Sunday, July 24, 2016

And the Bottom

Has apparently still not been reached -

Courtesy of The FH

As the numbers released last week indicate, there was an even sharper drop this past month than the previous ones.

So it is fair to say that the pain is not just with SWATCH Group, the pain is all around.  But what the export figures do not tell us (apart from actual sales) is the flow of watches coming back into Switzerland.  Because, dear readers, watches flow both ways.  

One of the negotiating tools used by the sales reps and brand manager is the "buy back".  Essentially, the proposal is this:

"Buy 25 pieces, and if you can't sell them, I will exchange them for different/new pieces".

And as we know from the dazzlingly poor sales figures, that means there are A LOT of watches being swapped out and exchanged for "new".  But what happens to these little orphans?  

Well, not to worry!  They are either gathered up and shipped off to the grey market, or they are returned home to Switzerland where a few possible fates await them -
1.  They are refurbished with the hope that they can be re-deployed to different markets as new.
2.  They become organ donors, with their constituent parts harvested so that new watches might live!

This is all by way of saying that as bad as things seem in light of the FH results for export numbers, they may be even worse than appears.

And this brings us back to the question - do the steely-eyed missile men and women heading up these enterprises really understand the seriousness of the situation?  With more and more money being dumped into vanity projects, yacht sponsorships, celebrity "Game Changer" partnerships and more and more money being lost in under achieved sales results how long can this plan continue to spool out before it becomes impossible to move forward?

Too Big To Fail is a wonderful motto, designed to provide comfort during stormy times.  But it is proving more and more to be a moral hazard of the first order - CEOs, brand manager, heads of marketing keep writing the checks, because frankly, it's not their money.  And until there is a "Come to Jesus" reality check, the very people who are meant to be the stewards of these August organizations will be the "idiot "sons and daughters who sail the boat right over the cliff, straight down to the rocks below.

So in closing, let's turn to Gordon Gekko in Wall Street for a better understanding how a lack of direct ownership and/or accountability can lead to failure -

Gekko: Well, I appreciate the opportunity you're giving me, Mr. Cromwell, as the single largest shareholder  in Teldar Paper, to speak.

Well, ladies and gentlemen, we're not here to indulge in fantasy, but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company!

All together, these men sitting up here [Teldar management] own less than 3 percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than 1 percent.

You own the company. That's right -- you, the stockholder.

And you are all being royally screwed over by these, these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes.

Teldar Paper has 33 different vice presidents, each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents.

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