Thursday, December 29, 2016

As the industry continues to seek the bottom, the bottom continues to become more and more elusive.  And where there is fetid product, there will be a need to get rid of it.  And as much as I would like to say it's evil dealers, shifty distributors trans-shipping, etc. the simple truth is a lot of brands got themselves into this mess. 

And I am now more and more convinced that watch brands can dig themselves out of this mess, but it will require the brands to let go of a few of their long-held beliefs.  And more importantly, it will require them to behave a little less hypocritically. 

So let's break it down!

1.  Brands need to own up to the fact that in many cases they are directly working with the grey, and light-grey market.  Go to BaselWorld and you will see the grey marketeers sitting in the same waiting lounge as the buyers from Shreve, sipping the same coffee, and meeting the same sales manager (and often the CEO)!  Brands have always utilized the grey market as a buffer to help make production and export estimates more elastic. 

So first things first, stop directly feeding the grey market. 

But along with that, stop feeding the light-grey market.  Touch of Modern and Mass Drop seem innocuous enough, but they are proving to be not even a viable short-term option.  When I can find a current model for LESS THAN HALF of the MSRP, why in God's name would I buy from an authorized retailer?  And it is important to understand that as more and more of the water is drained from the pool, the brand's reputation and perceived value continue to lower as well.  Because make no mistake, once Joma Shop, Ashford and are being undercut on price, they are going to start lowering their prices as well.  And then it becomes a sprint to the bottom.  The lower the price goes, the lower the perceived value.  Think I'm full of it?  Look at JEANRICHARD, a long time participant in the grey market.

JEANRICHARD, if not dead, might as well be.  At this point it has become horological carrion.  And the reason is simple, they could not sit tight, they could not focus on selling what they had, they were always convinced that the NEXT THING would solve the problem.  The greatest tragedy in all of this is that there are a lot of people out there who liked the watches and would have spent REASONABLE amounts on their watches.  But like so many other brands, the shot-callers had clearly consumed too much of their own bath water.  And it didn't have to be that way.  Millions spent on a re-boot. Fresh talent brought in.  A modular system (Terrascope, Aquascope and Aeroscope) that would standardize manufacturing and allow the brand to have a clear identity.  But the usual villains emerged as they had done at JEANRICHARD in the past.  We need at least 30 different dial options!  Partnerships!  And some of those partnerships were beyond ill-advised.  A tightrope walker was, in hindsight, an apt analogy for a poorly considered plan that many of us were convinced was the product of a hard night of drinking.  And then betting the farm on Arsenal pretty much put the final cannonball in the good ship JEANRICHARD's main sail.  The new and wonderful JEANRICHARD managed to come apart in the span of 18 months.  From hero, to sub-zero.  You can now get some amazing bargains, but it starts to have the feeling of buying a Trabant or a Yugo.  Good for kitsch value, but not much more. 

And it appears that JEANRICHARD is going to have plenty of company in the not-too-distant future.

2.  Brands MUST have a better understanding of what realistic sales volumes are, and more importantly must address and accept what realistic pricing structures are.  Budgets will always be predicated on sales.  That is just natural.  But this then means that instead of fantasizing about bonuses, promotions and red carpet events, you need to make honest, realistic forecasts.  It is better to not have enough product and create desire than to flood the market with too much.  It is better to make a modest profit than to lose millions. 

3.  And this is the big one - watch brands must make the decision to clearly identify themselves as either a perishable good (i.e. like fashion brands) or a durable good (like say, Rolex). Fashion created the concept of the outlet store or mall.  And Movado has embraced this idea.  It might be time for other watch brands to adopt the same idea.  Why should you dump millions of dollars in the grey market and see the value of your brand swirl around the toilet bowl of public perception for the benefit of .30 on the dollar when you could sell it yourself through your own outlet for .75?  Guess what?  You are STILL MAKING MORE than if you sold through the normal (non grey market) channels!

If you are going to view your product as the fashion industry does, then create your own outlet stores to manage oversupply.  Slowly choke the grey market dead.  You will lose a little bit of prestige in the short term, but nothing like the prestige you are currently losing while making even less money.

Or if you are making a durable good, treat it like one.  Adjust your budgets and your manufacturing accordingly.  Make fewer watches, be patient, and stop changing the product line every year or two.  Good things take time.  Better to invest time than to waste money, brand value, employees and the very brand itself.  Just ask JEANRICHARD.

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