We Go Together...

like.... I have absolutely no idea.  Seriously, I have no idea what to make of this one.

Courtesy of Tudor

It is clear that a very, very bad case of Millennialitis  is running unchecked at Tudor HQ (courtesy of the Urban Dictionary):

millennialitis

The belief of sales, marketing, and advertising professionals that the Millennial demographic represents a completely unique group of consumers and as such, entirely new approaches must be adopted. Even if the product you are trying to sell is intended for a completely different demographic, such as Depends Adult diapers.

"I tried to explain to the Creative Director that the hipster didn't represent our customer demographic, but she's got a bad case of millennialitis."

 

I mean, I wasn't going to buy a Tudor Black Bay, but now that I know that Lady Gaga is a brand ambassador...

 

Give me strength.

 

There is a reason, a very good reason, why the kids sit at a card table at Thanksgiving and aren't allowed to sit with the grown ups.  And in a strange way, I want to thank Tudor for reminding us about this. 

I appreciate that watch sales, right now, SUCK.  I get it.  But I will quote a movie near and dear to Generation X - Singles, as shared by Debbie Hunt (played by Sheila Kelley):

 
Desperation…. It's the world’s worst cologne

 

Not to worry, I suspect a "big time watch blog/online magazine" in New York will be all over this.

In the interest of transparency - I am a fan of Lady Gaga and her message.  But I am also a believer in understanding your demographic.  And as much as I like and support Lady Gaga and her music, this PR move by Tudor seems to be not entirely well thought out.

There is a reason why Rolex partners with who they do in terms of ambassadors and partners.  And there is a reason why Rolex continues to set the standard for how this is done.  

Now if the idea is that Rolex is for your old man, and Tudor is for your edgy cousin?  Well okay, fair enough. 

But at the price point that Tudor is selling watches?  I honestly don't think that they have fully grasped where the disposable income of the millennial demographic is really going.  I made the same comment when TAG Heuer pooped their Wranglers over partnering with DJs.  This is short attention span territory.  Lady Gaga is influential - and I have no doubt that someone at Tudor HQ is thinking "INFLUENCER"!  But if an influencer were enough to fuel watch sales on their own, then a certain brand who fawns at the feet of their Instagram-influencer buddy would be in every store, selling through crazy volumes, and the truth is that all signs show that they are not.  It is not to say that said influencer didn't help. But in that instance we were talking about a brand new watch company with no past, no track record... nothing to to speak of.  And frankly?  That is not Tudor. 

So another quote from another old fart -

Stick to the fundamentals. That's how IBM and Hilton were built. Good things, sometimes, take time.
Lou Manheim (as played by Hal Holbrook) in Wall Street. 

 

 

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 ; )

And the Bottom

Has apparently still not been reached -

Courtesy of The FH

As the numbers released last week indicate, there was an even sharper drop this past month than the previous ones.

So it is fair to say that the pain is not just with SWATCH Group, the pain is all around.  But what the export figures do not tell us (apart from actual sales) is the flow of watches coming back into Switzerland.  Because, dear readers, watches flow both ways.  

One of the negotiating tools used by the sales reps and brand manager is the "buy back".  Essentially, the proposal is this:

"Buy 25 pieces, and if you can't sell them, I will exchange them for different/new pieces".

And as we know from the dazzlingly poor sales figures, that means there are A LOT of watches being swapped out and exchanged for "new".  But what happens to these little orphans?  

Well, not to worry!  They are either gathered up and shipped off to the grey market, or they are returned home to Switzerland where a few possible fates await them -

1.  They are refurbished with the hope that they can be re-deployed to different markets as new.

2.  They become organ donors, with their constituent parts harvested so that new watches might live!

This is all by way of saying that as bad as things seem in light of the FH results for export numbers, they may be even worse than appears.

And this brings us back to the question - do the steely-eyed missile men and women heading up these enterprises really understand the seriousness of the situation?  With more and more money being dumped into vanity projects, yacht sponsorships, celebrity "Game Changer" partnerships and more and more money being lost in under achieved sales results how long can this plan continue to spool out before it becomes impossible to move forward?

Too Big To Fail is a wonderful motto, designed to provide comfort during stormy times.  But it is proving more and more to be a moral hazard of the first order - CEOs, brand manager, heads of marketing keep writing the checks, because frankly, it's not their money.  And until there is a "Come to Jesus" reality check, the very people who are meant to be the stewards of these August organizations will be the "idiot "sons and daughters who sail the boat right over the cliff, straight down to the rocks below.

So in closing, let's turn to Gordon Gekko in Wall Street for a better understanding how a lack of direct ownership and/or accountability can lead to failure -

Gekko: Well, I appreciate the opportunity you're giving me, Mr. Cromwell, as the single largest shareholder  in Teldar Paper, to speak.

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.

You own the company. That's right -- you, the stockholder.

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 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.

"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!