Monday, March 2, 2020

Deja Vu All Over Again

Shamelessly borrowed from the worldwide info-web
With the bankruptcy announcement of RJ and the cancellations of this year's fairs (I suspect JCK and other regional shows will follow suit), it may seem as if we're in extraordinary times.  Well, yes and no.  Anyone who was in the business back in 2008 will have less-than warm and fuzzy memories of that time.  I had about a year under my belt at DOXA when the shit hit the fan.  And as bad as that was, remember that it wasn't the worst.  The quartz crisis was far worse.  

Shamelessly borrowed from the worldwide info-web
But what those two seismic events have in common with what is happening now, is a fundamental inattention to reality as it is unfolding, and a (sorry) rather shocking unwillingness to believe that contrary opinions might be, I don't know, good to listen to.  It's a little like refusing to listen to the weather report then being surprised when you get rained on.

Is the sky falling?  Of course not.  The watch business will continue to hum along, but for some brands the end of the road is rapidly approaching.  So a little inside baseball for you - with the exception of (most) micro brands, the majority of watch brands out there are fairly dependent upon outside investment.  Per RJ's press announcement:

Press Release

Eysins, Switzerland, February 27, 2020. The Board of Directors of RJ Watches SA regrets to announce the company's bankruptcy application.

The Board of Directors of RJ Watches has been informed of the decision of Alliance Investment Group SA, its majority shareholder, to stop investing in the company. This unpredictable decision was communicated with immediate effect, which makes continuation of the business impossible and the search for a possible buyer impossible within such short time.

Consequently, the Board of Directors of RJ Watches has no other choice than to file for the bankruptcy of the company and the dismissal of all of its employees.

Marco Tedeschi, CEO and the entire RJ team deeply regret this decision, which cuts 33 jobs and ends a great journey. 

RJ is not alone in this situation, they are just the folks we are talking about right now.  If you want a good "canary in the coal mine" indication of just how well a brand is really doing, check their social media feeds.  Was a brand active up until, I don't know, let's say the end of January, and suddenly nothing?  That tells you something.  In some instances, these are brands that are little more than play things for wealthy owners/investors/partners.  More expensive than a mistress, but cheaper than a football (soccer) club.
Shamelessly borrowed from the worldwide info-web
When we talk about the big dogs, well let's just say that there is pain, there will continue to be some, but that pain is going to be felt by individuals, not so much for the brands as a whole.  People still want watches, people are still buying watches.

For the small independent/micro brands?  These are folks who are used to being their own rainmakers.  Those who keep their eyes on the prize will weather this latest storm and make safe harbor.

But what about the middle?  No offense to RJ, but have a brief look in the financials of several mid-size independent brands, you will likely find a similar situation.  All it takes is your main investor to pull the plug, and you're cooked.  Remember Kronaby?

So there is going to be consolidation.  Maybe not on the scale of the Quartz crisis, but I suspect certainly on a scale of 2008.  Keep in mind, we have several "sleeping beauty" brands right now, snoozing peacefully in financially induced comas, and unless there is a DNR, they will continue on this way. 

And this will not just be in the brand side.  Media is scrambling to not only stay relevant, but financially viable.  With brands tightening their belts, advertising money is usually cut before the company car benefit.  So this means that the press junkets will be less frequent, and certainly less glamorous.  But not to worry, I feel confident that there will still be money for yacht and F1 sponsorship ; )

And retail partners?  Well, not all marriages stand the test of time, and some truly good, fair dealing retailers are getting the fuzzy end of the lollipop from the brands who are dazzled by large stores who bully them into giving them exclusives.  It's an unfair game, but there you have it.

And as has happened in the past?  We will see several loyalists move away from the industry and "pursue other professional opportunities", and then there will be the inevitable consolidation.  

As mentioned previously, the current situation in watch land is not new, not due to Coronavirus, unrest in Hong Kong, or some Deep State conspiracy ; )

This has been on the cards for awhile, and the size and scope of the watch business couldn't go on forever.  

So who will emerge from this latest Back to the Future moment as a visionary/savior? I think what we will see is someone who can see things a little more clearly, without the lens of ego. Someone who can pull together a seemingly disparate group and streamline processes. Remember when it looked like Fiat was cooked? It took something more than just a trendy Fiat sweatshirt to save the day, it took Sergio Marchionne, an outsider who looked at things as they were, not how brand managers wanted them to be.  Nobody likes to be told that they have an ugly baby, but just as we can't give a participation trophy, we also need to accept that perhaps not every brand is truly viable.

One of my all-time favorite lines that I used to hear just before this person essentially told me, you just don't understand:
"You see, the thing is..."

Well, the "thing" is this - the ecosystem has been overpopulated for some time, and there is going to be even more pain.  Just like 08, just like the 70s.  We are going back to the future.

1 comment:

  1. "Nobody likes to be told that they have an ugly baby"!! haha James, this is the best line!
    Yes, I was around in 2008. It was painful. We still haven't recovered.
    The future of watches is Microbands because, as you say, they are much more nimble. They don't have ridiculous endorsement fees, have very low overhead, aren't tied into a decades old "brand look" and are generally more hungry. The watch industry, aka the "heritage" brands have lost their appetites for anything but caviar and when that runs dry they don't know what to do...