From Microbrand to Brand

So point of full disclosure, I have grown to greatly admire and appreciate the work and efforts of Pierre (Pete) Brown with Hager Watches.  I meet a lot of brand managers, brand owners and, well, gas bags, so I tend to not take too much at face value.  But I can honestly say that Mr. Brown is doing something with Hager Watches that is different, interesting and aiming towards something more than simply owning a micro brand.

And it seems that word has gotten around.  This past week the newly opened Hager Boutique enjoyed a formal grand opening, attracting not only the local gentry, but the regional news channels -

Pierre Brown Interview


And to give you some further flavor of the boutique -

Courtesy of Hager Watches

Courtesy of Hager Watches

Courtesy of Hager Watches

Courtesy of Hager Watches

I got the opportunity to spend the day as a bit of a "journalistic" fly on the wall with the Hager Watches founder back in November at a get-together in the DC Metro area and I was somewhat taken aback by the genuine enthusiasm that the folks had for his watches.  But I would also say (and realize that this might piss a few people off), I quickly assessed what is perhaps the one element that has been missing from some of the other small or microbrands trying to make a go of it.  And what I am about to say is (maybe) going to sound a bit harsh.  Mr. Brown runs Hager like a business, not like a hobby. 

What exactly do I mean by that?  It's actually pretty simple.  Yes, the microbrand fan loves the camaraderie, the friendship, the connection that they feel  when they support the little guy (or gal).  And that is understandable.  Unfortunately, it is more often than not unsustainable as a business model.  Because it is frequently a case of going from collection to collection, discounting and dumping to raise enough money for the next series (or order) from the supplier.  Now on the one hand, that certainly lends a "we're all in this together" feeling between the brand and the customer, but how long can that good will be sustained?  Moreover, how consistently can that really convert into an actual sale?

What was interesting in watching Mr. Brown interact with the fans and customers was that he was genuine, approachable, everything you would hope to see from a a brand owner/manager.  He certainly out "friendlied" a lot of the other brand owners present at the event.  BUT - and this underscores what I think has and will continue to set Hager apart - Mr. Brown treats Hager Watches like a business that has earned and needs to continue to earn the trust of its customers. 

And what do I mean by that? 

Ask yourself a simple question:
As a potential customer who is drawn to Brand X because of the small nature, friendly rapport and feeling of community that doing business with a small microbrand lends, how would you feel if you bought a watch from Brand X at full price only to see it on Mass Drop, Touch of Modern or some other watchcarrion.com discount site at 30% less than you just paid for it?  Still feeling warm and fuzzy about Brand X?

I didn't think so.  You probably feel like you got the fuzzy end of the lollipop. 

And while many brands will say that they discount as a business measure, they end up undercutting and potentially alienating the very customers who helped get them to where they are now.  And that further distances them from the very customers who chose them because of their perceived "proximity".  

There is a reason why discount sushi and a cut-rate colonoscopy are not items actively sought out.  But hey, the choice, as always, is yours ; )

Courtesy of Hager Watches

So yes, it is not likely that you will find Hager watches being offered on some of the favored "light grey" market sources.  And some things are actually worth the price being asked.

Fifty Shades of Grey Market

As the alarm bells have been growing louder and louder, the industry has continued to play ostrich and park its collective head in the sand.

Joma Shop, Ashford.com, Overstock.com - these are the obvious ones.  But then there are the subtler shades of grey - Touch of Modern and Mass Drop.  Interesting to relate, several brand managers have expressed surprise to find parts of their current collections on the discount block.  And I think maybe it is time to tell some unpleasant truths.

Watch Brand A  -  "We had no idea this was happening!" 
Translation - Watch Brand A controls their distribution from soup to nuts.  The "group buy" offer gave the customer the option to select from everything in that particular product offering.  Meaning that those watches could only have been coming from ONE place.  The brand.

Now interesting to relate, there is a waiting list for several of Brand A's watches among the brand's retail partners in other countries.  So what gives?

My suspicion (and it is just that pals and gals) is that Brand A needed cash quickly.  Consider that in the US pretty much everything is done on Memo (i.e. consignment) or Guaranteed Sale (meaning if the watch doesn't sell, the brand buys it back or replaces it with a newer watch).  So from a cash flow perspective, a quick jolt of sales can solve a lot of cash flow problems.   And what makes the Mass Drops and the Touch of Moderns so seductive is that they are speaking Millennialese - "Hey, it's fun!  It's group empowered purchasing!"  So it doesn't feel dirty or cheap.  The fact that in some instances you can purchase "adult toys" during the same virtual "shopping excursion" only reinforces the darkening hole these brands are allowing themselves to drop down in to.

And I do not foresee the brands adjusting their tactics anytime soon.  Clearly they need cash, clearly they are willing to burn bridges with their retail partners, and clearly they are willing to cheapen their brand.  Now how much of that is necessity vs. short term anxiety remains to be seen. 

www.watchcarrion.com

As the industry continues to seek the bottom, the bottom continues to become more and more elusive.  And where there is fetid product, there will be a need to get rid of it.  And as much as I would like to say it's evil dealers, shifty distributors trans-shipping, etc. the simple truth is a lot of brands got themselves into this mess. 

And I am now more and more convinced that watch brands can dig themselves out of this mess, but it will require the brands to let go of a few of their long-held beliefs.  And more importantly, it will require them to behave a little less hypocritically. 

So let's break it down!

1.  Brands need to own up to the fact that in many cases they are directly working with the grey, and light-grey market.  Go to BaselWorld and you will see the grey marketeers sitting in the same waiting lounge as the buyers from Shreve, sipping the same coffee, and meeting the same sales manager (and often the CEO)!  Brands have always utilized the grey market as a buffer to help make production and export estimates more elastic. 

So first things first, stop directly feeding the grey market. 

But along with that, stop feeding the light-grey market.  Touch of Modern and Mass Drop seem innocuous enough, but they are proving to be not even a viable short-term option.  When I can find a current model for LESS THAN HALF of the MSRP, why in God's name would I buy from an authorized retailer?  And it is important to understand that as more and more of the water is drained from the pool, the brand's reputation and perceived value continue to lower as well.  Because make no mistake, once Joma Shop, Ashford and Overstock.com are being undercut on price, they are going to start lowering their prices as well.  And then it becomes a sprint to the bottom.  The lower the price goes, the lower the perceived value.  Think I'm full of it?  Look at JEANRICHARD, a long time participant in the grey market.

JEANRICHARD, if not dead, might as well be.  At this point it has become horological carrion.  And the reason is simple, they could not sit tight, they could not focus on selling what they had, they were always convinced that the NEXT THING would solve the problem.  The greatest tragedy in all of this is that there are a lot of people out there who liked the watches and would have spent REASONABLE amounts on their watches.  But like so many other brands, the shot-callers had clearly consumed too much of their own bath water.  And it didn't have to be that way.  Millions spent on a re-boot. Fresh talent brought in.  A modular system (Terrascope, Aquascope and Aeroscope) that would standardize manufacturing and allow the brand to have a clear identity.  But the usual villains emerged as they had done at JEANRICHARD in the past.  We need at least 30 different dial options!  Partnerships!  And some of those partnerships were beyond ill-advised.  A tightrope walker was, in hindsight, an apt analogy for a poorly considered plan that many of us were convinced was the product of a hard night of drinking.  And then betting the farm on Arsenal pretty much put the final cannonball in the good ship JEANRICHARD's main sail.  The new and wonderful JEANRICHARD managed to come apart in the span of 18 months.  From hero, to sub-zero.  You can now get some amazing bargains, but it starts to have the feeling of buying a Trabant or a Yugo.  Good for kitsch value, but not much more. 

And it appears that JEANRICHARD is going to have plenty of company in the not-too-distant future.


2.  Brands MUST have a better understanding of what realistic sales volumes are, and more importantly must address and accept what realistic pricing structures are.  Budgets will always be predicated on sales.  That is just natural.  But this then means that instead of fantasizing about bonuses, promotions and red carpet events, you need to make honest, realistic forecasts.  It is better to not have enough product and create desire than to flood the market with too much.  It is better to make a modest profit than to lose millions. 

3.  And this is the big one - watch brands must make the decision to clearly identify themselves as either a perishable good (i.e. like fashion brands) or a durable good (like say, Rolex). Fashion created the concept of the outlet store or mall.  And Movado has embraced this idea.  It might be time for other watch brands to adopt the same idea.  Why should you dump millions of dollars in the grey market and see the value of your brand swirl around the toilet bowl of public perception for the benefit of .30 on the dollar when you could sell it yourself through your own outlet for .75?  Guess what?  You are STILL MAKING MORE than if you sold through the normal (non grey market) channels!

If you are going to view your product as the fashion industry does, then create your own outlet stores to manage oversupply.  Slowly choke the grey market dead.  You will lose a little bit of prestige in the short term, but nothing like the prestige you are currently losing while making even less money.

Or if you are making a durable good, treat it like one.  Adjust your budgets and your manufacturing accordingly.  Make fewer watches, be patient, and stop changing the product line every year or two.  Good things take time.  Better to invest time than to waste money, brand value, employees and the very brand itself.  Just ask JEANRICHARD.

Stick a Fork in Them

They're done. 

If there was any lingering doubts as to the potential viability of Vulcain, allow me to acquaint you with the latest product dump going on over at Touch of Modern -

Vulcain at Touch of Modern

Now up until about a year ago, our best barometer for how a brand was really doing was to check resale prices for previously owned models, speak with retail stores to see what was selling and what was not.  Moreover, you could see how much product was floating around the grey market.  And what we have started to learn this past year was that all of those surveys were probably giving us skewed data, owing to the great masses of watches being swept under antique carpets in Hong Kong, or buried in various domestic subsidiary office vaults.

Vulcain has proven that you can throw money at a problem and that won't fix it.  Moreover, their various US distributors from 2011 until now have proven that point in an even more profound manner.  The US distributors proudly crowing how amazing business was,  and then a mysterious amount of Vulcain watches showing up on an Ebay store based in NYC selling brand new Vulcain models at very steep discounts.

Touch of Modern and Mass Drop have actually become very valuable tools for forecasting how a brand is REALLY doing.  Because to some extent it is nearly impossible to battle the grey market.  It is like a multi-headed hydra, chop off a head and another takes its place.  But when you see the prices offered on some brands at Touch of Modern and Mass Drop, it becomes clear that in several of these instances, it is the brands themselves who are supplying the product to these outlets.  How else do you explain discounts GREATER THAN 50%?  No retailer, unless they are going out of business, is going to let stock go for less than what they paid for it.  And in fact, most distributors will dump it themselves on Ebay.  But when brands are doing deals directly with these outlets, it is a strong indication that they are running out of options, and drowning in their own stock.  And with 12 months and 4 days left to export all of the current models currently existing within the Swiss borders before the new Swissness restricts what can be exported as Swiss Made?  Well, get on your Speedos and grab some swim fins, because a flood of product is coming.

Fish or Cut Bait

From our friends at Urban Dictionary -

fish or cut bait

To come to a decision point: either commit to what you're doing, or give it up entirely.

See also shit or get off the pot

Well, it seems that some brands are opting to cut bait and doing it through authorized outlets.  And as a sort of Public Service Announcement, since brands are saying that everything is great, etc. it seems that you, the customer, might want to know where to get the best deal!  

No, just kidding ; )

Even I am not that cruel.  But as we pick up speed hurtling towards Christmas, the mood has not significantly improved.

A few weekends ago in New York, I listened to two very European brand owners state:

"He is the distributor/retailer, he can price as he wishes".  And truthfully, that is more than fair, but dear brand owner, don't tell me a whole other story that business is YUGE (sorry, couldn't help myself), and that your watch is priced exactly as it should be.  The market place is the only true indicator of what your watch's true price is, and when your "trusted partner" is slashing and burning on prices, then we have a better understanding of what the real price is.  And it also indicates that these very European gentlemen really do not understand the North American market.  Dropping prices?  That's easy!  The challenge will be when you try to raise them back to what you need them to be. Because guess what?  You have already told the customer that, in fact, EVEN YOU think that the price is too high, because you and your official agents are discounting by 25% or more.  They did not get that idea from a blog, from a forum or from some wing-nut on Facebook.  They got it from you, and from your "trusted partner".  So sorry to be harsh, but you've got nobody to blame but yourselves.

Now to some extent this story is as old as the watch business, but what is now becoming more and more telling is that some "big boy" brands are dumping their watches at 50% off (and sometimes more) through their own distribution (read NOT grey market) channels, and therefore it is clear that they do not see the market improving any time soon.  And they are too impatient to fish, so they are now going to cut bait.

A great opportunity for you, the buying public to buy that dream watch at a lower-than-low price!  Just don't expect the resale value to be even what you paid for it during this intensifying Blue Light Special.

The Kmartization of the Watch Industry

It is, to me at least, a simple question -

If you, the watch brand, list the MSRP of a watch at $1,250, you create an idea that maybe, just maybe $1,250 is a fair price to pay for it.  When you, the brand (or possibly a disgruntled or simply inept) distributor then place your watch on Mass Drop or Touch of Modern at a deeply discounted price, say $449, it is likely that you will achieve 3 things:

1.  You will sell more watches in one fell-swoop
2.  Perhaps more people will be aware of your watches than were before
3.  You guarantee anger and frustration from previous customers and retail partners while also not-so-subtly setting an expectation among the general public that the watch should be priced at the $449 level as opposed to even $1,000

Now I want to be 100% transparent about a few things - I do work with brands and represent a handful of them.  I have delved into the idea of partnering with a discount group buy concept to introduce a new brand.  And in fairness, it does get the word out quickly, but it also sets an unrealistic expectation about pricing - which will become a realistic expectation in the eyes of the customer.  The REAL price of the watch will continue to reflect the percentage that you discounted the watch in partnership with the group buy site. 

Further - I do not see anything wrong with what Mass Drop and Touch of Modern are doing.  The grey market has proven that there is too much supply and not nearly enough demand at a certain price point.  So to a large extent I think it is a case of "physician heal thyself".

But as the guy you ask to help "spread the good word" about your watches, let me share some honest feedback - while you might move some watches quickly, make some money quickly, and get your watch in front of several thousands of extra people, you have also directly informed the market place that your watches were over-priced (even if they weren't).  And most importantly, you have succeeded in losing the trust of your previous customers and retail partners. And as we all know, trust is one of the most fragile things out there.  It takes years to gain, and seconds to lose.

The Other Grey Market

Pssst!  I've got a secret opportunity for you!

Like any good come on, the pitch from so-called Group or Crowd purchase sites can be some pretty potent catnip for the less-than flush individual desirous of fab items for less $.

On the surface, these seem to be warm 'n fuzzy "communities".  They have discussion groups that are, oftentimes, anchored around a product that they are pushing.  It is a softer approach than Shop At Home TV shows blaring out the merits of the latest Invicta dump, but the idea is still the same -

Get a group of people together, and soft sell them something at a deep discount.  Throw in a "kinder, gentler" discussion forum, and then lure in some fairly well-known, real live brands.

Oh, and the best part?  Minimum 15% off, frequently 25%!  And sometimes, more than 50% off for a brand new, in the box watch!!!

Where do the watches come from?  Some from retailers who need the cash very, very fast.  Some from distributors.  But now, more frequently than not, the actual brands themselves are selling and shipping directly

So, when we are wondering how the watch business really is going, there are a lot of different clues to keep you informed.  The FH report is one, of course, the traditional grey market is another.  And last but by no means least, warm 'n fuzzy little Trojan horses like Touch of Modern or Mass Drop.

Things continue to change and shift.  The situation is bad for the brands, and it is not showing any signs of eminent improvement.

Which, I guess, is good news for the consumer, if they know where to look.