WATCH-AFICIONADO 5/15

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WATCH AFICIONADO

WEB & IPAD SPECIAL

TIFFANY THE BEST OF BOTH WORLDS

www.watch-aficionado.com WATCH BUSINESS PAPER – USA & CANADA – VOL.51 N° 5/2015 NOVEMBER | WITH INDEX OF ALL IN-DEPTH ARTICLES PUBLISHED ONLINE

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EDITORIAL

Featuring this month on:

CONTRADICTORY SIGNALS

www.watch-aficionado.com CT60® ANNUAL CALENDAR LIMITED EDITION by Tiffany Limited edition of 60 pieces, individually numbered.

Functions: Annual calendar indicating the Date and Month with Hours, Minutes, Seconds. Case: 40mm in 18k white gold. Dial: Grey soleil finishing with silver poudré numerals. Crystal: Sapphire top and case back glass. Strap: Hand stitched grey alligator, with alligator lining. Buckle: Deployment buckle in 18k white gold. Movement: TCO.0402 Self-winding mechanical. Movement Decoration: Côtes de Genève, Colimaçon and Perlage techniques. Power Reserve: 42 Hours. Water Resistance: 10ATM/100M/330F. Price: $20,000. www.tiffany.com

by Pierre Maillard, Editor-in-chief

T

hree major news items broke at around the same time, sending out contradictory signals. Starting with the good news, Vacheron Constantin announced with great pompand ceremony the launch of its Reference 57260, presented as the most complicated watch ever made, while rival Patek Philippe laid the first stone of a new building that will extend its current manufacture, representing an investment of 500 million Swiss francs, “entirely self-financed”.

And for the bad news, Parmigiani announced that one-third of its staff would be made redundant: 30 out of 100. Officially, the culprit is “the strong franc and the slump in the Russian, Chinese and Middle-Eastern markets”. However, Jean-Marc Jacot, the now former director of Parmigiani and its watchmaking division, also points to “the difficulty of coexisting with the major groups, who are using very aggressive tactics to strangle the other brands.”

More than ever before, Swiss watchmaking seems to be split along the two edges of a widening crack that threatens to become an abyss. On one rim are the major established powers; on the other the milling multitudes of wannabes and subcontractors. But wherever there is a yawning chasm, there are danger signs. As we have said before in this column, the good health of an industry, whatever it might be, is a direct consequence of the breadth of its offering. In order to ensure its long-term survival, Swiss watchmaking must be capable of producing the widest possible range of products, from the simplest and most affordable to the most complex and costly (like Hollywood and the American film industry, which produces B-movies as well as masterpieces: without the B-movies, the masterpieces would not exist).

Having said that, Parmigiani’s woes are also the symptom and inevitable consequence of a headlong rush forward that has touched everyone to a greater or lesser extent: a rush to upsell at any price, a wholesale and senseless stampede to make top-of-therange ever higher, the result of which is countless drawers around the world stuffed with watches worth tens of thousands of francs (an enormous, unthinkable sum for the vast majority of inhabitants of our planet – among whom the present author humbly includes himself). Clearly, if you can afford to spend such sums, you might as well have the reassurance of going with what seems to be the most well-established, the most timeless and the most traditional.

The rude health of Patek Philippe, which can afford to invest 500 million francs of its own money to “ensure its growth over the next 20 or 30 years” is the fruit of a slow and steady rise to power which is worlds away from the frenetic impatience of luxury start-ups and upstarts. Similarly, the ability to produce a watch with 57 complications like Vacheron Constantin’s Reference 57260 is, as its name implies, the culmination of 260 years of patient watchmaking. In such circumstances it is difficult to compete.

Know-how cannot be improvised, it is built up and passed on, and that is something that many seem to have forgotten.

If the hundreds of millions invested by Patek Philippe bear witness to a healthy confidence in its future, Vacheron Constantin’s 57 complications are also an encouraging sign that should reassure all devotees of mechanical watchmaking. No, we have not heard the last of mechanical watchmaking; it still has a thousand and one things to say – things that all the smartwatches in the world lack the grace and poetry even to attempt. So, there’s hope. But is there hope for everyone? Yes, if we can bridge the chasm. p

EDITORIAL Contradictory signals SIGNALS EUROPA STAR CHOICES Choosing that first watch ALL AROUND THE WORLD Retail map ALL EYES ON… Tiffany: the best of both worlds A. Lange & Söhne: a new Lange 1 and a road map for the future RJ-Romain Jerome: beyond life and death BUSINESS, MODELS & STRATEGIES The unorthodox Aurélie Picaud revives Fabergé’s horological lustre • Louis Vuitton: operation LV Fifty Five • The new life of Manufacture Royale • MCT, from Sequential to Frequential INNOVATION All rise for the Vacheron Constantin Reference 57260 EUROPA STAR ARCADE Peter Speake-Marin: neo-classicist • Elie Bernheim: solo virtuoso • Fabien de Schaetzen: accelerating through the bends • Cesare Cerrito: l’italianità WOMEN’S WATCHES GALLERY Piaget, Harry Winston, Chanel, Bvlgari, Hermès, Gucci, IWC, De Grisogono RETAILERS & DISTRIBUTORS CORNER Walking in the death zone: how aggressive discounting is threatening the watch industry • Gianfranco Ritschel: “The reality is that, when we open boutiques, we put retailers out of business” • Hübner, a century of Haute Horlogerie in Vienna • Inhorgenta 2016: a focus on watches VOICES FROM CHINA Watches & Wonders 2015: a mini-SIHH for Greater Asia • How luxury brands can ensure visibility & reach in China • 34th Hong Kong Watch & Clock Fair: not too bad, or not too good?

ANALYSIS Spectacular Displays LAKIN@LARGE Surveying Surveys

Read all articles on www.watch-aficionado.com

ALL EYES ON…

TIFFANY

THE BEST OF BOTH WORLDS Like a transatlantic steamer, the New York company crosses the oceans to offer a combination of American DNA and Swiss reliability in timepieces. The Tiffany CT60® Annual Calendar is a perfect example of this felicitous union, taking the vintage flair of the brand to new heights.

by Serge Maillard

A

s we reported in our last issue (see Europa Star September), the legendary New York brand Tiffany & Co. is undergoing a true watchmaking renaissance, under the leadership of its general manager Nicola Andreatta. “This time, we’re going to do it!” is the motto of the year at a company with a very rich record in timepieces, from its historical links to Patek Philippe in the 19th century to its cooperation with firms such as Rolex or IWC in the 20th century. But this time, Tiffany is definitely going Swiss, with new headquarters and facilities in the Confederation. Given that the company is aiming to be not simply a jeweller that produces timepieces, but a true watchmaker in the noblest sense of the word, this is the place to be.

In this new issue we offer our readers a closer look at what Tiffany has up its sleeve, and how it actually proposes to “do it”! We focus on the new Tiffany CT60® Annual Calendar, created in two different limited editions of 60 timepieces (one with a black dial, the other grey), which celebrates in accomplished splendour the revival of a 165-year-old tradition of horological master craftsmanship.

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AMERICAN DESIGN The design of the Tiffany CT60® Annual Calendar draws on historical yet relevant antecedents. The watch is indeed an essential piece of the new and ambitious CT60® collection, whose challenging role is none other than to usher in the “transition from historic to modern Tiffany design”.

The collection is inspired by a gold watch given in 1945 to US President Franklin D. Roosevelt, who wore it at the Yalta Conference – the original watch was recently bought back by the New York company at auction.

Roosevelt is not the sole inspiration for this watch. ‘CT’ obviously stands for Charles Tiffany, who opened – and occasionally had breakfast in – his store in 1837. “Good design is good business,” as Charles Tiffany used to say, and his heirs seem to have taken this lesson to heart! As much as the watch is an Annual Calendar, the number 60 is a tribute to the “New York Minute – 60 seconds of pure possibility,” the dynamic concept that summed up the fast-paced lives of Mr Tiffany’s contemporaries, and which was embodied in the nine-foot Atlas clock above his store, reflecting the cadence of a modern city.

People relied on this unique public clock to keep their lives running on time…

SWISS HEART Despite the undeniably American DNA on the outside, the Tiffany CT60® Annual Calendar watch is 100% Swiss on the inside, drawing on the best of both worlds. Each timepiece is individually numbered and features a self-winding double-complication mechanical movement, with Côtes de Genève, colimaçon and perlage finishing. The movement is housed in a 40 mm case of 18 karat white gold. A black or grey

soleil finish and silver poudré numerals set off the clean, masculine dial, with sapphire crystal glass front and back. The timepiece comes with a hand-stitched black or grey alligator strap.

Additionally, a new Tiffany CT60 ® Annual Calendar watch in rose gold with black dial will debut by the end of the year.

From a formal point of view the watch succeeds admirably, injecting an essential contemporary touch into an artfully vintage line, without detracting from its heritage. The dial, like that of the watch that inspired it, is superbly readable. The ingenious annual calendar system has a subdial at 6 o’clock for the months, with the days around the periphery of the dial.

Subtle touches of white and red distinguish the second hand from the day pointer. In this model Tiffany has succeeded in reconciling two eras and two worlds. This judiciously calculated reinterpretation of its own history will no doubt open up exciting new horizons and opportunities for the brand going forward. p

B CT60® ANNUAL CALENDAR LIMITED EDITION Limited edition of 60 pieces, individually numbered.

Functions: Annual calendar indicating the Date and Month with Hours, Minutes, Seconds. Case: 40mm in 18k white gold. Dial: Grey soleil finishing with silver poudré numerals.

Crystal: Sapphire top and case back glass. Strap: Hand stitched grey alligator, with alligator lining. Buckle: Deployment buckle in 18k white gold. Movement: TCO.0402 Self-winding mechanical. Movement Decoration: Côtes de Genève, Colimaçon and Perlage techniques. Power Reserve: 42 Hours.

Water Resistance: 10ATM/100M/330F. Price: $20,000.

B

C

C CT60® ANNUAL CALENDAR LIMITED EDITION Limited edition of 60 pieces, individually numbered.

Functions: Annual calendar indicating the Date and Month with Hours, Minutes, Seconds. Case: 40mm in 18k white gold. Dial: Black soleil finishing with silver poudré numerals.

Crystal: Sapphire top and case back glass. Strap: Hand stitched black alligator, with alligator lining. Buckle: Deployment buckle in 18k white gold. Movement: TCO.0402 Self-winding mechanical. Movement Decoration: Côtes de Genève, Colimaçon and Perlage techniques. Power Reserve: 42 Hours.

Water Resistance: 10ATM/100M/330F. Price: $20,000.

D CT60® CHRONOGRAPH 42MM Functions: Chronograph with Hours, Minutes, Seconds, Date.

Case: 42mm in stainless steel. Dial: Blue soleil finishing with silver poudré numerals. Crystal: Sapphire top and case back glass. Bracelet: Stainless steel. Movement: TCO.0279 Self-winding mechanical. Movement Decoration: Côtes de Genève, Colimaçon and Perlage techniques. Power Reserve: 42 Hours. Water Resistance: 10ATM/100M/330F. Price: $7,250.

E CT60® 3-HAND 40MM Functions: Hours, Minutes, Seconds, Date. Case: 40mm in 18k rose gold. Dial: White soleil finishing with gold poudré numerals. Crystal: Sapphire top and case back glass. Bracelet: Black alligator. Movement: TCO.0215 Self-winding mechanical. Movement Decoration: Côtes de Genève, Colimaçon and Perlage techniques. Power Reserve: 42 Hours. Water Resistance: 10ATM/100M/330F. Price: $12,000.

D

E

F CT60® 3-HAND 34MM Functions: Hours, Minutes, Seconds. Case: 34mm in stainless steel, set with 60 round-cut diamonds (0.7 carat). Dial: White soleil finishing with gold poudré numerals. Crystal: Sapphire top and case back glass. Bracelet: Stainless steel.

Movement: TCO.1116 Self-winding mechanical. Movement Decoration: Côtes de Genève, Colimaçon and Perlage techniques. Power Reserve: 42 Hours. Water Resistance: 10ATM/100M/330F. Price: $8,750.

G EAST WEST® 42 X 25MM Functions: Hours, Minutes. Case: 42x25mm in stainless steel.

Dial: White with gold poudré numerals. Crystal: Sapphire top glass. Strap: Black alligator. Movement: TCO.0900 Quartz movement. Water Resistance: 3ATM/30M/100F. Price: $3,500.

F

G

EUROPA STAR CHOICES

CHOOSING THAT FIRST WATCH Your son is celebrating an important birthday, or maybe he has graduated, won a sports competition, got his first job, or is about to be married. In any case, you want to give him his first ‘proper’ watch.

Which watch should you choose? Or, if you’re a retailer, which should you suggest? My first question would be: what is his style, what’s his image?

B NOSTALGIC DANDY – If he is nostalgic for the Roaring Twenties, models himself after Jay Gatsby, wears linen suits and listens to big band jazz, then have a look at the Manufacture Pocket Watch by Frédérique Constant.

Manually wound, naturally. USD 2,995 in steel, USD 3,395 gold-plated.

C STAR WARS FAN – If, like Marko Petrovic, who designed this watch for the Star Wars/Devon joint venture, he has watched Star Wars countless times, you can’t go wrong with this model. It combines ‘special effects’ (gears are replaced by Time Belts) with the aura of a galaxy far, far away. Only 500 will be made, and you will need deep pockets: USD 28,500.

D POST-APOCALYPTIC – If he likes to warn people of the dangers of nuclear power, with this watch on his wrist he will certainly not lack for topics of conversation. Don’t ask how you tell the time, he’ll work it out for himself. This striking combination of wood and flashing LEDs comes from Tokyoflash. The Kisai Radioactive Wood LED watch, which can be recharged via a USB port, is available direct from http://www.tokyoflash.com, priced at USD 149.

E CLASSIC ELEGANCE – He appreciates classic elegance, readability, purity and precision – this regulator-type display ticks all of those boxes – his tastes are ultra-conservative, he likes to dress up in black tie and adores the opera. The Excellence Regulator Power Reserve by Louis Erard is made for him.

And it offers surprisingly good value for money: USD 2,795.

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Modern times, eternal elegance.

Ernest Borel S.A. +41 32 926 17 26 / info@ernestborel.ch www.ernestborel.ch

SIGNALS

Regal

And the winner is…

1950s - Pan American Wo ir w rl d A

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1879 In the 19th century most towns had their own time.

In 1879, Canadian Sir Sandford Fleming proposed a revolutionary idea to divide the world into 24 time zones, which was applied five years later, setting the Greenwich Meridian as universal time.

Patek Philippe bleeds blue, as the company has many regal clients. Queen Elizabeth II reportedly prefers to open Parliament wearing a wristwatch on a bracelet of pearls made by the famous Swiss brand.

(Forbes)

The Grand Prix d’Horlogerie de Genève is the equivalent of the Oscars for the watchmaking industry. This year, Greubel Forsey won the coveted “Aiguille d’Or”.

The event contributes to spreading the reputation of this art form and its values of excellence and creativity around the world.

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Robbed

Face Just in case selfies were not self-indulgent enough, Apple’s next generation WatchOS 2 will give wearers the ability to set their own personal pictures as a wristwatch face on the Apple Watch.

(Tribune Reporter)

A man was robbed of his $11,000 watch after he went to a New York hotel room with a woman he had just met. After slipping him a roofie, the victim woke up the next morning to discover both his wristwatch and his date were gone. The woman is said to be in her early 30s, weighs some 100 kg, and is still at large.

(New York Post)

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Holy Grail The 1987 Patek Philippe Ref. 2499 – one of just two examples ever made in platinum – is commonly regarded as the Holy Grail for Patek Philippe watch collectors. One remains in the company museum, while the other was previously owned by Eric Clapton. It was sold to a collector in 2012 for a record $3,635,808 (News-antique.com)

70 Roger W. Smith is set to announce his first range of watches after decades of work.“It is almost ten years since I produced my first Series 2 wristwatch and, since then, we have produced just 70 pieces.”

The small company is the only maker of entirely British watches and movements in existence today.

(RWSmithwatches)

EUROPA STAR ARCADE

ELIE BERNHEIM SOLO VIRTUOSO

Raymond Weil, the brand famous for its music-themed collections, celebrates its fortieth anniversary next year. Thirty-four-year-old Elie Bernheim, representing the third generation to lead one of the last bastions of independent family-run watchmaking, talks about his strategy in the face of unstable markets and multiple pressures. by Serge Maillard

The current economic situation is a delicate one, and independent watchmakers are coming under significant pressure from the groups. Some might say the future looks rather bleak.

Conditions are difficult, yes, but we have a number of advantages, the most important of which is a truly global presence, which is rare for an independent brand. Also, our financial fundamentals are very healthy, despite the crises. Over the last fifteen years our aims have evolved: we have invested a great deal in mechanical watchmaking, which has enabled us to increase the average price of our watches while taking production up to 200,000 units per year. Behind these strategies, our number one advantage nevertheless remains the quality of our products. In this respect we are untouchable. After-sales service is also a key point: all our sales staff and agents are put through a high-quality training programme.

The watchmaking industry today is undergoing a major image battle. How do you intend to maintain or even grow your presence with both intermediaries and end clients?

We can’t compete with the marketing clout of the big global watchmaking groups, but as long as we have a firm footing in our key markets we can achieve our objectives. The United States remains by far our number one outlet, representing one-third of our sales. The United Kingdom is second. But did you know that we are also Turkey’s second-biggest watch brand?

In Antalya we have three times the exposure we are ‘allowed’ in Switzerland! Russia is also a growing market, as is Spain, the Middle East and Mexico. For high-volume brands like ours, it’s important to be present on markets that have a large population.

The battle for shop window space is certainly a tricky one. Personal relationships are important: I’m forever heading out of the door with my suitcase to meet our 3,500 retailers. We offer an interesting alternative, when many points of sale are also coming under pressure from the groups.

We have even been dropped by some retailers, as

NABUCCO

Your collections are all built around a musical theme. Will you continue in this direction?

Music is part of our DNA, but I think we’ll take it further, and use the theme even more provocatively. We are in the process of branching out from classical music and entering into partnerships to produce special Gibson and Frank Sinatra editions.

a result of pressure from the watchmaking groups.

I’ll tell you a story: recently I met an American retailer, who had us positioned between two other group brands in his window. One of the groups wanted more space, and the retailer was thinking about cutting our area. But I told him to think carefully about the balance of power: we have remained reliable and loyal for 20 years. I dared to say no, and so did he, in order to retain an independent brand. I felt vindicated in my approach.

Who are your clients?

Our core clientele is between 25 and 45 years old, which is a solid reflection of our brand identity, which is active in the affordable luxury sector. Our most popular collections are the Freelancer and the Maestro. A Raymond Weil is often the first watch someone will receive as a gift, for a special occasion. Today our production is 60% automatic and 40% quartz. In terms of gender mix, the sexes are equally balanced.

You recently brought out your first tourbillon. Is it the harbinger of a move upmarket?

No, that’s absolutely out of the question! We are staying in the CHF 800–3,000 segment, with our core range at CHF 1,000–2,500. I will never move away from that, it’s our affordable luxury niche. The tourbillon was mainly about image management and flexing our muscles. After I took the reins of the company last year, it was a powerful driver for our 150 staff. In order to produce it, we joined our internal capacities with those of TEC Ebauches in a partnership. It was a very motivating experience.

Have you been affected by the slowdown in China?

It has had less impact on us than on other watchmakers because, unlike some, we didn’t rush to jump on the Chinese bandwagon ten years ago.

In light of the current slowdown, we are happy not to be dependent on this market. But China will continue to grow, and the watchmaking environment there is becoming more structured. It’s the right time to invest. We already have 120 points of sale there.

In fact, the Chinese crisis has given us reason to be particularly proud of our prudent management. We don’t want to find ourselves with stock levels that could endanger the company. I think we have the lowest stocks of all the high-volume brands. It’s a sign that we know what we’re doing. We are opening new points of sale but we want to be sure of the sell-out rate, because we can’t afford to have our cash tied up.

Nevertheless, an increasing number of independent brands have been bought out in recent years. Last year, for example, Ulysse Nardin was bought by Kering. If someone were to make you an interesting offer, what would you do?

As long as we are capable of growing, which has been the case up to now, we will not sell. With the exception of 2009, our profits have grown every year since 1990. But I don’t want to see the company decline. If I sense that we are stagnating, survival of the company will come first. But what’s to stop us joining forces with other independent watchmakers and ‘holdouts’? An alliance based on common distribution or communication objectives could be a positive development. p

WATCH AFICIONADO | 11

BUSINESS, MODELS & STRATEGIES

LOUIS VUITTON OPERATION LV FIFTY FIVE This name in numbers heralds a new departure for Louis Vuitton, which is launching a more affordable everyday alternative to the polarising Tambour.

Could it be the shape of things to come? by Pierre Maillard

L

ouis Vuitton’s first watch collection dates back to 2002, when the famous Tambour was launched. Its signature drum shape helped the brand to define and promote a highly individual watchmaking aesthetic. But this unique shape, although it effectively ‘beat the drum’ and created a recognisable watchmaking identity for Louis Vuitton, nevertheless had a polarising effect: people either liked it or they didn’t. But this did not stop the Tambour, in its successive iterations (GMT, chronograph, tourbillon, Spin Time and minute repeater), from achieving success and recognition. Indeed, it was so successful that Hamdi Chatti felt fully justified in turning the design unceremoniously on its head. The mere fact of being inverted created something that was spectacularly different, and the Tambour has now truly earned its place in the international watchmaking pantheon. It is sold in some 200 points of sale in the mother house’s network of 465 boutiques around the globe.

Nevertheless, in order to overcome the aesthetic objections, Louis Vuitton owed it to itself both tactically and strategically to develop a new collection: a more accessible, more affordable watch – “very recognisable but wearable. Something you can wear every day,” in the words of Hamdi Chatti.

TWIN FOCUS Since his appointment in 2010 as head of Louis Vuitton’s watchmaking division, Hamdi Chatti has focused on two obsessions: making his company a legitimate force in watchmaking circles, and expanding – and thereby diversifying – its range.

As far as the former is concerned, it’s a done deal, with the purchase and integration of La Fabrique du Temps, the horological laboratory directed by partners in crime Enrico Barbasini and Michel Navas, which has given its name to the new manufacture. They are the driving LV FIFTY FIVE 41 MM – GMT automatic ETA 2893, date, hours, minutes and seconds, lacquered anthracite dial, sunburst and circular-brushed satin finish. Water-resistant to 50 metres, comes in a steel case with engraved back, fitted with a monogrammed folding clasp.

force behind the highly inventive and often whimsical complications that have graced the Tambour, including their showstopping timepiece, the kaleidoscopic, ingenious and much talked-about Escale Worldtime.

The acquisition of La Fabrique du Temps, a lowkey but finely-tuned horological engine, which since autumn 2014 has brought together all the company’s in-house métiers (one hundred or so engineers, watchmakers, dial-makers etc.), has enabled Louis Vuitton to move ahead with the launch of a new watch line intended to become a long-term collection.

This series is aimed at a younger clientele and will no doubt be less controversial. Launched initially in stainless steel, at a retail price of between USD 3,000 and 4,000, the intention is to move gradually into gold, with gem-set models to be brought out subsequently. “But we’ll take our time,” asserts Hamdi Chatti. “As we are our own retailer we are not under any pressure. And with our day-to-day retail experience on an international scale, we can afford to take things easy.”

ROUND, LIGHT AND COMFORTABLE So this is the LV Fifty Five. Why this figure?

Classical scholars – there must be a few left – will already have worked it out. LV is the Roman numeral for fifty-five. Brain teaser aside, the LV Fifty Five fulfils perfectly the brief given to the in-house designers: the watch is round, light, highly wearable and extremely comfortable. It is an everyday watch – you almost forget you’re wearing it – but nevertheless instantly recognisable. Beautifully proportioned and elegant, but far from bland.

Its design was inspired from the archives of the mother house. The aluminium clasps of a 1920s trunk conveniently provided both an example and a historical reference. The backstory finds its horological expression in the two metal plates riveted onto the case, engraved with the legend ‘Louis Vuitton’. “It’s a reinterpretation of the lock plates that have secured Louis Vuitton trunks since 1890,” we are told.

Mounted on either an astonishingly supple

LV FIFTY FIVE 31 MM – Quartz ETA 256.031, hours, minutes and seconds, lacquered silvered dial, sunburst and circularbrushed satin finish. Water-resistant to 50 metres, comes in a steel case with engraved back, fitted with a monogrammed folding clasp.

leather strap, or a metal bracelet also inspired by the famous trunk (which proves to be equally flexible and light on the wrist), the LV Fifty Five is both understated and refined. The attention to detail is particularly noticeable on its silvered or anthracite dial with its two concentric convex sections, relief hour markers and hands in a stunning emerald green, which Louis Vuitton is proud to produce entirely in-house.

How will this more accessible and affordable timepiece be received by the brand’s loyal followers, coming as it does after the more strident Tambour? Its launch is imminent. “No hype, no hard sell.” Louis Vuitton will gradually introduce the LV Fifty Five to the market, beginning, by the looks of things, in Japan, before expanding to other shores in 2016.

Nevertheless, as the LV Fifty Five starts to make its way in the world and find its own path, the Drum will assuredly continue to beat.

And judging by the satisfied expressions of Enrico Barbasini and Michel Navas who, back at their benches, are busy concocting more inhouse complications, the Louis Vuitton watchmaking division has a few more surprises up its sleeve. p

WATCH AFICIONADO | 13

RETAILERS & DISTRIBUTORS CORNER

WALKING IN THE DEATH ZONE HOW AGGRESSIVE DISCOUNTING IS THREATENING THE WATCH INDUSTRY The watch industry’s for all exports from 2000 to 2014, and 13% slowdown has trapped many for timepieces above a per-piece export value of CHF 3,000, the numbers are dramatic. With brands in a dilemma: price its excess capacity the industry is increasingly rebates are supposed to struggling to respond to the challenges. And motivate consumer demand the outlook for 2016 promises little relief. The Bridge To Luxury estimates next year’s growth and boost sales. Yet aggressive price incentives put gross at a maximum of 1–3%, which would correspond, at best, to the 2014 results. In compaand profit margins under rison, TBTL expects the luxury industry as a pressure. In the death zone of whole to perform at a 4–6% rate next year. continuous discounting many brands risk being wiped out. MULTIPLE EXTERNAL CHALLENGES The air is getting thinner.

by Dr Frank Müller, The Bridge To Luxury (TBTL)

TOUGH TIMES AND WEAK OUTLOOK The recent news has not been encouraging.

For September, the Federation of the Swiss Watch Industry reports a year-to-date decline in wristwatch exports of 2.4% in value and 0.8% in units. Though the contraction seems to be moderate, compared to the industry’s compounded annual growth rate (CAGR) of 6%

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Obviously, China’s modest economic growth has surprised and impacted the watch industry.

And so have the anti-corruption measures implemented by the Chinese government.

The Greece crisis has paralysed local demand in many European countries – growth here is mainly based on tourist shopping in the major metropolises. Volatile currency exchange rates have added to worrying exogenous factors – a case in point is the Swiss National Bank’s decision to free the franc against the euro.

The internet continues to affect the industry: it gives consumers new power over brands by providing quality information about product pricing and availability.

THE INDUSTRY PARTLY TO BLAME Yet, however great the temptation to blame external causes for the current difficult situation, which is unlikely to change anytime soon, the industry has to ask itself why it is under pressure. The correlation between economic growth and demand for watches is not a new phenomenon. Consumers need to be in a good mood to purchase watches, which is the case if the overall economic frame is positive. It’s just common sense. The same applies to the influence of currency exchange rates on the business. To believe that the Swiss franc and euro would remain perpetually pegged at a 1.2:1 ratio was naïve, and reveals a general industry characteristic: business planning often seems to be based on a simple extrapolation of a favourable past, while potentially negative impacts are glossed over. This leads to aggressive growth targets resulting in capacities and distribution structures exceeding consumer demand. It also points to a disregard for economic cycles, crises and major events that do happen quite often if one just recalls some of the incidents of the last 15 years: 9/11, SARS, Lehman, Greece, Ukraine etc. The industry was slow to anticipate the importance of the internet, and has again been slow to anticipate the impact of the smartwatch. It is a conservative industry in which innovation is generally confined to movements and designs in the constrained universe of a classical steel or gold case. Excluding the big groups, with diminishing sales many small and medium-sized brands face increasing cash flow and funding problems, because they have failed to put anything aside for a rainy day.

DISCOUNTING AS THE SOLUTION? In reaction to a challenging environment the industry is largely responding in two classic ways: cost-cutting and price reductions along

the distribution chain. Both approaches are legitimate, however they are not without risk to the brand’s image.

In general, streamlining expenditure in times of crisis starts with marketing. It is a fair assumption that the smaller the company, the more hazardous the effect of a reduced brand presence in the marketplace. Big brands maintain recognition and recall values at higher levels due to their bigger budgets, in both relative and absolute terms. Even if the effects are not felt before, once the markets rebound the consequences will be driven home as bigger brands enjoy stronger growth rates, resulting once again in a larger market share.

Vicious cycles such as this can also be observed with regard to pricing. Currently, in the highend timepiece market, collectors are offered discounts on a broad scale, at a rate of a borderline insane 30–50% knock-down on the net retail price. In their urgent need for cash flow, brands try to bypass retailers, distributors and agents and connect directly to the final customers – or the grey market. Given their commissions of 2–5%, many of these players are ready to sell anything to anyone. Sometimes it’s good to remember some basic arithmetic. For example, a brand that previously generated a gross margin of 50%, if it introduces a 10% price rebate, will have to pump up its sales by 25% to achieve the same profit as before. Is this realistic? The discounting will destroy a lot of long-term trust in the market. And most important: the customer will have learnt the lesson that brands are not as sacred as they seemed.

A once highly respected luxury and prestige object is turned into a commodity. Cynically, one could add that at least the pricing of the Apple Watch is consistent.

SOME OPTIONS The current crisis triggered by China’s loss of economic momentum is speeding up the process of restructuring in the industry that was delayed and masked by the last decade’s boom in Asia. Sadly, brands, especially those of smaller and medium size, will either silently disappear, or eventually find out that even

quite public efforts to attract investors or new owners will be in vain, or will only happen at the expense of high write-offs of assets and brand goodwill.

In the future, the industry needs to take a more cautious and humble attitude. Business plans that define at least a five-year horizon, and which factor in at least one major crisis, are an absolute necessity. New attitude, old-school financial planning. Yes, even the venerable watch industry could face the threat of new competition. As a consequence, innovation needs to be understood in a broader sense. The vast health-

care industry, for instance, offers many possible opportunities for new partnerships and pioneering watch-based products.

The Lehman crisis showed that watch enthusiasts under time pressure to sell their collections were able to regain 50% of the purchase price for some brands, while others fetched just 10%. Long-term, branding is king. The stronger the brand, the greater the power to withstand the temptation of heavy price discounts in troubled times. But branding is a complex strategic and creative effort that demands patience – and investment.

Vertical integration grants control of the distribution chain – and therefore of unwanted grey markets and discounting. However, here again, long-term business plans should anticipate downturns. As embarrassing as it may be, some brands nowadays would be happy to close down some of their expensive monobrand boutiques in Hong Kong, if only their rental contracts permitted. In this context,

sensitive multi-channel management helps.

Those who follow the rule “one channel, one offering” are better prepared to flush out a dysfunctional distribution network.

International market research on competitors’ pricing, along with monitoring of global currency developments (again linked to business and scenario planning) should be a matter of course. Hedging, while a complicated instrument in itself, may soften currency risks.

Obviously, the better the company’s funding, the easier it is to weather the storms. If marketing budgets really are to be cut, it should be done where the effects on strategic brand as well as customer and retailer relationships are the least hurt. How big does a booth at an intra-industry fair really have to be to make an impression? On an organisational level it is important to control local business units that may be tempted to secretly compromise on pricing.

Here, it is possible to define sales managers’ contracts such that they focus on healthy gross margins rather than rapid sales growth.

One of today’s management tasks is to consider business exit scenarios in a timely fashion.

Over recent years it has proved increasingly difficult to identify investors. The search should start as early as possible – and in many cases the process itself gives owners and senior management a valuable learning experience in terms of the true market value of the company and its brands.

There are no easy and very few short-term solutions to the current situation. However, the old saying will unfortunately prove correct: “Those who resist change will be changed.”

At some point, restructuring will take place.

Professional brands try to lead the process consciously and in advance. For the others, the air is indeed getting thinner. p

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