Vertical integration.Many brands do this with a good/better/best or beginning/intermediate/pro model. But at that point, you would start seeing the groups tearing their offerings in a much different way. So it would be hard to determine what would be good/better/best, since most brands have that within their own line, and with multiple brands in each group that would change everything. Tiering, or some sort of brand/group stratification would need to occur before determining which level you enter a group at, and how you move up. I’d it only the lease price, or does one need to move up steps as one becomes worthy, and how much does it cost?
Well they all have internal tiering already, an example of which you can see in my IG story highlights under “Lange policy” - they use this tiering to decide what is “hot” and what is not, with regards to spend history which would justify allocation of any particular watch.
As for pricing, it would be commensurate with the value of every watch including the “hype” value. So a skeleton perpetual AP would probably be in the highest tier recognising its hype - but in the same way actuaries determine life policy premiums, I’m sure there’s a formula they can apply to make this a worthwhile option for many.
I’m thinking more along Seiko/Citizen lines. Presage, Grand Seiko, Credor. But for that to work, you can’t really have features or complications that blur the lines. Presage can’t have movements similar or on par to Grand Seiko, and Grand Seiko can’t have finishing the same with Credor. Or Swatch group, where Swatch is entry, and what’s at the top? Bruget? Omega could be, but then where’s Bruget?
Citizen is interesting, with Fredrique Constant at the top, and Bulova at the bottom. Where does Citizen with its full line fall? What about Alpine? It would require a clear restructuring within groups and within the brand as well.
It’s worth differentiating between corporate strategy of a holding company such as The Swatch Group or Richemont Holdings, and the brands/companies in the portfolio such as Breguet or Vacheron Constantin.
Particularly when you have brands which have different values (swatch vs Breguet, or in your example Frederique Constant vs Bulova) - there’s no reason why they would bother doing any differential adjustment “across brands” - it would be limited to being a tiering between watches within the same brand. So comparing Seiko to Credor is a pointless comparison- but comparing Vacheron 56 to Vacheron Overseas or Cornes de Vache makes more sense to me.
I have never heard of anyone going to Breguet and then deciding to get an Omega instead, because it’s the same parent company.
In relation to a “membership” for watches - this might become a thing, sure. However, I still think it would be applied in a siloed fashion- so there will be tiers in every brand, but separately done for the reasons I mentioned here. Mixing brands will simply devalue the high end watches even further!
It will certainly depend on if it’s going to be an individual brand policy, or a group policy. So if Richemont group decides to force all brands to have such a policy, it would behoove them to move consumers higher in their brand tree, to keep them formally within one branch. I guess we’ll just have to wait and see.
Thank you for reading! Agree, growth without any actual improvements is simply greed :)
Rolex stand alone with their approach... but it is almost entirely based on their brand equity, and sheer volume- they almost stand alone as a “business case”.
As for the rest of them, they have become lazy in innovation which is now going to get difficult to ignore.
Interesting points, I think with brands that belong to large listed companies they tread a fine line between maintaining the image of an aspirational luxury product and ensuring that shareholders get returns. One can even see the difference when going to an ALS or VC boutique vs a patek or ap house. There are watches available and in my experience they are pushy and keen to sell a watch.
There are of course only a few levers they can play with. Reduce cogs; make the finishing or materials slightly cheaper, increase price, reduce points of sale, to balance the act of aspirational product vs returns.
The VC example is a great one as I think richemont fumbled it when VC became ‘hot’ again. A certain boutique quoted a ridiculous wait time of 10 years for an overseas a couple years ago. We’re now at the stage where the boutiques have practically every model in stock. And the inventory isn't moving and ppl are thinking hard and choiceful about spending 50k on a watch that could lose a chunk of value the second you leave the store.
From glancing at the richemont annual reports these guys are obviously diversified within the luxury segment. They still make considerable revenue and profit from cartier etc so i’m not sure they’ll willing to invest too much into product design and r&d etc if they know they’re moving into a cycle in the market where consumer discretionary and luxury purchases will take a hit.
In many ways i would consider most luxury watch brands to fall under the mass luxury segment. Large number of players under the 10k price point, very different to high end luxury or niche brands where you get into the 50k, 100k entry points.
A lot of brands have done it already, patek is the last of them that in my opinion should exit ADs and go back to limited points of sales brand owned boutiques.
What makes sense to me around the cyclical nature of ownership are:
1) have a cpo program, offer some incentive to customers to sell, exchange, trade their piece back to the brand. This way the brand controls its inventory and can manage secondary prices to an extent. I also think there should be something similar to what you mentioned before in a different post about brands offering something simple like a manufacture visit etc. If and when grey prices are lower or close to retail, you need to work harder to acquire a customer. I personally think patek is sleeping on their patek register program. They could do so much more with it to reward retail buyers, they have no need to at the moment so they don't.
2) Create a distinct product line designed as a heirloom, offer incentives for long term ownership. Have varying price points but also higher levels of finishing/in house etc. Make part of the brand story around it to be focussed on heritage.
It will be interesting to see how the industry continues, who will be the innovative builders during this market cool off, and if its a prolonged cool, who will go and who will emerge on top.
I’ll start with adding to your reduction of COGS - there is an invisible lever which is “increasing brand value” - this doesn’t make it cheaper to produce, sure ... but it DOES make the price increases seem more justified. This can be achieved in a few ways, all of which involve time. So positive auction performance, impeccable after sales care, and memorable boutique experiences all go a long way towards making more people perceive the brand as being really valuable. Romain Gauthier has free service apparently- but nobody’s talking about this - which is crazy because in practice, this makes their prices difficult to compare with any other watches in their league given service costs can be 5% of the watch MSRP!
Cartier being relatively hot still, is more a function of their status as a fashion brand status - along with many dealers who had been buying up Cartiers over the last two years and are now hyping them up - Mike Noveau takes every opportunity to punt Cartier on his supposedly famous tiktok account- and it works. These people push Cartier to famous clients at high prices and keep it at higher levels than it otherwise would settle - how long that’ll last... I give it 6 months or so.
It’s probably a good time to get into R&D while cutting costs primarily by cutting down on existing product lines and focusing on core models - this way, they will be ready for the next boom cycle and can experiment in a discerning market to find what people really like - when people buy DESPITE the market conditions, that’s a great endorsement of the product on merit.
The short sighted approach of closing all ADs and moving to brand owned boutiques for Patek, AP, Lange and VC etc, will now come back to bite them. Patek is lucky they didn’t get balls deep into this game... but any AD will tell you, they helped brands move watches when times were tough. The brands quickly forgot.
Brands can still do a CPO program while selling at ADs, but getting rid of ADs who can bundle across brands (which no single brand can do) is a valuable asset in the sales arsenal.
Rolex is the only brand above all this noise... but even Rolex benefits from being in ADs like mom and pop stores in small towns - it adds to their brand equity and preserves their ubiquity as the most powerful luxury brand.
I like your point about incentives for long term ownership- but other than free servicing exclusively “for the first registered owner”... this is difficult. How do you make someone keep a watch when tastes change and there is no guarantee they will even like it? You have to almost engineer the sale to be tied to some kind of emotional connection- eg sell to people on their kids birthdays, or when they get a new job and are celebrating, or when they get married and want a wedding watch etc - these are the sorts of things which may lead to never selling. Otherwise, it will just be “another watch”?
The varying prices of watches is already a thing. VC fifty six is non Geneva seal, for example. Patek does machine work on most of the cheap stuff I believe / and the hand finishing is reserved for only the 6 figure models (loose estimate). Chopard has the normal stuff and the LUC Geneva seal stuff. The issue is, most casual buyers don’t seem to be that aware? And if they are, it doesn’t seem to make much difference, as people care least about finishing - the size, colour, design, etc all take precedence. So for example in the LUC alpine eagle XPS salmon - it’s much thinner than the standard model, and thus makes it way more desirable/ yes the increase in cost is for the movement and Geneva seal finishing. Why isn’t there a normal model which is less expensive, and less hand finished? See what I mean? (Answer: probably because then nobody will buy the expensive one 😂)
Vertical integration.Many brands do this with a good/better/best or beginning/intermediate/pro model. But at that point, you would start seeing the groups tearing their offerings in a much different way. So it would be hard to determine what would be good/better/best, since most brands have that within their own line, and with multiple brands in each group that would change everything. Tiering, or some sort of brand/group stratification would need to occur before determining which level you enter a group at, and how you move up. I’d it only the lease price, or does one need to move up steps as one becomes worthy, and how much does it cost?
Well they all have internal tiering already, an example of which you can see in my IG story highlights under “Lange policy” - they use this tiering to decide what is “hot” and what is not, with regards to spend history which would justify allocation of any particular watch.
As for pricing, it would be commensurate with the value of every watch including the “hype” value. So a skeleton perpetual AP would probably be in the highest tier recognising its hype - but in the same way actuaries determine life policy premiums, I’m sure there’s a formula they can apply to make this a worthwhile option for many.
I’m thinking more along Seiko/Citizen lines. Presage, Grand Seiko, Credor. But for that to work, you can’t really have features or complications that blur the lines. Presage can’t have movements similar or on par to Grand Seiko, and Grand Seiko can’t have finishing the same with Credor. Or Swatch group, where Swatch is entry, and what’s at the top? Bruget? Omega could be, but then where’s Bruget?
Citizen is interesting, with Fredrique Constant at the top, and Bulova at the bottom. Where does Citizen with its full line fall? What about Alpine? It would require a clear restructuring within groups and within the brand as well.
It’s worth differentiating between corporate strategy of a holding company such as The Swatch Group or Richemont Holdings, and the brands/companies in the portfolio such as Breguet or Vacheron Constantin.
Particularly when you have brands which have different values (swatch vs Breguet, or in your example Frederique Constant vs Bulova) - there’s no reason why they would bother doing any differential adjustment “across brands” - it would be limited to being a tiering between watches within the same brand. So comparing Seiko to Credor is a pointless comparison- but comparing Vacheron 56 to Vacheron Overseas or Cornes de Vache makes more sense to me.
I have never heard of anyone going to Breguet and then deciding to get an Omega instead, because it’s the same parent company.
In relation to a “membership” for watches - this might become a thing, sure. However, I still think it would be applied in a siloed fashion- so there will be tiers in every brand, but separately done for the reasons I mentioned here. Mixing brands will simply devalue the high end watches even further!
It will certainly depend on if it’s going to be an individual brand policy, or a group policy. So if Richemont group decides to force all brands to have such a policy, it would behoove them to move consumers higher in their brand tree, to keep them formally within one branch. I guess we’ll just have to wait and see.
Always relevant thank you again.
To me « future growth » should always be linked to improvement. Rolex master this science.
Always give what the market « seems » to want could expose you to hype. And by meaning, the hype never stand long.
Thank you for reading! Agree, growth without any actual improvements is simply greed :)
Rolex stand alone with their approach... but it is almost entirely based on their brand equity, and sheer volume- they almost stand alone as a “business case”.
As for the rest of them, they have become lazy in innovation which is now going to get difficult to ignore.
Interesting points, I think with brands that belong to large listed companies they tread a fine line between maintaining the image of an aspirational luxury product and ensuring that shareholders get returns. One can even see the difference when going to an ALS or VC boutique vs a patek or ap house. There are watches available and in my experience they are pushy and keen to sell a watch.
There are of course only a few levers they can play with. Reduce cogs; make the finishing or materials slightly cheaper, increase price, reduce points of sale, to balance the act of aspirational product vs returns.
The VC example is a great one as I think richemont fumbled it when VC became ‘hot’ again. A certain boutique quoted a ridiculous wait time of 10 years for an overseas a couple years ago. We’re now at the stage where the boutiques have practically every model in stock. And the inventory isn't moving and ppl are thinking hard and choiceful about spending 50k on a watch that could lose a chunk of value the second you leave the store.
From glancing at the richemont annual reports these guys are obviously diversified within the luxury segment. They still make considerable revenue and profit from cartier etc so i’m not sure they’ll willing to invest too much into product design and r&d etc if they know they’re moving into a cycle in the market where consumer discretionary and luxury purchases will take a hit.
In many ways i would consider most luxury watch brands to fall under the mass luxury segment. Large number of players under the 10k price point, very different to high end luxury or niche brands where you get into the 50k, 100k entry points.
A lot of brands have done it already, patek is the last of them that in my opinion should exit ADs and go back to limited points of sales brand owned boutiques.
What makes sense to me around the cyclical nature of ownership are:
1) have a cpo program, offer some incentive to customers to sell, exchange, trade their piece back to the brand. This way the brand controls its inventory and can manage secondary prices to an extent. I also think there should be something similar to what you mentioned before in a different post about brands offering something simple like a manufacture visit etc. If and when grey prices are lower or close to retail, you need to work harder to acquire a customer. I personally think patek is sleeping on their patek register program. They could do so much more with it to reward retail buyers, they have no need to at the moment so they don't.
2) Create a distinct product line designed as a heirloom, offer incentives for long term ownership. Have varying price points but also higher levels of finishing/in house etc. Make part of the brand story around it to be focussed on heritage.
It will be interesting to see how the industry continues, who will be the innovative builders during this market cool off, and if its a prolonged cool, who will go and who will emerge on top.
I’ll start with adding to your reduction of COGS - there is an invisible lever which is “increasing brand value” - this doesn’t make it cheaper to produce, sure ... but it DOES make the price increases seem more justified. This can be achieved in a few ways, all of which involve time. So positive auction performance, impeccable after sales care, and memorable boutique experiences all go a long way towards making more people perceive the brand as being really valuable. Romain Gauthier has free service apparently- but nobody’s talking about this - which is crazy because in practice, this makes their prices difficult to compare with any other watches in their league given service costs can be 5% of the watch MSRP!
Cartier being relatively hot still, is more a function of their status as a fashion brand status - along with many dealers who had been buying up Cartiers over the last two years and are now hyping them up - Mike Noveau takes every opportunity to punt Cartier on his supposedly famous tiktok account- and it works. These people push Cartier to famous clients at high prices and keep it at higher levels than it otherwise would settle - how long that’ll last... I give it 6 months or so.
It’s probably a good time to get into R&D while cutting costs primarily by cutting down on existing product lines and focusing on core models - this way, they will be ready for the next boom cycle and can experiment in a discerning market to find what people really like - when people buy DESPITE the market conditions, that’s a great endorsement of the product on merit.
The short sighted approach of closing all ADs and moving to brand owned boutiques for Patek, AP, Lange and VC etc, will now come back to bite them. Patek is lucky they didn’t get balls deep into this game... but any AD will tell you, they helped brands move watches when times were tough. The brands quickly forgot.
Brands can still do a CPO program while selling at ADs, but getting rid of ADs who can bundle across brands (which no single brand can do) is a valuable asset in the sales arsenal.
Rolex is the only brand above all this noise... but even Rolex benefits from being in ADs like mom and pop stores in small towns - it adds to their brand equity and preserves their ubiquity as the most powerful luxury brand.
I like your point about incentives for long term ownership- but other than free servicing exclusively “for the first registered owner”... this is difficult. How do you make someone keep a watch when tastes change and there is no guarantee they will even like it? You have to almost engineer the sale to be tied to some kind of emotional connection- eg sell to people on their kids birthdays, or when they get a new job and are celebrating, or when they get married and want a wedding watch etc - these are the sorts of things which may lead to never selling. Otherwise, it will just be “another watch”?
The varying prices of watches is already a thing. VC fifty six is non Geneva seal, for example. Patek does machine work on most of the cheap stuff I believe / and the hand finishing is reserved for only the 6 figure models (loose estimate). Chopard has the normal stuff and the LUC Geneva seal stuff. The issue is, most casual buyers don’t seem to be that aware? And if they are, it doesn’t seem to make much difference, as people care least about finishing - the size, colour, design, etc all take precedence. So for example in the LUC alpine eagle XPS salmon - it’s much thinner than the standard model, and thus makes it way more desirable/ yes the increase in cost is for the movement and Geneva seal finishing. Why isn’t there a normal model which is less expensive, and less hand finished? See what I mean? (Answer: probably because then nobody will buy the expensive one 😂)