The Island of Misfit Toys

Shamelessly Borrowed from the worldwide info-web

Interesting to relate, I can now buy a brand new, but apparently discontinued watch model from a third party vendor for nearly half off the suggested retail price, AND I can even get the assurance of the manufacturer's warranty!  I have to wonder just how warm and fuzzy that makes the regular retail partners feel.  They have, after all, purchased stock from brand X in good faith, and then have the pleasure of their customers calling to ask about purchasing a particular item that they found online through a site that is not only offering the watch at a deep, deep discount, but in some instances indicating that the watch is going to be covered by the brand's two year warranty.  I can also imagine that a few uncomfortable conversations take place, with first the retail partner realizing that their formerly loyal customer will be shopping elsewhere, and then the retail partner picking up the phone to "share their feelings" with the brand manager or sales rep. 

And forget about "hugging it out" at the SIHH or BaselWorld, more and more retail partners are giving the big shows a pass as they are more concerned with keeping their stores afloat.  And this becomes more and more tenuous when the independent retailers are struggling to compete with sites that are not necessarily authorized retail partners of a brand, but are offering all of the same benefits that a customer usually only enjoys from shopping at an authorized retail partner.  If you were the customer, would you pay twice as much to have the same assurance?  

Remember all of the good news about all of those watches being exported over the past several months?  Remember how several people felt ABSOLUTELY POSITIVE that this meant the crisis was over?  Well, like an island of misfit toys, all of those watches have to go somewhere.  Because remember, the export of a watch does not necessarily mean the export of the latest model.  What we will be seeing in the coming months is more and more "dead stock" flushing through the system, and the brands need to liquidate it as quickly as possible between now and this time next year.

Now in the good old days of the grey market, there was more of a wild-west feeling.  Grey market outlets could not offer a manufacturer's warranty because, clearly, they were not an authorized retail partner.  And you almost never saw prices slashed to the levels that they are now.  Simply put, even grey market outlets have to make money ; )

So clearly a few things are at work here -

1.  Despite what some would have you believe about the health of the industry, the truth remains that there is still way too much product out there, and that dynamic hasn't really changed.

2.  It seems very likely that the brands are partnering fairly directly with these outlets to not only provide them with significant amounts of product, but to offer it at (I would assume) 20% below what a regular retailer would purchase it for (usually between 50 - 60% of the suggested retail price).  Which is how this third-party outlet can afford to sell the watch at such a drastically low price and still make money.

3.  At least a few of these brands are also providing full warranty coverage even though these outlets are not recognized as authorized retail outlets.  Which then begs the question - why should I buy from an authorized retail partner?  The warranty coverage has always been one of the strongest arguments put forward by a brand to buy authorized.  To offer this to a third-party discount site is a curious way to try and build a customer base.


Whether it be brick & mortar or online, a watch group could have its own outlet store.  This would allow a brand or group of brands to control the way their watches are sold, and to sell them in a way that is understandable to the customer.  It would also enable the brand to develop a deep amount of data on their customers, better understand their price sensitivities (as clearly the majority of them do not), and create a true relationship with them.  If Giorgio Armani can have outlet stores in places like Camarillo (California), then surely a watch group other than Fossil and Movado can do the same.

If the brand is going to work with a third-party outlet directly, then the brand should be open and forthcoming about it.  Declare that the outlet is an authorized retailer for their discontinued collections.  That would be fair, and that would be honest.  And guess what?  It might even drive more traffic to those sites, and increase the brand's overall sales as consumers might feel a bit more secure about the transaction. 

Or, the brands can continue to dance between the raindrops and state that they had NO IDEA how a discount site got hold of their watches.  Considering that many of the brands selling on these sites have vertical marketing set ups all in house (every element is owned and controlled by the same company), this is highly unlikely. 

But it should make for some interesting store visits for the reps and brand managers in the new year ; )

The Outlet

Anyone who has read even a few of the posts here is going to do a double-take.

Really?

James said THAT?

No, this is not a post where I will extol the "virtue" of Shinola ; )

But more and more I am beginning to think that the next logical step for the watch industry is to finally embrace the concept of the "Outlet Mall".

Does this run contrary to what I have been whinging and whining about for the past five years?

Absolutely.

Am I more and more convinced that this is the only logical next step?

Absolutely.


Now on the one hand, many of us tend to think of watches as more of a "durable" commodity.  The reality is that more and more, watch brands are tending to take a short view in terms of the models that they are offering.  They treat them like milk or eggs that will "go off" if they aren't sold in a prescribed time frame.

This is due to a multitude of reasons, but let's examine the key offender:

Over production -
Watch companies have budgets, and budgets are predicated on PROJECTIONS, not ACTUALS.  These budgets drive everything - sales goals, pricing of the actual watch, salaries - not the least of which the CEO's salary and bonus.  Because the CEO has proposed a budget that, in all honesty would only work during the "bluest" of moons, "creative" solutions are often required.  In order to meet the projected numbers, you will need a boat-load of product.  Oh, p.s. - you'll also need to SELL that boat-load of watches.  When it becomes clear that you won't sell all the units you have to save money in other areas - leading to lay-offs, dumping of watches on the grey market, etc.

This has been a problem that the fashion industry has been aware of for decades, and found a good solution for - the Outlet Mall.

For those of you not familiar, the Outlet Mall is an American phenomenon that is beginning to take hold in other parts of the world as well.  The concept is pretty simple:

Take all of the stuff from the previous season or two that you were not able to sell, place it in YOUR BRAND STORE in the outlet mall, price it at a more realistic price, and sell your stock.  Because YOU own the store, you control the price, distribution, etc.

It is also the place where you can market and sell the products that "didn't make the cut".  Yes, it happens, brands will come up with a line or collection that for whatever reason they decide NOT to move forward with even after they produce it.  Take it to the outlet and sell it, and you have turned a total write-off to a potential patch of black ink in the ledger.

Now if the watch industry would embrace the Outlet concept, it could do two very important things -

1.  Cut the grey market's allure, ending a lot of shady dealings, and reduce the inevitable feeling of betrayal experienced by the customer who bought watch X at full retail only to see it "blown out" by the brand and dumped on the grey market for pennies on the dollar.

2.  Convince brands of the need to better estimate production, and take better control of the distribution chain.

Now the temptation is to stare down our noses at the Outlet - but Giorgio Armani, Hugo Boss, Ralph Lauren and even Tag Heuer have outlets now.  Perhaps it is time to embrace this idea.