Friday, February 1, 2019

The Funny Thing About Numbers

Okay, it's time once again to play Bullshit Bingo with the latest numbers from the FH, or as it might be more gently put:
One person's success is another person's cause for concern.

Let's start with the big picture with the December results from the FH -

Courtesy of the FH
Now I am not a trained economist, and in the interest of transparency, I failed Macro Economics my first year at the University of Oregon.  Having said that, it does not take a Nobel laureate (or even a Sloan Research Fellow) to notice a somewhat worrying trend in the direction of the graph for the export numbers over the last quarter of the year.  Curious to relate, other pundits will crow about how much things are improving, particularly here in the (currently chilly) US.  Well, I'm calling bullshit.  

Talk to most retail partners and you do not exactly hear how good things are.  The big swinging dicks (i.e. the decision makers for several BIG retail sources) took a pass on SIHH.  Let that sink in. Now consider that BaselWorld is going to continue to compress and a lot of retailers will give it a miss as well.  No, this does not mean that we are entering "end times", it does mean that this recovery is not exactly what some outlets would have you believe.

So who is doing well right now?  The grey market.  When big brands are offloading directly to the grey market sources, that ensures a steady (albeit much smaller than hoped-for) outflow of watches from the 26 Cantons.  It also means that the price for "almost new' watches offered by your favorite online resources will continue to move downwards as supply will continue to outstrip demand.  Yes, I did retain that much from my failed class back in 1988.  Which means that more and more people will find themselves unwilling to pony-up the full sticker price to buy from an actual retail partner.

So let's think about a few basic facts -

1.  With the new Swiss regulations, there are likely to be fewer exports in the coming months as several brands are trying to "toe the line" on the rules.  Important side note, several brands can't be asked to comply and are still playing it fast and loose, so we shall wait and see what potential repercussions might be.

2.  The grey market isn't going anywhere, but just as Las Vegas and Times Square shed their lurid pasts, the grey market is now squeaky clean and presenting itself as a trusted source for previously owned watches.  A little inside baseball, what that really means is that the watch is being sold as pre-owned, but it is likely the most wear it ever saw was in a store where it didn't sell.  And again, there is nothing wrong with this, but it is not good in the long run for the brands.  And for you the buyer?  You're all excited about getting that "Like New in Box" watch for 40% off - until you decide you want to trade or sell it.  And then you come face to face with our old friend, the sunk cost trap.  And that goes double for the brand directors driving their products straight into the grey market hopper.

3.  Retail will not totally disappear, but we will see more retail stores go under.  Sorry, there is no way around it.

4.  Ditto for watch brands.

So here's hoping I am wrong, that all is well, sales are brisk, and the needle will tick up again.

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