When You Run Out Of Juice - The Rise And Inevitable Fall Of HYT

Unicorns. We talk about them in Watch Town and in all fairness, it keeps things interesting. Typically, a unicorn in Watch Town is more down to a rare or madly sought after model. But every now and then, there is a brand that bubbles to the surface that defies the rules and norms and establishes a foothold. And HYT was certainly one of those brands.

And I know, it is easy to play Monday (or in this case, Friday) morning quarterback, but now the news is out that HYT will be heading to bankruptcy in Switzerland, which was outlined in a letter that seems to have been sent by HYT to its suppliers and made public in several social media outlets, including Linkedin, on (I believe) Sunday. Additional coverage can be found here from Robb Report - https://robbreport.com/style/watch-collector/hyt-files-for-bankruptcy-1234599628/

Whether the public airing out of this news was intentional or not, long story short it seems that this might put paid to HYT for the foreseeable future. In the letter, which appears to have been printed in its entirety, it points out that the key hindrance to moving forward is getting additional institutional funding. In other words, it is clear that HYT had not yet become self-sufficient. 

You can read it, as well as some other commentary here at Watch U Seek - https://www.watchuseek.com/threads/hyt-is-having-a-bankruptcy-reorg.5285875/#:~:text=%22HYT%20filed%20for%20bankruptcy%20in,a%20steady%20downturn%20in%20sales.%22

I reached out to the folks at HYT for comment/confirmation, but for the past 3 days they have remained silent.

And if we are all being honest with each other (and ourselves), it begs the question as to how stable are many of the other brands out there? When a brand's ability to exist and continue operations is so closely and intimately intertwined with regular, external monies being funneled in, not unlike the need to continually fill up the gas tank in your car, it really becomes a question of when, not if the doors might be forcibly shut.

Ultimately, for any business to realistically not only establish itself, but survive, grow and endure - it must be self-sufficient. A business that 10 years on continually needs cash injections begs the question - when will the corner actually be turned? 

Owning, or institutionally investing in a watch brand used to be a sign of arrival for men of a certain fiscal fiber. If you couldn't afford a premier league football club, it seemed a path to at least a little bit of fame and notoriety. But invariably it would seem that the watch business is, in fact, just that - a business, not a hobby and not a plaything.

What HYT, Favre Leuba, Vulcain and really too many other brands to name have proven is that investment without intention or plan is about as effective as treating diarrhea by constructing more port-a-potties. 

Once Upon a Time in Malmo

So news broke on Friday that the Festina Group had acquired the assets and intellectual properties of Anima, the parent company of Kronaby.

So, in essence, Festina has acquired the former darlings of the connected watch world.  And have done so at a fire sale price.  Here is the release exactly as it was forwarded to me by another journalist -

Madrid - Spain, March. 08, 2019 – Festina Lotus SA has announced today that it has entered into an agreement to acquire from the Bankruptcy Estate of the company Anima AB, their assets and intellectual properties, including the hybrid watch brand Kronaby. Anima AB, based in Malmö, Sweden – designs, develops, manufactures, markets and distributes the hybrid smartwatch brand Kronaby. The acquisition, subject to certain conditions, is expected to be finalized in March 2019. Several of Anima/Kronaby functions and operations will be integrated into Festina Group. The ten-person Research & Development team focusing on Application, Cloud and Analytics development will remain in Malmö. The acquisition has been conveyed by Trägårdh's law firm, Malmö, Sweden. 

"We are happy to be able to find a solution together with Festina Lotus SA. They have a long experience of the watch and jewelry business, and we believe that the Festina Group will bring great opportunities and vision to the Kronaby brand and the technology it is based on” says Pål Borge, co-founder of Kronaby. "The capabilities of the Festina Group are so much more extensive and we look forward to see the development of the Kronaby brand in the future.”

The President of the Festina Group, Miguel Rodriguez, commented, "It is an important acquisition for us, we not only bring in a new brand to our existing portfolio, we also take a step into the smartwatch segment. Kronaby has proved to be one of the best hybrid smartwatches in the world and the newly integrated people and technology will play an important role in the strategic future of our Group. We all know that the world is constantly changing and connected devices are something we all have around us in our daily life.”

So what does that mean for the staff at Kronaby?  Well, suffice it to say, the word around the campfire is that most of them will be contacting their local unemployment office.

I have to say, in all honesty, that this is one of the most dramatic rises and falls in this business that I have seen in the time that I have been involved in it.  And if I am really honest?  It didn't have to go this way.  

So what went wrong?  Probably a lot of small things, each one on it's own not enough to sink the ship.  But like a poison pill, you swallow it, and slowly it makes it way through.  But at it's root?  This was a fairly fundamental misunderstanding of how the watch business actually worked.  And that was evidenced in several areas including marketing, sales and PR.  Inevitably, a few fundamental things have to happen:

1.  Your PR function needs to actually LIKE the press and be willing to communicate with them, rather than just hang onto the good looking influencer at the party.  Because, curious to relate, it is the press who will get your product and message out there.

2.  Your marketing has to try to shake off millennialitis.  This can be challenging, because all of the data tells you that millennials represent a huge buying group.  This is true, but as a group?  They are not really  buying watches, with, perhaps, the exceptions of Apple and Samsung watches.  Your marketing team needs to message to people with actual money who will actually spend it on your actual product.

3.  Your sales team needs to understand that merely opening a store is not the same as actually selling watches.  If watches are sold, they actually need to be paid for, meaning that, in theory, monies should be received by your HQ in a reasonable amount of time.  The watch business is a goofy one, and one that all too many people think that they can outsmart, and they ultimately get their heads handed to them for their trouble.  A store on memo is going to pay Richemont, LVMH, SWATCH, everyone else, and finally, eventually, maybe you.  But most likely not. 

Kronaby was a wonderfully charming, romantic story...
until it wasn't.  

Bankruptcy

For Anima (Kronaby) the plug was officially pulled yesterday when they were declared bankrupt.  I reached out to the company and received this statement from the CEO, my comments follow after -

It is with sadness that yesterday the 6^th of feb Anima AB who owns hybrid smartwatch brand Kronaby has been declared bankrupt. Our main focus is now to continue the positive ongoing dialogues we have with a number of investors, in order to secure the forthcoming growth of the company. Our main owner – Goertek, has changed their strategy going forward and therefore ended their investment with very short notice, which has resulted in lack of time onboarding new investors with high interest in the company. This has unfortunately significantly limited our chances of avoiding a bankruptcy. We see a considerable growth of the Sales of Kronaby hybrid watches and will work hard to secure a future for the brand.

For now the business sustains and the company operations continues. This also means that our app and watches are working 100% and there is no damage on the watches on our customers wrists nor the watches you and we have in stock and in stores. It is our belief that this, together with the strong interest from the market, indicates all the right conditions for the potential new investors. 
Okay, let's consider some basic points that are getting somewhat glossed over -

1.  Goertek is not just some other typical "Chinese fall guy" that the Swiss (and I guess in this instance) the Swedes like to blame for incompetence, lack of vision, etc.  In fact?  They are a pretty big TECHNOLOGY company.  They understand probably better than most that good things, sometimes, take time.  And the amounts that they have been investing in the Kronaby watch?  It's beer money to them.  I suspect that two things happened -
A.  They realized that the tech behind the Kronaby watch is already way, way behind the times.  Rather than recreate a wheel that is already rolling and working quite well in millions of other watches (for a shit-ton less money), they might as well become movement customers and simply buy stock from a company that can actually produce it consistently.  Wonder why the Alpina and Frederique Constant watches still haven't caught fire?  I don't.

2.  Leadership  - or in this case?  A lack thereof.  As continuing readers will note, I followed he build up and launch of the Kronaby watch.  I attended the launch in Malmo now two years ago.  And I came to learn that the four fellows heading up the efforts didn't really understand the watch business, and more importantly?  Had a very tough time recognizing, admitting and correcting some of their behaviors.  For a company that had no actual manufacturing overhead, and 60 or so employees, it is REALLY hard to understand how you could have an operating loss at the level that they did in 2017?  Per the article cited in yesterday's post, they had 37 million Krona in sales and managed a loss of 127 million Krona.  I'm sorry, but that is the kind of burn rate not disimilar to Internet companies just before the bubble burst.

Lastly, let's say you are the mom and pop retail store that bought in?  While it's all well and good to tell these folks that they shouldn't worry, that just isn't so.  They now have stock that may, and then again may not be worth anything in a few months time unless new, serious, deep pocketed investors are brought in.  And if you are the customer?  Well, let's hold a good thought.

Perhaps the greatest tragedy in all of this is the staff.  Good people doing their best in a ship piloted by people with out sized ambitions who were (and apparently still are) perhaps trying to punch above their weight.  Selling watches isn't easy.  If it were, BaselWorld would be growing, not shrinking.  

Kronaby is a beautiful name, the design is pleasing and the concept is a good one.  But sooner or later someone will have to step in who actually understands that it's all well and good to say that you are a lifestyle product, but ultimately that product is still a watch, and it might not be a bad idea to try and have a better understanding of that industry.   

And The Shit Gets Even Realer

Today started out with an email from a reader who is -
Finnish, living and working in the UK, with a Swedish ex-wife (who he is apparently on good terms with), who was visiting his kids this week (in Sweden) and forwarded me this link to a Swedish newspaper article -
Anima in Bankruptcy

For those of you not fluent in Swedish, Google Translate provides a pretty solid translation.

Long story short, after just over 2 years of the Kronaby watch, the company is now looking for a white night to ride to the rescue and this morning filed bankruptcy paperwork.

More on this in a few hours.