Tuesday, May 24, 2016

Dogs and Cats, Living Together! Mass Hysteria!

Richemont has recently made the decision to buy back and either reallocate or cannibalize "under performing" stock.  This was reported by the Financial Times and for some people it was as if the sun had risen in the West and set in the East.  But a little insider info. from your old pal Henki - the practise of "euthanizing" failing watch models and performing "organ donation" is not new and is something of a time-honored tradition in pretty much any economic climate.  It is not unlike when Barry Hearn purchased the dilapidated stadium from the Leyton town council and understanding that Leyton Town would never draw enough fans to fill all four corners of the ground, he realized that it represented an asset that was redundant to his needs, and he developed those areas into blocks of flats and sold them for a huge profit!  And with that money he redeveloped the area, opened a pharmacy, a college row and paid for a brand new stadium that could hold the actual number of fans who would be attending matches there.  He marshaled his resources, and he used them intelligently.

In many ways, Richemont is doing the same thing.  They have a group of watches that are not selling, and show no signs of selling in the foreseeable future.  But they have a potential asset - the movement, possibly the hands, crown and strap that can be re-used.  As I said, it is standard operating procedure for brands to buy back unsold / unloved / unwanted stock - so that they can pump in new stock.  And if the grey market is saturated at the level that it currently is?  Call in Doctor Frankenstein!

So if this is what they usually do, why the announcement to the press?
Simple - misdirection.  While you are standing, staring at that unsettling bit of news, you are less apt to pay attention to the bigger picture, which I bring you courtesy of our good friends at the Federation of the Swiss Watch Industry:

Courtesy of the Federation of the Swiss Watch Industry

It does not take an MBA from a crack Swiss business school to ascertain that -7% is a worse number than -6%.  In other words, things for the industry are not getting any better.  They are, in fact, getting worse.  And as we slide into summer, they will continue to get worse.  Richemont  is letting people go, as are other brands, and there are not really any signs of improvement.

The fact that Richemont bought back and "re purposed" under performing pieces is not news.  And given the current state of affairs, it is perhaps one of the sanest, and most rational decisions made in the industry in some time.

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