goldgena has announced their latest phase where the outline of what exactly Community Power means in the brave new world that is Goldgena's distribution model.

Here is their latest animated update -

Now part of what the Goldgena treatise states is accurate, but unfortunately part of it is misinformed.

Here is how they break it down -

The gray market, even if it is legal, is not authorized by the brand. It consists of independent dealers whose strategy is to make volume instead of high margins. They usually buy overstocks from official retailers and sell them with discounts of around 30 to 50%.
Of course, normally brands fight against the gray market but in crisis situations they often close their eyes because this parallel network helps them to clear overstocks and avoid explosion.
Here is some factors that stimulate the gray market:
  • Exaggerated difference between the cost price of a watch and its intrinsic value.
  • Excessive production that creates overstocks among brands and retailers.
  • Price differences that occur among territories when the retail price is adapted to the purchasing.

Some of this is accurate - The gray market is indeed not illegal.

Some of this is semi-accurate - The gray market is not explicitly authorized by the brand.  But then again, at the high level that some of the gray market sellers operate, they are supplied directly by the brand.  When a brand releases a new watch and it is ALREADY available in the gray market before it has even made it to your "authorized" retail partner it is clearly coming straight from the source. 

And the assertion that the brands sell directly to the gray market only in times of crisis is patently false.  For many brands, the gray market has been one of the cornerstones of their business plan EVERY YEAR.  Think I'm kidding?  Gray market representatives attend the same fancy SIHH and BaselWorld appointments as their "authorized" retail colleagues.

But let's get back to that new and improved distribution plan -

If I have read the update correctly, it sounds like a nice idea but one that is not completely original - no offense to Goldgena.  It has been tried by several independent and boutique brands.  The idea that a retail partner will have a few "trial" pieces and that a potential customer can come in, try it on, and then order through the retail partner to have it delivered is not new, and no offense to the folks at Goldgena, it is not revolutionary.  But in deference to Goldgena, it IS a good idea and one that I hope more brands will follow, although to some extent this already happens with MEMO.  Memo, or memorandum is the practise that is currently the most en vogue.  Here is how it works:

1.  Brand CEO wants to keep share prices high, wants to make a big bonus, and of course wants to keep his job.  So in order to cover that amount of revenue he needs to produce he produces a sufficient number of watches with the full knowledge that a certain percentage is going off to the gray market super store, and another percentage will go through normal distribution, but will be offered on memo.  Memo means that the retail store receives the watches with no money down, but that the retail partner will pay them when the watches are sold.

2.  Retail partner sells the watch, but are most likely not going to break any efficiency records in getting this information reported to the brand manager, who is most likely getting his ass chewed on by Switzerland wondering where the f*&k the money is.  Now the irony in all of this is that nine times out of ten it Switzerland who set this problem in motion.

"Oh, store X is a great and valued partner.  A really great customer!  Set them up on a memo account!"

I call bullshit - a good customer is one who PAYS.  A great customer is one that doesn't make you chase them all over God's Half-Acre to get paid.  One particular horse trader I remember not-so-fondly from my brand repping days had this charming piece of feedback for me when I asked if his store had sold any pieces recently -

"You want to know what we have?  Come down to my store and do a f*&king safe count!"

He was always a bit of a jerk, but that sealed it and we closed his account.

Memo is expensive for a brand.  Store X gets the watch on memo, will sell the watch, and then most likely NOT contact the brand to let them know that they sold the watch. So the brand then has to deploy someone out to the store spending on airfare, car rental, hotel, and meals to go to the store, count the watches in the safe and then write an invoice that will "age" for at least 90 days.  And even then they will most likely have to chase after the money.  

The end of memo would be merciful and welcome, but sadly I do not see it going away anytime soon.  

So we get back to where gray market watches come from, and this leads us back to the inescapable conclusion that more often than not they come directly from the brand.  If a store isn't paying for the inventory, they will not be so pressed to dump the stock at a loss.

So back to the idea of visiting a designated "viewing center" and then ordering the watch.  It does not seem as if it is going to be scalable.  It might (and to be clear, I hope it does) work for Goldgena.  Contrary to popular belief I am sincerely hoping that they not only make a go of it, but succeed.  

Now their other plan of "community power" is a nice one, but again one that has been tried by just about every brand in all sorts of variations.  It has also been tried in just about every sort of industry.  It is not entirely dissimilar from Tupperware or Mary Kay.  But it has a lot of flaws that are down to nothing more than geography.

Let's say, for example, that Customer B is a happy and satisfied customer.  He is contacted via the Goldgena App that Potential Customer Y would like to meet up and see the watch.  Customer B lives in Los Angeles, CA.  Potential Customer lives in San Diego, CA.  That's about two and half hours of driving.  Price of gas, miles on your car, and what do you feel your time is worth?  For this system to work, you have to have enough initial customers that live in proximity of other potential customers.

Secondary potential problem is, sorry to say it, safety.  

'Nuff said.

Now in fairness, this might just be a North America issue owing to the very large size and great distances between metropolitan areas.

I'll say it again - I want Goldgena to work, but for it to work, the people behind this endeavor need to look a little more "inside of the box" to identify what potential road blocks and pitfalls they might encounter pursuing their "outside of the box" sales and marketing model.

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