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aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry’s Biggest Problems In 2019 & Beyond

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry's Biggest Problems In 2019 & Beyond Featured Articles

Investor services firm Morgan Stanley recently released a research report on what its analysts feel are the most pressing issues that will affect the profitability of the watch industry now in 2018 as well as in 2019 and beyond. Predictably diplomatic in vocabulary, the report nevertheless offers stern warnings to investors expecting profits to increase anytime soon from publicly traded-companies that rely on the revenue from wrist watch sales. I think Morgan Stanley does not get everything right in the 44-page report – especially in some of their analysis to explain the relatively sound data they use.

While the analysts do understand the larger structure of how the watch industry more or less produces and profits from watches, the report doesn’t take into consideration important details about the watch purchasing or marketing experience that is crucial to explaining certain aspects of buyer behavior. More so, I’ve come to understand that until recently, much of the watch industry and those who report about (such as other investor services or third-party management firms) it for investor purposes have mostly espoused optimistic news about the current state and near future of the watch industry. I’m now starting to see more sobering accounts of what the watch industry is actually going through. Especially reports that confirm and support the very same analysis and conclusions myself and the aBlogtoWatch team have already come to and written about at length. Yes this is positive for the ego, but more important it confirms the saliency of many reforms aBlogtoWatch routinely recommends to the watch industry that makes the products its community loves. Let’s now take a look at the Morgan Stanley report (which you can download here).

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry's Biggest Problems In 2019 & Beyond Featured Articles

The name of the Morgan Stanley report (which is surprisingly dry) is “DTC and the Bullwhip Effect: A bumpy transition ahead for the Swiss watch industry.” Bumpy transition, eh? Well that might be an understatement, as the watch industry is facing more than mere turbulence according to Morgan Stanley. The main purpose of the report is actually as part of an investment recommendation for what to do with stock from The Swatch Group AG and Compagnie Financière Richemont SA, i.e. the Richemont Group; both of which are publicly-traded. I believe that only qualified and licensed people should be giving investment advice and if you are keen to read the reasoning behind why Morgan Stanley downgrades its stock purchase recommendation for both conglomerates then you can easily reference the report.

I will talk about the report’s discussion of data they analyzed about the watch industry itself as the report does not maintain its investigation to data exclusively from The Swatch Group or Richemont. In fact, there isn’t too much data to actually use. Available data comes from shareholder reports (which are surprisingly spare in material facts), information released by the watch industry regarding Swiss watch exports, and some still available data about retail sales. Much of the rest of the data was seemingly acquired using various sophisticated forms of scraping internet data. For instance, the report suggests that there is a whopping 16 billion Euros of unsold watches in the hands of third party retailers and regularly references the average percentage that many timepieces are sold at a discount for. So I credit the report for at least using the scant available compiled data on the topic as well as seeking additional data to analyze. I say this because many lesser reports of this ilk don’t even do that.

While the Morgan Stanley watch industry report focuses on problems of overproduction of timepiece products and the impact of a change to a direct to consumer (DTC) distribution model, it also touches on tangential topics such as outlooks for the watch industry in China as well as the enduring effect of smartwatch sales on the demand for traditional luxury timepieces. People trust names like Morgan Stanley and their reporting in general is of course pretty good. So if you are interested in the business of making watches today, then the outcome of the report should be of interest to you.

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry's Biggest Problems In 2019 & Beyond Featured Articles

The Bullwhip Effect Means That Too Many Watches Are Being Made

Use of the term “bullwhip effect” really isn’t necessary in the report and feels like one or more of the writers felt that it was a good occasion to a few too many times try to apply this concept. The basic idea is that like the wavelength amplification effect observed in a snapping whip, a pulse of demand at one end of the supply chain ends up getting exaggerated by the time it hits manufacturing output. The result is a miscommunication between market demand and supply which, according to Morgan Stanley, caused the watch industry to produce more watches than end-consumers could ever be hoped to purchase.

Morgan Stanley remarks that the bullwhip effect of overproduction is caused by problematic communication between parties at all ends of supply and demand. It is certainly correct that the watch industry has a legendary problem of obtuse communication – even friendly companies – but I’m not so sure the overproduction issue is related to ignorance among key players. Overproduction of watches and inventory gluts are two parts of the same issue. Morgan Stanley fails to really address why overproduction occurred which led to the dramatic problems of oversupply. In fact, Morgan Stanley even goes to appreciable lengths to determine if poor production planning and management are historically common in the Swiss watch industry and why they may have done it. Their conclusions are less than flattering to the watch industry, but don’t actually offer solutions or healthy recommendations on this important area.

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry's Biggest Problems In 2019 & Beyond Featured Articles

A couple years ago when writing about how The Push For In-House Movements Ruined The Modern Watch Industry I introduced a new motive for why overproduction of watches was happening and made it very clear such actions were intentional. In my opinion, overproduction in the Swiss watch industry is not the result of a “phenomenon” such as the bullwhip effect, but rather is related to demands from manufacturing bases to produce sufficient inventory to justify the size of those manufacturing bases. In other words, the watch industry made itself too large (needing to sell too many watches to support itself) by building up a series of unnecessary and redundant factories to produce products no one wanted. I recommend that article if you are interested in the problem of watch industry oversupply.

Morgan Stanley and I both agree that in general the watch industry has been routinely making more watches than the market can bear to purchase. Even if this happened at first because of a bullwhip effect, it has been happening for so long that it continues quite knowingly by watch brand managers. That means the Swiss watch industry was producing more watches than it knew it could sell. That has put it in a very vulnerable position that will be “highly disruptive” according to Morgan Stanley because of how dangerous long-term oversupply can be in the luxury industry.

No specific advice that I can see is given to the watch industry about how to reduce oversupply – with the Morgan Stanley analysts perhaps believing the watch industry will reduce production if they learn they are making too much. Because of the needs to support a manufacturing base, my position is that the Swiss watch industry will continue to resist reducing production further perpetuating the oversupply problem.

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry's Biggest Problems In 2019 & Beyond Featured Articles

Some Brands Overproducing Watches Can Ruin It For The Industry As A Whole

Now comes more of my own analysis which Morgan Stanley doesn’t remark on, but is related to data they are working with as well as the conclusions made in the report. Morgan Stanley discusses overproduction of watches at groups like the Swatch Group in detail, and also remark about the large availability of discounts online – not to mention the finicky nature of consumers today. All of these topics are in the report but they aren’t always connected together.

My theory is that when you have a large volume of watches listed online with published discounts, it can have a direct negative impact on all watch sales online, even for those models and brands which do not have published discounts. The reason is because mass discounting of just a few name-brands can lead consumers to believe that the entire product category is over-priced and thus most retail prices in that category cannot be trusted. Such mass discounting of watches occurs in such a widespread manner as to become the norm. Consumers for wrist watches are even loathe to purchase at full retail price unless they sense cause to believe the product is not only scarce, but prized by others. Most watches sold today cannot be sold at full retail price. This is a problem the watch industry allowed happen, and further fueled by consistently overproducing watches for many years in a row.

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry's Biggest Problems In 2019 & Beyond Featured Articles

Source: Morgan Stanley

The Swiss watch industry as a whole must have a market place without a major deviation in published prices in order for the entire product category of luxury Swiss watches to enjoy high consumer confidence. Even though not all popular watch brands are available for readily discounted prices on the market, more than enough are, to put consumers in a defensive position anytime they are asked to spend full retail price on a timepiece they want. The perception is that it isn’t necessary to spend full retail – so if you do it is because you might end up selling the watch to someone later on if you are lucky.

This is one of the “highly disruptive” situations Morgan Stanley alludes to but doesn’t outright confront in the report. The data analyzed supports my above conclusions as Morgan Stanley comes to their next point of the two difficult options the watch industry has in order to respond to overproduction woes.

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Comments

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  • Joe

    Great, interesting article!
    Something I don’t quite understand.
    In the first diagram it shows Rolex at 18.5% by brand and then 19.5% by group. Is this apportioning 1% market share to Tudor? It’s the only explanation I can come up with.

    So much more to ask and discuss, but not easy in the comments section.

  • Joe

    Great, interesting article!
    Something I don’t quite understand.
    In the first diagram it shows Rolex at 18.5% by brand and then 19.5% by group. Is this apportioning 1% market share to Tudor? It’s the only explanation I can come up with.

    So much more to ask and discuss, but not easy in the comments section.

  • Joe

    Rolex don’t make my favourite watches but they are my favourite company to observe.

    I think they are able to make unilateral decisions without support or buy-in from other groups because of their marketing and brand image.
    Eg Rolex selling fewer sports models (and say the Batman becoming near-unobtainium) will not necessarily result in the bulk of those buyers going out to get a JLC instead.

    Although this might be over-simplified, if (even) the mighty Rolex are having to reduce supply perhaps in anticipation of such problems as inventory build-up then I think the other groups need to collaborate and take a similar approach.
    For every potential Rolex customer that can’t get his/her Rolex, it merely serves to increase demand (only for Rolex).
    The lack of supply also helps those wanting some assurance that their purchase might “hold value” in the event that they need to flip their watch.
    All the while the other brands/groups are over-stocked, their watches will never (…or find it tougher to) retain that resale value.

    • Jeremy Chang

      Rolex doesn’t need to anticipate inventory build-up. They are experiencing this problem with Tudor.

      • Joe

        I don’t know how much Rolex influences Tudor or whether they are involved in much collaboration.
        If Rolex and Tudor were sharing a strategy, I think it might work well to ensure that Rolex is short in supply and Tudor over-supplied.

        They may have different client bases but if I wasn’t a WIS, I could imagine settling for a Pelagos instead of a SeaDweller or Sub or a BlackBay (with their various style options) instead of a Sub. Even a BlackBay GMT over a Pepsi/Batman. This may be slightly over-simplified but I don’t think any other group provides compelling alternatives for these watches at a similar price point.
        Then for WISs and die-hard fans, only a Rolex will do, so Rolex haven’t lost their clients either.

        So if Tudor have inventory build-up, is this a problem or possibly a purposeful strategy?

        • I have a differing take on Rolex/Tudor. I think WISs appreciate Tudor while then general (status seeking) public has not heard of them and only a watch with Rolex on the dial will do for posers.

          • Joe

            That’s a good point.
            Then again if you’re a WIS and a Rolex-aholic, sometimes only Rolex will do 😀

          • Yeah – that’s the funny thing about wearing a Rolex – it could be because it’s all you know or because you actually do know about watches.

        • Jeremy Chang

          I think there are not many people know how Rolex sells their popular models in my country, Taiwan. If you want to get a sports watch from Rolex, you need to buy a Tudor at the same time, and usually the ADs will ask you to buy older models from Tudor, those ones that are no longer on the official website. I heard it’s about the same practice in south east Asian countries if you want to get a Rolex from authorized dealer.

  • Joe

    Rolex don’t make my favourite watches but they are my favourite company to observe.

    I think they are able to make unilateral decisions without support or buy-in from other groups because of their marketing and brand image.
    Eg Rolex selling fewer sports models (and say the Batman becoming near-unobtainium) will not necessarily result in the bulk of those buyers going out to get a JLC instead.

    Although this might be over-simplified, if (even) the mighty Rolex are having to reduce supply perhaps in anticipation of such problems as inventory build-up then I think the other groups need to collaborate and take a similar approach.
    For every potential Rolex customer that can’t get his/her Rolex, it merely serves to increase demand (only for Rolex).
    The lack of supply also helps those wanting some assurance that their purchase might “hold value” in the event that they need to flip their watch.
    All the while the other brands/groups are over-stocked, their watches will never (…or find it tougher to) retain that resale value.

  • Joe

    One interesting omission from the study is the exclusion of the Japanese manufacturers.
    Surely there must either be some corollary or parallels there and by excluding them, they are at risk of missing an important piece of the picture?

    I wonder how they are faring compares to “the Swiss”?

    • Sheez Gagoo

      I strongly recommend big H’s article about the Rise of Grand Seiko.

      • b-spain

        Hodinkee is a GS retailer, it is in their best interest to communicate the ‘rise of Grand Seiko’. When it falls on its face it wont see an article ‘the fall of grand seiko’ Its destined to be a skewed analysis. I’m fine with japanese brands as much as the next guy but they are nowhere close in terms of production and impact out in the world beyond us watch idiot savants. Omega has 800 SKUS (800 model variations Rolex 450) How many models and how much retail doors does Gs have? None in comparison. Its a speck on the map.

        • Independent_George

          I was going to try to refute everything you wrote point by point, but it’s the holidays, I am busy, and, ultimately, you lost me at “watch idiot savant”.

          • b-spain

            Classy! Happy holidays to you- it’s more fun with less anger and condescension.

          • Independent_George

            It’s also more fun with precision and intelligence.

          • Berndt Norten

            Perhaps. One thing is certain: it’s no fun being an illegal alien.

          • egznyc

            So … either I’ve missed something here (quite likely) or that’s a pretty big nonsequitur. Might be a song reference. Anyway, now I know there are just three things in life that are certain ;-).

          • Berndt Norten

            Phil Collins sang it. Of course it’s a song reference. Here I stand. I can do no other, but to run (4 u) under cover of the 99 night balloons

          • egznyc

            When the feeling’s right, I’m gonna run all night …
            Hielten sich für Captain Kirk
            Es gab ein großes Feuerwerk.

          • Berndt Norten

            Phil Collins sang it. Of course it’s a song reference. Here I stand. I can do no other, but to run (4 u) under cover of the 99 night balloons

          • Berndt Norten

            Phil Collins sang it. Of course it’s a song reference. Here I stand. I can do no other, but to run (4 u) under cover of the 99 night balloons

          • egznyc

            So … either I’ve missed something here (quite likely) or that’s a pretty big nonsequitur. Might be a song reference. Anyway, now I know there are just three things in life that are certain ;-).

          • egznyc

            So … either I’ve missed something here (quite likely) or that’s a pretty big nonsequitur. Might be a song reference. Anyway, now I know there are just three things in life that are certain ;-).

        • Ariel Adams

          As a fan of Grand Seiko my concern over the last few years has been their steady increase of the average retail price without corresponding product innovation or investment in branding. I feel as though Grand Seiko watches were an excellent value and highly compelling when you could get them for between $2,000 – $6,000 USD. With retail prices often higher than that – and given that for the most part they are selling re-skinned old models, I worry greatly about their wider appeal when from a price perspective they are no longer as competitive with Swiss branding that they admittedly have not been able to replicate or match.

        • Sheez Gagoo

          They have the power of profiting from all the stupid things the Swiss do, if they don’t. My point was, that the mother company of Seiko is now Grand Seiko. They have, if they don’t behave stupidly, the capacity to gain a lot of market shares even in a shrinking market.

        • spiceballs

          like Seiko Monster – – -?

          • Joe

            Or the Tuna can or the Snowflake…but they are few and far between.
            Mostly everything else is just a code :-|.
            As a fan of their watches, it’s hard even for me to remember their codes.

      • Joe

        Thanks Sheez.
        It was an interesting article too. On the WUS forums there’s a thread going about that article and there seems to be consensus that GS would benefit from naming their watches (like Rolex does).
        ie we all know what a Submariner, DateJust or Milgauss look like, whereas in the GS world it’s all SBGxyyyy or something.

        In fact many of the larger brands might benefit from giving their watches some identity, rather than an SKU or code.

  • gadgety

    “What is needed sooner than later is an industry-wide consensus on what they want the future of the watch industry landscape to look like.
    Without a unified agreement about smoothly transitioning…If the collected watch industry manages it, then effective consensus
    about strategy and diplomacy will lead the watch industry forward.”

    Ariel Adams, the above quote on “industry-wide consensus” seems to suggest bypassing competition between the blocks. That constitutes a cartel and is likely end up in various courts on competitive antitrust grounds.

    • Ariel Adams

      While I am generally not in favor of monopolistic tendencies in luxury or “precious commodity” industries cartel-like cooperation can have serious short-term benefits. The long term benefits will be a measure of how effective those cooperative approaches are. In an ideal landscape the watch industry can cooperate in a way that benefits consumers because there is more desirable product and less unwanted inventory. At worst it can indeed bring up antitrust issues which may perhaps require legal intervention. All I can say is that the non-cooperative approach has resulted in a marketplace so ripe for disruption that it teeters at times on allowing the entire industry to fall apart given all sorts of equity imbalances. Anyhow, it is a much longer discussion and I think all points on this topic need to be made and discussed.

      • Sheez Gagoo

        Antitrust laws are almost non-existing in Switzerland. Fines are incredibly low and they have to catch you for the second time to punish you. Your monopolypoint contradicts with your love for microbrands.

        • Berndt Norten

          Indeed, perhaps A is thinking like it’s 1890, but there ain’t no Sherman (anti-trust) style legislation or legal decisions in Suisse. C’est pareil en France

          • gadgety

            Interesting replies from all. So, the Swiss can cooperate between themselves in Switzerland, but what happens if they operate in the same fashion inside the EU, specially if they have high market share?

            As for “C’est pareil en France,” so you’re saying it’s the same in France as in Switzerland, as in non existent antitrust laws? To the extent that French companies operate across the EU, wouldn’t European legislation, eg article 101, be applicable?

        • Berndt Norten

          Indeed, perhaps A is thinking like it’s 1890, but there ain’t no Sherman (anti-trust) style legislation or legal decisions in Suisse. C’est pareil en France

      • Sheez Gagoo

        Antitrust laws are almost non-existing in Switzerland. Fines are incredibly low and they have to catch you for the second time to punish you. Your monopolypoint contradicts with your love for microbrands.

    • I’d agree except that it’s hard to get governments to care about monopolies unless the goods/services they produce are essential ones. I’m a member of the Hawaii Jewelers Association and our past president noted that our competition is not between ourselves (meaning between member jewelers) but that we are competing with everything else that consumers spend discretionary dollars on.

      I don’t encourage cartels either, but more standardization with the watch industry (in the affordable market segment) isn’t a bad thing. Fortunately straps tend to come in even mm widths but other parts are all over the place. ETA/Sellita movements have been produced so long that their sizes (while not standards per se) are well known which helps. But established watch brands don’t want to encourage easy entry of new brands, so they don’t think it’s in their best interests to create and support more standards as a general rule.

      De Beers used to do a lot of advertising which was for down stream sales (since they were not the retailers) and Swatch could do the same with ETA – encourage the notion that a Swiss mechanical watch is something to covet/aspire to and that 2 months of income for a luxury item is the right figure (which is what De Beers used to push for diamond engagement rings).

  • Joe

    Something else I found interesting in the article above: I tend to agree more with the MS assessment that the watches should be built off common platforms (allowing economy of scale and fast entry/withdrawal of ideas from the market).

    Then again Ariel makes a valid point where companies need to innovate and experiment to gauge market interest.

    I think Rolex’s success is mostly based on slow iterations of a limited number of extremely popular “model families”. This also keeps costs down and helps with their profitability.
    Other groups don’t have the luxury to do what Rolex can.

  • TheBigOldDog

    There seems to be a lot of focus on supply and not very much on demand – which imho is the biggest long-term threat, Wrist watches are becoming anachronisms. Young people (<40) don't really wear them anymore. When they do, it's usually a smartwatch and being used primarily as a way to track activity (from health to communications) and not time. 20 years from now this whole industry is going to look very, very different. More will happen in the next 10 years than the whole last 50 years.

    • Tony NW

      You’re not following the trend reports. Millennials are buying houses, moving to suburbia, buying mechanical analogue wrist watches and nice clothing. It wasn’t expected, but it turns out they act just like all previous generations, just a bit stunted. And since they’ve largely moved away from cars, non-smart watches have become a real “thing” with them. This hit the influencer areas first (west coast, Manhattan, Boston), as everything does, but it’s coming.
      To them, a nice watch (which means “Rolex” more than “Omega”; they are more label conscious) is a status symbol of not being tethered. Much like to us successful 50-year-olds, going to work in jeans proves we out-rank those losers in suits (valets, parking attendants, lawyers, matre’ds, anyone who answers directly to a higher authority.)

      • TheBigOldDog

        Maybe. We’ll see. My observations of Millenials and Gen Z say otherwise. Even Gen X has largely abandoned the wrist watch except for a niche subset.There are always dead cat bounces in any dying market/industry. Regardless, I find it fascinating demand hasn’t been studied a lot more closely. Perhaps they are afraid what they will find? Now you have Apple watches predicting heart trouble and saving lives. That’s hard to compete against and the usefulness gap is only going to grow.

      • Pat Mercer

        Lol, I’d take that bet. Some millennials are buying tiny houses but most are staying at their parents trying to pay off there 100k+ student loans while making the same amount of $$$ or less than people did 25 years ago. I do know a couple of them that own Victorinox and Fossil mechanicals, but not a single one owns any major brand watch even over 1k. The next US/Global depression will kill off over half of the current luxury watch industry easily. I plan on scooping up the naming rights to Breguet or Glasshutte when the Swatch group sells them off for pennies sometime in the near future.

      • Pat Mercer

        Lol, I’d take that bet. Some millennials are buying tiny houses but most are staying at their parents trying to pay off there 100k+ student loans while making the same amount of $$$ or less than people did 25 years ago. I do know a couple of them that own Victorinox and Fossil mechanicals, but not a single one owns any major brand watch even over 1k. The next US/Global depression will kill off over half of the current luxury watch industry easily. I plan on scooping up the naming rights to Breguet or Glasshutte when the Swatch group sells them off for pennies sometime in the near future.

      • Pat Mercer

        Lol, I’d take that bet. Some millennials are buying tiny houses but most are staying at their parents trying to pay off there 100k+ student loans while making the same amount of $$$ or less than people did 25 years ago. I do know a couple of them that own Victorinox and Fossil mechanicals, but not a single one owns any major brand watch even over 1k. The next US/Global depression will kill off over half of the current luxury watch industry easily. I plan on scooping up the naming rights to Breguet or Glasshutte when the Swatch group sells them off for pennies sometime in the near future.

    • Tony NW

      You’re not following the trend reports. Millennials are buying houses, moving to suburbia, buying mechanical analogue wrist watches and nice clothing. It wasn’t expected, but it turns out they act just like all previous generations, just a bit stunted. And since they’ve largely moved away from cars, non-smart watches have become a real “thing” with them. This hit the influencer areas first (west coast, Manhattan, Boston), as everything does, but it’s coming.
      To them, a nice watch (which means “Rolex” more than “Omega”; they are more label conscious) is a status symbol of not being tethered. Much like to us successful 50-year-olds, going to work in jeans proves we out-rank those losers in suits (valets, parking attendants, lawyers, matre’ds, anyone who answers directly to a higher authority.)

  • Greg Dutton

    This was a really interesting article, and I appreciate ABTW doing industry analysis, which I find fascinating.

    A friendly suggestion: someone needs to copy edit Ariel’s articles. This one is full of grammatical errors, run-on sentences, and verb tense inconsistencies. The content is great, but if the writing tightened up it would be easier to read.

    Again, really appreciate the article, please keep it up!

    • Ariel Adams

      We actually have a new copy editor coming soon and right now happen to be transitioning between members. We will likely come back to this article and refine it, but the timeliness of the topic as well as wishing to publish it prior to the end of 2018 was the main impetus for publishing it now.

  • WG

    I don’t understand what all the hella-Ba-Lulu is about, when it comes to the luxury Swiss watch industry . They have faced a shrinking market base for decades. Yet increase production and prices, thinking this is a way to survive.
    Remind me again on how many washes the Richmond group destroyed last year , yet they still produced watches in the same Mass quantities this year and give us aprice increase taboot .
    Sadly I am an anomaly amongst my friends, To me my watches beautiful piece of jewelry , I love the artistry & engineering that went into it. To them they see no use, they need their electronics.
    I know I can’t afford new watches, I have a family to support.
    And in case you haven’t guessed I’m part of the shrinking middle class, and the fact is I can only wear one watch at a time.
    Will I ever own my Swiss grill watch ?
    There is always hope and I could win millions of dollars LOL

    So in the meantime I’ll admire from afar
    Swiss luxury watch brands slowly recede into Extinction, with the NeverEnding hope that I may someday acquire one always minding supply and demand and yet never exceeding the level of what I can afford.

    • What fresh hell is this?

      Hullabaloo?

    • What fresh hell is this?

      Hullabaloo?

    • What fresh hell is this?

      Hullabaloo?

  • egznyc

    Lots of interesting observations and ideas. But I really don’t see how a “few stubborn brands not wanting to get with the times can effectively hold back the entire industry” (last bolded statement). How? These brands might not do well, but I don’t see how they’re going to drag down other players who are more innovative and give the people what they want.

  • ILOW

    I doubt anyone who wrote the report has even been inside a factory before, let alone knowledgeable about genuine supply chain considerations. Without this comprehension, such reports are just poking in the dark – only looking at the demand side (which is far less easy to predict). Making 100 watches might cost ***USD. Making 1000 may reduce the unit cost by 50%, 10,000 reduce by 80%+. Economies of scale is always preferable than a high cost, small run when the marketing staff are touting the piece as “the next big seller”.

    Regarding selling online… It will not be more popular if there are no deals to be had. It is preferable for the brands to sell at their specified prices. It is NOT advantageous for a consumer, other than convenience. I buy grey as I like to save 15~35%.

  • Dave Pryor

    The problem of pushing excess inventory on retailers is a classic one, taught in all business schools. It has known solutions.

    The idea that Swiss watchmakers will somehow become cartel like is not likely to happen. The largest single manufacturer is owned by a charity, two major groups are owned by public companies whose shareholders will dictate policies. And BTW, these public companies are the mostly guilty ones of pushing excess inventory. Fortunately, they will likely survive because watches are not their only business, and they can likely absorb the losses. The other makers are too German and too independent to want to team up in any serious way.

    To have almost a years worth of inventory overhanging the market is a very serious problem. A lot of pain is forthcoming if there is a business slowdown of any major significance.