Thursday, August 11, 2016

Glycine is Now Owned by...

Invicta.  The official confirmation was just forwarded to me by DKSH about an hour ago.  So press release first, commentary to follow -

DKSH sells the Glycine watch company to the Invicta Watch Group 2016-08-11

DKSH sells its majority stake in Glycine Watch S.A. to the Invicta Watch Group, a US watch manufacturer.
Zurich, Switzerland, August 11, 2016 – DKSH (SIX: DKSH), the leading Market Expansion Services provider with a focus on Asia, sells Glycine Watch S.A. to the Florida-based watch manufacturer Invicta Watch Group. With this step, DKSH continues the restructuring of its luxury goods business which has made good progress since being announced in mid-2015. The parties have agreed not to disclose any financial details of the transaction. 
Dr. Joerg Wolle, President & CEO, DKSH, commented: “Selling Glycine to Invicta is a further important step in the ongoing restructuring of our luxury goods business. At the same time, we are convinced that the Glycine business is in good hands. The restructuring of the luxury goods business is well underway; we are delivering what we promised.” 
Invicta was founded in 1837 by Raphael Picard in La Chaux-de-Fonds, Switzerland. Glycine with its long heritage joins the Invicta Watch Group's other respected brands. Eyal Lalo, CEO of Invicta, stated: "I am very excited about Glycine joining the Invicta family. The synergy between the two brands will create growth for Glycine. It is our commitment to remain dedicated to preserving the quality and long history that made Glycine the respected brand that it is today. We will support Glycine while maintaining its independence and rich Swiss heritage."
Glycine was founded 102 years ago and since then has been producing premium watches at its factory in Biel, Switzerland. Lower demand in Asia, ongoing industry consolidation and the appreciation of the Swiss franc has led DKSH to restructure its luxury goods business – including the possibility to divest. 
Okay, let's discuss!

First and foremost, this is good news for everyone involved.  DKSH had not really been investing the funds needed to anything other than just keep the boat afloat.  And in these particularly treacherous times for the watch business, it is a recipe for disaster to simply keep the lights on.  It was common knowledge that Glycine needed to be sold, and although DKSH had really been working to sell Maurice Lacroix as well, this is at least one under performing asset off of their balance sheet. It also gives Invicta some actual legitimacy as a group, but one mid range brand, bundled with a bargain basement TV brand and an ailing fashion brand does not a "super group" make.  So although this is one acquisition, Invicta has truckloads of money and I suspect that they are circling other brands even now.  And say what you will about quality, customer service, etc.  for better or worse, the one thing that Invicta is good at is selling watches.  

The interesting thing in all of this is the "doom and gloom" being spouted by the various watch forums by fans - not necessarily customers by the way, but watch fans.  The logical presumption is that Invicta could not possibly be a good steward for Glycine.  But that is a wonderfully short-sighted view.  Invicta, in fairness, does have some baggage.  But it's important to understand what Invitcta's role here really is - financier.  Invicta has stated that they will leave Glycine as it is.  While that might be true in terms of staffing for the immediate future, it may likely change by BaselWorld next March.

But what I do feel likely will happen as soon as the ink is dry and the notary has signed off is a fairly aggressive push to clear inventory and bring in cash.  And it is therefore quite likely that Glycine watches might be found on one or more of the "shop at home" television programs in the months leading up to the end of the year.  Because for better or worse, Invicta has oftentimes turned to the short term, quick sale solution.  It is good for sales overall, gets watches purchased and lots of exposure.  On the other hand, it makes it challenging to drive actual retail partners or direct sales through a company website when you are constantly discounting your own products on TV.  It raises the inevitable question of - what is this watch actually really worth?  Glycine at present does not have much of a retail presence in North America, so there are really only so many people you could upset with his strategy. Fortis was dumping watches at less than keystone about a month ago on TV, so maybe this is just what has to happen to clear through the inventory.  Unfortunately, it then conditions future customers to expect the watch to be 70 - 40% of what the actual retail price is.  It is a slippery slope, and one that is not easily reversed one it has started.

From that point on, who knows?  But as is often the case in these situations, time will tell.

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