Ebel - For Men

This is the Ebel Discovery -

Courtesy of Ebel

Now I am not claiming that my memory is 100% solid state, but I do seem to recall that within the last 3 - 5 years, Ebel had made he decision that they would no longer make men's watches (If I am wrong on this point, please feel free to chime in!), so it is sort of exciting to see Ebel back in the men's watch game.

Smartwatches, and all that Glitters

Story by Francis Jacquerye

Preamble

Since the launch of the Apple watch in 2015, it has become a commonly accepted fact that smartwatches are out to take luxury watches. After all, sales of luxury watches are dropping and sales of apple watches have overtaken them... so it must be true, right?

Besides possibly ignoring economics trends and consumer behaviour, this reasoning seems to oversimplify the value proposition of luxury goods. If customers cared more about utilities (technical specifications) than luxuries, there would not be a $1,171 billion global luxury industry [1].

In this first part of the series, the author would like to look at how Apple influenced the conversation about smartwatches, and wether there are overlaps with luxury watches. The author has worked for both the luxury industry and the consumer electronics industry (within Swatch Group AG from 2007 to 2013 and Goertek Inc. from 2015 to 2019),  and has been an Apple customer for the last 10 years, so his perspective cannot really be accused of being partial or biased.

The Successful Contrarian

There is no doubt that Apple is a polarising company. On one side they enjoy an almost-cult like following, and on the other they are the subject of criticism.

Something that everyone can agree upon however is that the company's history could be divided into a pre Dot-com bubble [2] era (with an outspokenly anti-IBM Steve Jobs being ousted) and a post Dot-com bubble era, with Steve Jobs back at the company's helm and the company becoming a leader of market segments.

Image: Steve Jobs outside IBM's NY headquarters in 1983, photo Andy Hertzfeld/Jean Pigozzi. Reproduced under Fair Use / Fair Dealings 

In the pre Dot-com bubble era, Apple was defining itself as being contrarian to the mainstream computing corporations. Their chosen narrative presented them as a David against Goliath.

Image: Apple's 1984 Super Bowl commercial, directed by Ridley Scott. Reproduced under Fair Use / Fair Dealings 

« This commercial was classically disruptive... This wasn’t a machine where you were going to be kowtowed in the workplace, this was a machine for the young, innovative, entrepreneurial mind. It really inspires the creative individual to break free and start something different. » [3]

In the post-Internet era, Apple has defined itself as the "underdog". Their success stories always follows the same template: Apple enters an existing product category, releases their own improved version, beats the biggest guy on the yard and ultimately dominates the market.

They started with the iPod, which remains the most successful portable media player of the post Dot-com bubble era. They followed suit with the iPhone, which managed to spell trouble for industry leaders such as Blackberry, Motorola, Nokia and Sony-Ericsson; and continued with the iPad, which dominates the market of tablets.

The Biggest Guy on the Yard

In 2014 the market of smartwatches represented a modest volume of less than 5 million devices. Since there was no Goliath of smartwatches to pick on, Apple looked at the market of wrist wear and decided that the closest thing to a big guy were Swiss luxury watches.

This offered two opportunities: by name dropping luxury brands, Apple could avoid comparison on utilities with its direct competitors, they could lean on overlapping aspirational values with luxury brands and they could anchor the image of their smartwatches as quasi luxury goods.

Avoiding Comparison

Although it is true that Apple did use comparison with direct competition in the early 2000s (the LOL funny "Get a Mac" campaign with Justin Long) [4], they did promote the overall experience instead of focusing on utilities. Once that the company got the upper hand on portable media players with the iPod, and on smartphones with the iPhone, they could afford to focus on the brand experience. This tactic has the benefit of leaving adversaries with no other option that competing on utilities or price.

Focusing on Aspirational Values

Interestingly, this strategy is closer to luxury brands than consumer brands. Patek Philippe for example, promises customers to travel across generations.

Image: Patek Philippe's "Generations" campaign: « You never actually own a Patek Philippe. You merely lok after it for the next generation. »

As for Rolex, founder Hans Wilsdorf practically invented athlete endorsement and cemented the brand's promise to customers of traveling across the globe.

Image: Mercedes Gleitze, British professional swimmer and first woman to cross the English channel in 1927. Reproduced under Fair Use / Fair Dealings.

Apple's promise to customers is to travel with their mind. The company's stated mission is « ...bringing the best user experience to its customers through its innovative hardware, software and services. » [5]. Everything in the brand experience, from advertising, retail design, approachable staff, packaging, industrial design, interface and ecosystem upholds those values.

Image: Working at an Apple store. Image credit Apple Inc.

Using Anchoring

In order to cement the apple watch in the public's imagination, Apple used three elements of anchoring:

Firstly, when Tim Cook unveiled the apple watch in 2015 he pitched it against a shortlist of watch brands ranked by sales value. Half of the brands on this list belong to the High End segment, so it had the benefit of instilling the idea that the apple watch could by all means compare to the likes of Rolex, Omega or Patek Philippe.

Image: Tim Cook 2015 keynote, credit Apple Inc. Reproduced under Fair Use / Fair Dealings.

Secondly, the first apple watch edition features an 18k gold version, and it helped to cement the idea that if Apple wanted to play head to head with giants of the luxury industry, they could. But they ultimately would not, because Apple was probably producing the 18k gold watch at a loss. However it still served its purpose as a publicity stunt.

The apple watch 18K gold red

Thirdly, Apple sought a collaboration with Hermès, so even if the comparison with luxury brands or the release of an 18k watch did not work, the apple watch could at least benefit by proxy, from being associated with at least one bona fide luxury brand.

The Hermès apple watch edition

If Apple felt a need to use anchoring to position the apple watch as a quasi luxury item, this begs the question: where does the apple watch overlap with luxury watches?

Differences and Overlaps

Speaking of luxury watch brands or luxury brands in general, there are four characteristics that make their products different from consumer goods: namely purchase decision, scale, sustainability and resale value.

Purchase Decision

According to Prof. Henry Assael of NYU, most consumer purchase decisions can be summarised as complex buying decisions, dissonance buying decisions, variety seeking decisions or habitual buying decisions.

The author explored in detail what the model represents and how it can be applied to luxury watches in Understanding Luxury Brand Equity through Consumer Purchase Decision, but looking at Apple's shortlist of watch brands, Rolex, Omega, Cartier and Patek Philippe would probably fall into complex buying decisions: the customer needs a high involvement in gathering information about the brand, and there are numerous differences between competitors.

Longines and Tissot would probably fall into dissonance buying decisions: the customer needs a high involvement in gathering information, but there are few differences with competitors such as Certina, Concord, Ebel, Eberhard, Eterna, Frédérique Constant, Louis Erard, Maurice Lacroix, Mido, Raymond Weil or TAG Heuer.

Fossil and Casio would probably fall into variety seeking decisions: the customer needs a low involvement in gathering information about the brand, but there are numerous differences amongst competitors. This would typically be where all fashion and lifestyle brands belong.

Seiko and Citizen would probably fall into habitual buying decisions. The customer needs a low involvement in gathering information and there are few differences amongst competitors.

What is noteworthy about Apple is that they manage to tap into complex buying decisions with their brand equity while also tapping into variety seeking decisions because of democratic prices on their entry lines. By leaning on the most compelling buying decision categories, they leave competitors like Samsung to work with dissonance buying decision and low cost competitors to work with habitual buying decisions, which precisely try to compete on utilities and price.

Scale

Voiceovers of Sir Jonathan Ives on Apple ads try to convey the quasi luxury status of Apple products, by using hyperbole words such as "precision", "exquisite" and "craftsmanship". Regardless, the fact remains that Apple products are mass-produced and intended for intensive distribution.

Image: iTunes Match’s launch with iTunes 10.5.1 beta 3, The Next Web. Reproduced under Fair Use / Fair Dealings.

In theory there is no limit to how many consumer goods or how many consumer electronics can be manufactured. This is why the industry has managed to saturate the market of personal computers, laptops and mobile phones: every consumer who can afford it buys one, so the demand is in decline.

In contrast, luxury goods are constrained by a scarcity of raw material and a scarcity of artisans capable of turning these into finished products. not every consumer who can afford it can buy one, so the demand is rising. It is without surprise then that most luxury goods can only be sold through selective, if not exclusive channels.

Philippe Dufour, a living legend and a Swiss national treasure, takes more than a month to produce watches to a degree of finishing that puts Patek Philippe to shame. The fastest that he can work is with electrically driven and hand controlled tools.

Philippe Dufour, image source FHH Journal. Reproduced under Fair Use / Fair Dealings.

Sustainability

The sustainable dimension of luxury products takes various aspects: first, the source of raw material must not be depleted, so it is in the best interest of luxury brands to preserve an existing symbiosis or an ecosystem. I previously discussed the economic benefits of the luxury industry in an answer to « Does it hurt the economy when people spend on luxury goods? ».

Secondly, besides being produced with superior materials and according to a superior design, luxury goods can be repaired, which dramatically extends their lifespan.

In comparison, consumer electronics pose several human rights and environmental problems in how raw materials are harvested and processed. A race to release newer devices faster means that products do no longer have to be build to last long. Before the iPhone, the criterion for shock resistance was much more stringent. It would have been considered a design flaw it a screen broke the first time that a phone was dropped.

However, the iPhone had the effect of lowering the standard for a whole industry. Example like this have prompted the European Parliament to put laws into place to protect the interest of consumers and force manufacturers to build products that are more durable and easier to repair [6].

The iPhone and other smartwatches are almost always designed and built like consumer electronics, so they do not offer the same repairability as luxury watches.

Resale Value

Because their quantity on the market in finite, used luxury goods tend to appreciate in value over time because of the law of supply and demand. Typically, 40 years old luxury watches and more recent ones can easily be kept in perfect working conditions, because spare movement parts can easily be procured for movements, and most components such as crystal and gaskets are standard. There has been a push from dominant luxury brands to undercut independent repair shops and force a monopoly on repairs and servicing [7] so the customer's best interest could be in jeopardy.

To Apple's credit, the company is one of the few whose products are highly sought on the second hand market. Besides refurbished products that Apple officially sells in 21 countries [8] to a market of more than 2,300 million consumers, there is a thriving parallel repair and resale market around their products.

In 2015, Android Police calculated that Apple offered software updates for older devices up to 41 months in average, which was practically double that of Nexus android devices (21 months). From 2018 onwards, Apple has been giving customers the option to have their iPhone battery swapped, which according to CEO Tim Cook allowed customers to hold on to their iPhone a bit longer than before [9]. Asymco analyst Horace Dediu estimated that the average lifespan of an Apple device in 2018 was slightly more than 4 years [10].

Image source: Software Updates: A Visual Comparison Of Support Lifetimes For iOS vs. Nexus Devices - Martin Lobao, Android Police, September 2015

In Conclusion

The author tried to outline Apple's branding strategy to present their products as quasi luxury, which sometimes overlaps with luxury branding, particularly when it avoids direct comparisons with competitors and it focuses on aspirational values. When it comes to the apple watch, there are many differences in its production and distribution scale that makes a head to head comparison with luxury watches impossible. Apple does however manage to overlap with luxury watches by tapping into similar purchase decisions and by offering longer software support and superior resale value than its competitors.

In this series, the author will offer a different perspective of the observed drop in sales of luxury watches and will explain the "Kodak syndrome" and how it dominates the conversation. The reader will be offered an insight into radical changes that the Swiss industry undertook long before any hint of the 1980s crisis, and how they made it possible to manufacture smartwatches today. The author will try to show how comparing sales of smartwatches with watches works, except when it does not.

References

[1] Luxury goods worldwide market study, Fall–winter 2018, Bain & Company
[2] Dot-com bubble, Wikipedia
[3] How The Greatest Super Bowl Ad Ever — Apple's '1984' — Almost Didn't Make It To Air, Aaron Taube, Business Insider
[4] Apple’s Steve Jobs didn’t want those Mac-vs.-PC commercials to be LOL funny, Mike Murphy, Market Watch
[5] Investor Updates, Apple Inc.
[6] Making consumer products more durable and easier to repair, European Parliament
[7] Apple Refurbished Products: Should You Buy Them?, Juli Clover, MacRumors May 2019
[8] Rising Demand for a Declining Watchmaking Trade, Francis Jacquerye, Woodshores
[9] Apple CEO Tim Cook: Customers Are Holding on to Older iPhones 'a Bit Longer' Than in the Past, Juli Clover, MacRumors January 2019
[10] An analyst estimated how long Apple customers hold onto their devices — and the findings might surprise you, Edoardo Maggio, Business Insider March 2018

Et Tu, Movado?

Yes, BaselWorld is shrinking.  And just like a certain orange-hued bloviator would insist that the polar ice caps aren't melting and we could all use a little "global warming" during the recent cold snap in the US, many in the industry would insist that everything is fine and the recovery is well underway.

And then you see news reports letting you know just who will be skipping this year's BaselWorld.  Yesterday news dropped in Switzerland that MGI is sitting this year's edition out.  And for those of you not acquainted, MGI is a small little operation out of Parasmus, New Jersey.  The M stands for Movado, the G for Group...  well, you get the picture.  Movado, Ebel and Concord are the shiny gems in the company crown, along with several licensed brands.  

Now interesting to relate, this is not actually new news as it was announced by the Movado Group CEO himself back in November during the company's third quarter call.  But sometimes, news isn't real until you read it in your hometown newspaper ; )

For those of you handy in French, you can read the article that I was referred to in the Tribune deGeneve here:

https://www.tdg.ch/economie/groupe-mgi-viendra-baselworld/story/11563841

But I think this is important news to revisit (or for some to visit the fist time) because it underscores some pretty hardcore realities.  

1.  Traditional watch retail as we once knew it is gone.  And it shows no real signs of coming back.

2.  Very few people in the industry really seem to know exactly how to react.  And the export numbers are NOT the bright, shiny recovery that some would have you believe.  They represent the shipping manifests of doomed models that were over-produced and did not sell and will be washing up on the shores of Grey, Light Grey and Parallel market places for the foreseeable future.  In fairness, at least according to retail outlets who should know, there are a few bright spots.  So let's hope those bright spots multiply, collect and shine.  But the good old days are gone.  It is time to adapt, those who can't will join a long list of formerly successful brands, executives, distributors and retailers.

3.  But a few folks seem to be catching on.  And I give very, very high marks to Mr. Grinberg because it is clear that he called an audible that not everyone was ready to react to.  And ultimately, as the steward of a brand, you are responsible to your brand and your shareholders.  Not your ego. This is a lesson that many of Mr. Griberg's less successful peers could benefit from.

Now it bears mentioning, BaselWorld was, is, and for the foreseeable future will be a barometer for just how good or bad things are in the industry.  When times are good?  You'll spend the money and participate.  When times are bad but you're afraid of losing face, and not being able to piss in the tall weeds with the other big dogs if you're not there?  Well, you'll convince the board that you have to be there, because you don't want to look like some loser wandering around the Ramada with with some samples in your briefcase ; )

The business IS changing.  And I think it is changing for the better.  Don't get me wrong, I love free dinners, wine, endless espresso and swag bags.  C'mon, who doesn't?  But it is clear that very few people in the industry have made the necessary adjustments to understand what the new reality is, and where their place in this brave new frontier will be.

With SIHH kicking off in the next 48 hours, many of my colleagues and other bloviators will be winging their way to Geneva and will wax lyrical at a collective cost of mere millions.  And in the end, I don't know if the event will be any more of a success than last year.  To quote that other great commentator on watches, Gordon Gekko:

"It's all about bucks kid, the rest is conversation." 
 

To Be Confirmed...

but it has been mentioned online at Watch U Seek and Business Montres, and spoken about by now hundreds, it seems that Aldo Magada has resigned his position as the head of Zenith.  What the motivations might have been are, of course subject to speculation.  And to repeat, this is news that is yet unconfirmed.  But if the buzz is to be believed, it will be none other than Jean-Claude Biver stepping into the breach and become the shot-caller at Zenith.

In recent times, Zenith has been the red-headed step child of LVMH.  There really is no other way to put it.  Beautiful products, rudderless direction.  A lot of potential, but not a lot of attention paid.

This is the brand that has given us the El Primero and the Elite.  They provided movements to Rolex, Ebel, Concord and others.  And it is said when people lose their jobs be it by their own choice or the invisible push.  But Zenith has a ton of potential.  Let's hope that some of it can be realized.

The 100 from Ebel

Well, it would seem that it is not only women's watches Ebel are making -

Courtesy of Ebel

Ebel....

So word around the campfire is that a major announcement is due from/regarding Ebel in the "not-too-distant future".

As many may already know, Ebel in their infinite wisdom decided to sell their chronograph to Ulysse Nardin.  So now, the word bubbling in and around the valleys is that another "big" announcement from Ebel is imminent.  With Mr. Hoffman the proud owner of Ebel's chronograph, and perhaps ready to finally move UN forward after the passing of it's patriarch, my money would be on perhaps a few possible outcomes:

Although I am not a betting man, my first marker would be put on UN buying Ebel from Movado.  Although nobody is talking, my suspicion is that there is enough money in the "war chest" to at least partially fund this.  Ebel could still go on, sharing technology with UN - there is still a market there, and   no offense Movado - you never really took advantage of this.

But then, as Gordon Gekko would have said - "Bright, but not bright enough Sherlock.  Let's move the pieces around..."

A more realistic bet would be the same folks from China who currently own Eterna and now Corum.  It makes sense.  Eterna for calibers, Corum for FLASH, and Ebel can round out the group.  Of course, Richemont or LVMH might decide that they want a taste.  It makes no sense for RIchemont, LVMH has now missed the boat several times.  Hublot is the crown jewel, and is devaluing by the day.  Zenith, despite having a fantastic CEO is still found on Ashford.com and other grey market Internet supermarkets dumping product.  So a now only semi-viable brand (which honestly should be INCREDIBLY VIABLE) might not be on their shopping list.  

But then what about our friends at PPR?  With the acquisition of Gucci, JR, GP and the rumors swirling about Richard Mille - well maybe Ebel would be some low-hanging fruit?  Keep in mind that any deal with Richard Mille will most likely not happen until next year as Mr. Mille has certain commitments that must be "settled" prior to any sale - if the reports from other sources are credible - and I see no reason why they would not be.  So maybe Selma H. will be wearing an Ebel in the not-too-distant future?

And this would leave Concord as the last remaining REAL watch brand in the stable.  So what is the play?

You may hear it somewhere else first, but I promise to report as soon as any news reaches me.

And as always, you are free to draw your own conclusions.

Change is in the wind

Without going into too many details, who said what and when, I have a very strong feeling that we will be seeing some fairly significant changes in various watch companies in the weeks leading up to BaselWorld and perhaps just after.

It has been a curious few years - I was sitting in a Cambridge, MA restaurant eating a bowl of pho when I learned about the passing of G. Grinberg while reading the New York Times.  This was followed by Sevrin Wunderman's death.  And then of course the passing of Mr. Hayek, and then the sudden loss of Luigi Macaluso.

These past year there were the usual comings and goings, but as I said, I have the feeling that we may see some major shifts and some unexpected changes.

I will be there reporting live over the weekend and will be interested to see how things present themselves.

Stay tuned -