One of the things that is really important to us at aBlogtoWatch is to discuss more than just what new watches are available and what we think you should consider when making purchasing decisions. No, we aren’t going to tell you how to dress or how to be cool, surely you are doing fine when it comes to those things already. Rather, we’d like to talk about the watch industry overall, as well as things you might like to consider as collectors, or simply as people who like to own nice things.

The luxury watch industry is a very complicated and interesting entity, and frankly, I’ve never experienced anything else like it. Despite the billions of dollars involved each year, the watch industry operates unlike most other major verticals out there – but that is entirely a different issue. More salient is the fact that, in many ways, the industry alternates between periods of feast and periods of famine. Essentially, they are “economic bubble chasers” and will seek to go after markets and demographics that appear to be surging with new money or income. If that makes the luxury watch industry sound a bit like a shark feeding frenzy, then you get the idea.

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This isn’t necessarily a matter of shortsightedness, but in many instances an economic reality, because when you are in the business of selling luxury items, you are also in the business of attaching yourself to new success and rapid growth. What we all know about rapid growth and surging profits is that very rarely are they sustainable for the long term. Watches aren’t things people strictly need, anymore than people need jewelry, expensive hand bags, yachts, and vacation homes. These items come when the people buying them feel comfortable to freely spend money, and loose wallets are often a result of consumers feeling confident that their coffers will be quickly replenished.

So that means economic booms are attractive to luxury watch companies and they look all over the world to find them. Since starting aBlogtoWatch, I’ve seen this happen in the United States, Russia, Brazil, the Middle East, and of course, China and other parts of Asia. As one economic zone collapses (think Dubai), luxury brands such as watch makers pack their bags and head to the next fertile pasture. China was a pretty massively impressive feeding ground, and it is still very important. Actually, let me rephrases that, Chinese people are what is important, China itself is less important.

Do you know why there was such rapid expansion and growth of the luxury industry in China over the last few years? Because luxury brands more or less started from nothing there. Take a place as large as China, with as many people, and grow a market. The result will of course look amazing. So China was to be the golden land of opportunity for luxury watch makers because of massive amounts of money, especially new money, and a culture that was uniquely receptive to the “good word of Swiss watches.” With an almost religious fervor, many Chinese clients appreciate the values and status associated with owning a fine timepiece. The problem is that with legal and political limitations of “high-end gifting” and stabilizing business growth, the Chinese markets are “maturing.” That translates into a situation where luxury watch brands aren’t seeing the double digit growth numbers they were hoping for.

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Chinese people still love watches though, and “shopping tourism” is still huge. From what I understand a huge percentage of the luxury watch sales in Europe and the United States are due to tourists – often Chinese – who come to the United States for good prices. In fact, from our own research it looks like the United States is currently the best place in the world to buy watches when it comes to prices.

So that takes me back to the original question of what is wrong with the watch industry in 2014? Is something wrong at all? Well, yes. Let’s just point out a few of the issues that exist. First of all, interesting new watch models are scarce, prices are still unreasonable, distribution is poor, marketing efforts are often ineffective, and consumers are increasingly confused. So let me go over each of these issues in brief. This article is not meant to be an academic treatise discussing all of the problems that exist and how to fix them, but rather a starting point for discussion and to offer an aBlogtoWatch opinion on what is going on in the industry that we are a part of.

The Design Desert

A visit to SIHH and Baselworld this year in 2014 revealed to us that there is a deficit of new watch models. That means brand new collections and models are not only scarce, but so is design innovation. The translation is that brands are cautious about releasing new products because, in our opinion, they aren’t able to predict what will be selling over the next few years. This is sad, because we’d like to think that brands produce the products they want to and hope that people find value in them. Unfortunately, much like car makers these days, watch brands are susceptible to considering demographics they want to appeal to and market holes they want to fill. So seeing a deficit of a lot of new products means there is considerable question about these areas.

It can also mean that watch brands are highly hesitant about spending. That is actually true. I’ve personally interviewed a lot of watch designers and design agencies, and they’ve said that for the last few years business from watch brands (to design new products) has been at an all time low. I don’t think that means that watch brands are engaging in design in-house entirely. Rather, I believe that watch brands are scared and hesitant to invest in new designs and new products. It is a sign that the market does not know what is around the corner.

Skirting Around New Watch Prices

Are watch prices are too high? Of course, as a consumer it is easy to feel that way, but as an economic question, it is a matter of determining if the market can bear current price levels. So are watch prices too high for the market to bear? Yes, it seems. One of the things that we have seen in 2014 is a subtle lowering of prices, of course, in addition to an expected increasing of prices. How are prices lowering? Brands often do this by releasing new models at more entry-level price points. Even the most admirable ultra luxury brands are focused on new “entry-level price points.” That doesn’t meant they are cheap, but it means that brands are realizing that pricing was getting a bit too ambitious.

It brings up an interesting question of why prices go up in the first place? The watch industry is actually very price sensitive because of materials, manufacturing, and currency fluctuations. The weak dollar has been tough for the watch industry that is mostly based on the Swiss Franc or the Euro. A still weak dollar has a lot to do with increased prices, especially because doing business in Switzerland is so expensive. As is the price of materials, such as gold. So over the last few years, the high price of gold has translated into higher prices, but the problem is what happens after gold goes down in price.

Unlike lobster sold at “market rate” watches have set prices. So when luxury companies increase prices they find it really hard to lower them. Part of it is emotional, and part of it is because, from a marketing perspective, it is almost impossible to do. So right now, because gold and material prices are down, it is easy to say that many watches are too expensive.

More important is the market’s overall ability to bear the prices of luxury timepieces. Prices over the last decade or two have doubled if not tripled or quadrupled for some iconic models that have been in production for periods long enough to measure their prices against inflation. One reason that prices are going up is that brands are trying to constantly upgrade their own personal image.

Marketing studies show that if you increase the prices of your product, you can often increase the consumer’s perception of your product. The problem is that watch brands have often taken this to a rather extreme level. Thus, watches that people recall as being in the $2,000 – $3,000 range are often in the $5,000 – $10,000 range now. The hope is that with lower volumes of sales and higher prices, brands can reach more affluent customers and sell fewer items, but it is a risky move and many fail.

Prices are so high that core watch collectors (used to high prices) are often getting frustrated. The current surge in auction sales that you may have noticed is not about about a bunch of new collectors wanting to buy million dollar watches, but more about the surge in the pre-owned market. The majority of watch auction sales are for relatively new pre-owned watches, with some historic and valuable vintage models being auction highlights for news purposes. The success of the pre-owned watch market is directly related to consumer unrest with new watch prices. So people are still really interested in watches, but they are doing whatever is possible to pay less. That is perhaps only natural, but watch companies will also tell you that sell-through in boutiques is unpredictable. There are a few showboating watches that people get very excited about each year, but prices for the less exceptional new models are receiving consumer backlash in the form of them looking to alternative sources to buy the watches they want.

Marketing Black Hole

The good news is that watch demand is still high, and potentially growing. Much of this is spurred by the continued large spending of marketing dollars by (mainly) the larger brands. I’ve always been personally skeptical of marketing as being directly related to sales, but it is a proven and necessary part of a brand’s strategy. The thing which is important to understand is that marketing does not create demand, marketing creates awareness, which can result in demand if a product has merit unto itself.

Marketing dollars do more than attract customers; they also attract people who want marketing dollars. Watch industry marketing personnel are totally inundated with requests for marketing dollars because many other advertisers have become increasingly unavailable. We are at an interesting point in the history of media’s relationship with its advertisers and it is unclear what the future holds. Content creators such as magazines and newspapers are suffering because money is drying up. One major reason for that is that the shift to online distribution of content removed a publisher’s ability to make money from subscriptions. At the outset of the internet, publishers mistakenly believed that by offering consumers free content they would be able to increase the amount of people looking at their content and thus advertising related income. That didn’t happen.

In fact, what happened was a total democratization of publishing that helped make impressions an almost infinite commodity. What does that mean? It means that prior to the internet there was a much more manageable grasp of what consumers were looking at and how to reach them with relatively understandable data. Today, there are 1001 websites that claim to reach the right demographic and they fight with each other to be the lowest bidder. To make a long (very long) story short the result over the last 20 years has been the total erosion of advertising value, and a publisher’s ability to charge for content. How does that go back to the watch industry?

Because watch brands are disproportionately large advertisers given their market size (a typical watch brand can put 40-60% of their income back into marketing), they are represented in many media outlets (you see watch advertisement everywhere). This has produced an entire industry dedicated to getting watch and other luxury brand dollars, and it isn’t always to the benefit of their actual marketing goals because these companies are more directed to getting ad dollars than using them to spread brand messaging.

Watch brands are further increasingly reliant on outside agencies to help them make advertising decisions, which can be good in theory, but often doesn’t work out that well. So the moral of the story is that despite watch brand advertising budgets being so high, it is often the case that money is mismanaged or allocated in ways that don’t produce the results brands need because of publisher oversaturation, and only a small number of watch brands truly understand how to market themselves properly.

Where Can I Buy This Watch?

Watch brands have also been asked to be more vertically integrated over the last several years. That means they are being asked to design, produce, distribute, and sell their products. That is actually entirely unfair. I firmly believe that there are companies that make things and companies that sell things, and it is rare that a company is good at doing both. Watch companies really need to focus on just making things, but market realities are forcing them to do so much more.

The internet has removed regionalism in a way that has made traditional country by country watch distribution difficult. It used to be that a watch brand sold its products to a distributor, which then sold them to retailers in their territory. That is still often the case, but you can understand how the internet has messed that up. Large brands don’t have issues finding distribution partners, but it is hell for small to medium brands. Thus, they have turned to direct distribution, selling to retailers personally, or have attempted to sell direct to consumers online.

What this has produced is a confusing ecosystem where, for many brands, the watch purchasing experience is unclear or unavailable for many consumers. So often potential customers are left hanging because they don’t know where to buy a watch, or simply can’t buy it. Ideally, the next decade should see a solution to these issues so that more people can buy more good watches on a regular basis.

Appeal To Your Base

A final topic I will discuss is the issue that watch companies often seem to be releasing products with very unclear consumer profiles in mind. When I, and a range of watch experts, see a new product by a major brand and don’t understand it, that is a problem. Brands should focus on the maxim that the best products are ones that someone makes to satisfy their own needs. A product manager should be dedicated to a product he or she wants, and brands should always look to their core customers for what people want. When brands try to be something they are not, problems occur. This has happened time and time again. In fact, one of the major reasons for the recent “retro watch revival” is that brands and consumers are mostly interested in proven design. They are looking for watches that have passed the test of time because modern watches can seem oddly positioned.

Some brands are fantastic at producing watches that their core consumer base wants. Others keep trying to reinvent themselves each few years and they fail most of the time. A brand is often like a person and should stick to what they are good at and known for. It isn’t a rule of nature, but is a guideline for finding the path of least resistance.

So those are some of the aBlogtoWatch opinions on what is wrong with the watch industry today, in 2014. Feel free to add, object, or elaborate in the comments.

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