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." 
 

Exodus

BaselWorld is shrinking.  Now to be clear, this is not akin to the polar ice caps melting, but rather what one of my favorite commentators on the watch industry Gordon Gekko mentioned in Wall Street - Money Never Sleeps:


"The mother of all evil is speculation."

I find it fascinating how difficult it is for a group of European MBAs to get their heads around the fairly simple laws of supply and demand.  Because we are now seeing a knock-on impact on not just the watch brands, their suppliers, their retailers, their marketing and advertising partners, but BaselWorld itself.  And it has been pretty much the same type of thinking that is doing in several watch brands that is now taking a bite out of the largest, most important fair in the world.  I mean, the watch business will keep growing and growing, right?

BaselWorld is a great experience for the journalists.  It is very professionally managed, a great deal of accommodations are made for us.  Even free food (and more importantly coffee) is available all day long.  Media packages, statuesque models dressed to the nines, no expense (seemingly) is spared.  But none of that comes for free.

The new construction which increased the hall space was welcome.  Hall 2 used to have all the charm of a Stalin era airport terminal, and now I no longer feel as if I am going through Check Point Charlie when I'm transiting between Hall 1 and Hall 2.  But if I am honest, I think that the fair organizers got a wee bit greedy.  Rental space prices went through the roof.  One brand was "frog marched" out of their booth on the second day of the fair in 2015 because the final part of their payment hadn't yet been received.  Think about that for a minute, the fair organizers decided that a PR black eye and guaranteeing that they wouldn't get the balance of payment made more sense than working with the brand owners to reach a solution.  Several brands that had been exhibiting for years decided that enough was enough and it was time to spend the money somewhere else.  In the past these had been smaller independent brands. 

But in this past year we have seen Ulysse Nardin and Girrard-Perregaux throw in the towel to head south to Geneva in January.  This opens up two rather enormous spaces.  Now if we are being honest, Girard-Peregaux made little to no effort to even participate in this past year's BaselWorld.  People trying to get an appointment were forced to just show up at the counter, deal with some rather sarcastic and clearly put-upon gate keepers, then continue to email and call throughout the fair in the hopes of getting even a shared appointment.  So it was clear that GP had given up not only on BaselWorld, but even putting forth a half effort while they were there.  Truth be told, it was a colossal waste of time and money.  So maybe SIHH is going to be more in their wheelhouse. 

Timex has called time on their participation for the upcoming fair, and offered some very sane, rational and wise reasons for not being a part of BaselWorld 2017.  And chances are good that there will be other dominoes to fall.  In related news, after they had "shoo-ed" all of the smaller independent brands out of the Palace, several of the more well-heeled space holders who they had cleared out the rabble to accommodate are also off to Geneva, and now with vacancies being a bit more pronounced, the Palace will not be open this coming year.

I love BaselWorld.  For me it is like Christmas, the World Cup, my Anniversary, the Tour de France and my Birthday all in one.  I hope that things stabilize.  I hope that the fair organizers will learn from the painful lessons that the brand owners are now grappling with and price the space more realistically.  And frankly, if that means no more free lunch, well I'm prepared to live with that ; )

The 700 Club and Chômage Technique

So today, I got a bit of a French language primer on a wonderfully malleable expression - chômage technique.  Simply put, a "technical layoff". 

This phrase was brought to my attention in discussing the current situation brewing at Richemont - most specifically with Vacheron and Piaget.  As is already known Richemont intends to let 211 people go.  That is at least the latest number that is being bandied about, so depending on whether or not you took the over or the under you might have won the office pool on this one.

The union officials (UNIA) had a less than 100% successful meeting with the employee representatives from Piaget and Vacheron.  Rather than going gently into that good night, over 700 of the potentially impacted employees have pushed back, not accepting the restructuring plan put forward by the very people who guided their brands in the shit that they are currently in.

If your French is good, here is an article from the Tribune deGeneve for some background.  Otherwise call on St. Google for a translation ; ) Tribune deGeneve

I am not privy to all of the details, nor am I even remotely an expert on US labor law and policies let alone those that govern Switzerland, but as it has been explained to me, the best case scenario for some of these folks is a massive reduction in their working hours and even with their under / unemployment benefits they will be making 30% less than what they normally would.  So it looks like little Heidi is not going to be getting those new skis for Christmas.  I kid a little, but try to imagine making 30% less than what you do now.  And these are not the people making hundreds of thousands of CHF per year.  These are normal working moms and dads with kids, mortgages, lives.  These folks are never on the red carpet, flying to Hong Kong, Beverly Hills or Paris for glamorous events.  They come into work at 6:30 in the AM, they work hard, and then to go home to take care of their families.  They are not worried about how to arrange a watch/car partnership with an exotic car company so that they can have an even nicer Italian or German sports coupe.  They are setting aside money to repair their SEAT, Fiat or Peugeot.  Or as another colleague described it to me, at the top it is champagne and filet mignon, and for these folks losing their jobs it's going to be a lot of potatoes and (if they are lucky) a bit of raclette to go with it.  I know that life is, by its very nature, not fair.  But this only serves to illustrate that accountability is not really a "shared" idea.

So at a time where Messrs. Lambert and Kern are getting job upgrades, and other young executives are moving into even higher profile / higher paying roles at Richemont, it seems that the people picking up the tab for what most other industries would consider a failure of management and leadership are the little guys and girls doing the actual work.

It's sort of a messed up message:

We have multi million dollar marketing and advertising budgets, we spend lavishly, our leadership continues to be promoted even though our sales are declining each month.  But don't worry, we have the solution!  We will make cuts to the people who actually make our products.

I would like to leave you with some words from one of my favorite commentators on the watch industry - Gordon Gekko.  This is from Wall Street, and this is his famous speech at the shareholder's meeting of Teldar Paper.  It is fiction, of course, but is something that maybe some brave shareholder should be saying at the next Richemont shareholder's meeting.

Well, ladies and gentlemen, we're not here to indulge in fantasy, but in political and economic reality. America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company!

All together, these men sitting up here [Teldar management] own less than 3 percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than 1 percent.

And you are all being royally screwed over by these, these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes.

Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents, each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents.

  

So Mr. Rupert, in the very highly unlikely event that you might ever read this, maybe it's time to hold senior leadership accountable.  Richemont's watch division didn't get to this place overnight.  And it wasn't the people who are now losing their jobs that got the brands to where they are.  These are people following the directives of their managers and directors.  They may not be sexy, and they certainly don't get written about often enough, but they are your real assets.

One Bad Apple...

What I believe we will be reading in 10 years:
"SmartWatchMania - Back in 2015 Apple announced that they would have a smart watch and seemingly sane, rational, intelligent watch executives lost their shit.  And in the process cost their brands and shareholders several millions of dollars, and some of their most loyal employees their jobs."

While the "knowable" totals for Apple's "Smart Watch" sales are, well, not exactly "knowable", it it starting to appear that the "pooping of Wranglers" in Switzerland over the advent of the Apple watch might have been a wee-bit premature.

Let's just say that the numbers we are hearing are not exactly of the usual "orgasmic" level that attaches to a great Apple product launch.  In fairness, I think Apple will not live or die on the smart watch.  But - and this is really what we in the industry (selling, marketing and reporting) should really be asking - just how far the down the toilet did several seemingly sane and rational brands allow themselves to be flushed?

The initial sales were exciting, downright sexy!  But they have started to peter out.  And for Apple, no big deal.  To quote Celine Dion - Their Hearts Will Go On...

But what of Breitling?  A "Smart Chronograph" that is about as smart as Ralph Wiggum eating paste and realizing that if he stops picking his nose, it might just stop bleeding?

Tag Heuer?  On this particular front I am starting to wonder if perhaps it was a "Double Bluff"?  We know what it will be called and how much it will cost.  But this has got to be the watch equivalent of a non-existent girlfriend who suddenly dies when you're trying to win the National Championship for Notre Dame.  I have decided to refer to this model as the "Manti Te'o Dead Girlfriend" .    I am starting to wonder if the folks at Tag Heuer haven't "Catfished" us on this one, and it will drift away once all the SmartWatchMania subsides, never seeing the light of day.

The only folks who seem to have kept their composure while paddling out to try and ride this new wave seem to be Frederique Constant/Alpina.  Basic, simple functions that most people will actually want and use.  I think that they will, at the very least, cover their nut on this one.  But as for every other fool out there, well, to quote that great horological expert Gordon Gekko -
"...they're sheep, and sheep get slaughtered."


Enjoy your watches - be they smart, or not-so-smart.

"I look at a hundred deals a day. I pick one."

So now with most of the dust settled and the press releases read, re-read, written and re-written maybe it might be a good time to have a look at the bigger picture.

Now many more revered and respected have held forth, many insisting that they saw the acquisition of Ulysse Nardin coming "a mile away!"  Well, hindsight by its very nature is often 20/20.  So I thought I would call on that all-time humanitarian Gordon Gekko to perhaps view this in a slightly more pragmatic light.

 "He's right, I had to sell. The key to the game is your capital reserves, If you haven't got enough, you can't piss in the tall weed with the big dogs."

I think in light of all of the speculation, the one question I have not really heard asked is - maybe, just maybe they actually NEEDED to sell?  Ulysse Nardin was a media darling in the age of Schnyder, and by that I mean the age of Rolf Schnyder.  Like every brand re-boot, (and if we are very, very honest with ourselves, this is what it was) a charismatic, iconoclastic visionary is needed.  But that in and of itself is not enough (note Blancpain and Hublot in the "post Biver as Patron" era).  You need something more.  The meeting of Schnyder and Ludwig Oechlsin was perhaps not unlike the meeting of Smith and Wesson… or perhaps more appropriately the meeting of Lorenzo de' Medici and Michelangelo.  Two things happened that took the steam out of UN's engine - Dr. Oechslin opted to pursue a life of the mind and "museum curatorship", and tragically, Rolf Schnyder died.  As it is a privately held company, we can speculate all that we want, but if I am viewing things through "Gekko The Great's" perspective, they needed to sell.  And it is possible that maybe there weren't that many takers, so they took.

"It's not bad for a quant, but that's a dog with different fleas."

The other popular thought out there is that there was a bidding war and that somehow Richemont, LVMH and the mighty SWATCH got pipped at the post by Kering.  Survey says……. NAAAAHHHHH!

The Ulysse-Nardin that got sold is not the Ulysse-Nardin that was.  Moreover, it is not on a level with some of the recent blockbuster acquisitions like Harry Winston.  It is a great brand, but it represents a truly niche market.  SWATCH does not want or need a charming brand like UN.  Richemont has a fairly full stable.  LVMH?  Well let's just say that although there is turmoil under heaven, the situation is not exactly excellent.  

"The most valuable commodity I know of, is information"

But more importantly is what Ulysse-Nardin represents - information and innovation.  With Unlysse-Nardin backing what is said to be up to 1/3 of ochs und junior (Ludwig Oechslin's dream factory), and with Dr. Oechslin said to be retiring from the museum, it is not outside of the realm of possibility that the magic could be returning to UN.  Let's be clear, ochs und junior is most likely never going to be a profit leader, (and if what Beat Weinmann has said, it is not intended to be).  But let's just say it is an inexpensive item to carry on the balance sheet to keep the sorcerer in the court.

"You gonna tell me the difference between this guy and that guy is luck?"

Remember pals and gals, although we always think of Kering as the OWNER of Girard-Perregaux and JEANRICHARD - they are more accurately the majority stake holder with 51%.  So the fact that they have plumped for 100% of Ulysse-Nardin actually gives them a better, unfettered toehold in the luxury watch segment.  And it is not down to luck that they were the eventual buyers.  

Don't get me wrong, UN is going to be a project, but with the experience of working with Girard-Perregaux and completely revamping and "re-birthing" JEANRICHARD, Kering now has some good experience with updating and reviving an existing brand while not "throwing out the brand DNA with the bathwater".

"...bright but not bright enough,  Sherlock, roll the dice and play a little Monopoly… what box would Sir Lawrence land on in Erie, Pennsylvania?"

Those out there convinced that Richard Mille is next on the acquisitions list… maybe, but I don't think so.  Let's just say that there are too many hurdles.  Richard Mille first leaked that the acquisition would happen, and Kering (then PPR) disclosed that although those conversations had happened, it would not move forward until Mille untangled "personal affairs".  That was more than a year ago.  And it is possible that Kering spent most of it's pocket money on UN.

Other pundits have posited Breitling, Chopard among others as being on the potential hit list.  Maybe, but instead of thinking high prestige, it might be time for Kering to think high volume.  Maybe, say, a brand making watches in the Mido price range?

I could, of course, be wrong - I've been wrong before ; )

Finally, let's remember that although we are all passionate, for many people this is simply business -


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

Enjoy your watches!