The United States appears to have turned a corner after three bruising years for retailers of luxury watches. Reginald Brack, Executive Director, Industry Analyst – Watches and Luxury at the firm, casts his expert eye over the latest data and describes the key trends that the market should profit from this year.
WatchPro: One of the stories I would like to explore about the US market is why the spending per capita, or by capita of high net worth individuals, is so much lower than in Europe.
RB: We do see some areas of opportunity in the U.S. market, particularly among women with household incomes of over $100,000. NPD’s consumer information shows that women spend 77% of their accessories dollars on purchases for themselves vs. men who only spend 64% on themselves. So an opportunity exists in watches, currently the lowest self-purchase accessories category for women.
We are seeing brands focusing on women with their marketing campaigns using strong feminist messaging such as Lady Gaga for Tudor and Cartier with its Free and Fearless campaign. Omega opened a Her Time boutique, exclusively for their women’s models. Even TAG Heuer, a very masculine brand, has declared 2018 “the Year of the Woman” with strong female brand ambassadors like Patricia K.
Another trend we are seeing is the continuing strength of blue dials, which is up 22%, predominately with men, but also with women.
While women’s watches overall experienced its worst holiday season last year since 2015. There are some l bright spots with new models fueled by what we call modern minimalism. The trend is toward women’s watches with plain dials, stainless steel cases and bracelets, and non-diamond bezels. Predominately the brands that are benefiting most from this are Cartier, Rolex and Patek Philippe. But, Piaget is also doing well among women with their plain bezel models.
WP: Is that driven by the growth of minimalist watches at lower price points from the likes of Daniel Wellington and Olivia Burton?
RB: Not exactly. NPD’s retail tracking service shows that the under $300 segment represents 34% of women’s sales in the U.S. but 74% of the decline. The $5000+ price point is a real sweet spot, so we are seeing brands double down on that price point. It is doing phenomenally well, and I see that continuing.
WP: Do you see these trends nationwide, or is it a very uneven picture.
RB: When you look at the U.S., it is really nationwide because so many people don’t just shop regionally. We are seeing less and less customer loyalty to a customer’s local retailer.
WP: What is working in the men’s market?
RB: Affordability is winning in the luxury watch world. In the $5000 to $10,000 category, Cartier has done really well with the addition of the steel American Tank. The new Santos is going to do very well we think, as is the Cartier Drive in steel. Panerai is focusing on a lower price point with its new Logo line with in-house movements priced around $5000. That is where we see the big growth opportunity for men and women.
Even Vacheron has almost edged its point of entry closer to $10,000 with the Fiftysix collection for2018 [it is around $11,000], which is a huge step for them, and a beautiful looking watch at a totally new entry level price point for their brand. That furthers the fact that brands need to attract new customers by creating more affordable entry points.
WP: Do you think the U.S. market is a particular target for Swiss watchmakers when they develop more recent collections at these lower price points?
RB: That may be true. If you look back historically to the 1960s and 70s, watchmakers like Rolex made watches in 14ct gold, rather than 18ct for some of their watches, and that was done for the more price-conscious U.S. market. So, perhaps there is some similar thinking at the moment.
WP: The Greater Chinese market, including Hong Kong, returned strong growth for Swiss watch sales in 2017, but I would not have thought Swiss watchmakers are thinking of Chinese customers when they create sub-$10,000 entry price points.
RB: China remains a very important focus for luxury watch manufacturers, in fact Audemars Piguet recently launched their first ecommerce program in China partnering with JD.com via WeChat.
WP: How important is the brand name to American consumers? Is it more important to buy the brand, rather than buy a style or a particular model?
RB: People are very aware of brands, so the attraction to a particular brand is paramount. After people have their first luxury watch purchase over with, and start shopping for second or third watch; then they might start thinking more broadly.
WP: How are people’s shopping behaviors changing, both at the value and the luxury end of the watch market? Are we seeing as strong a move to online shopping as we are in other markets around the world?
RB: It absolutely is. Ecommerce is a fact of life these days at both the luxury and the lower end; what we call the popular portion of the market. We are seeing the brands themselves, a lot of Richemont brands, for example, getting into ecommerce. The customer now has many more ways of purchasing that luxury or entry level watch. Social media is also fueling increased awareness of different purchase options, primarily Instagram when we are talking about watches. The biggest challenge for bricks and mortar retailers right now is getting that human being into the store.
WP: Omnichannel retailers understand that customers of luxury watches typically take several months and multiple touch points — both online and in store — before they make a final decision and complete a purchase. The process is likely to have involved one or more store visits.
RB: The trend we are seeing is that people generally start investigating online to get a feel for what they like and the pricing. Then they want to try the watch on in store before they pull the trigger. The trend now is for the transaction to take place online.
The real challenge for that retailer is to catch the consumer while they are in store and try to complete the sale. To do that, they need really knowledgeable salespeople, and I personally have seen a trend of salespeople becoming less knowledgeable about this very complicated product. It takes a lot of effort and passion for salespeople to acquire this knowledge, but it is vital.
Consumers, now more than ever, expect their authorized dealers to know more about their products than they do.
WP: Is it really the cases that shop teams are getting less knowledgeable, or is it just that customers are getting more knowledgeable?
RB: I think it is a bit of both. I also think that the very nature of watches is complicated. Even a time-only mechanical watch is a complicated machine with 200+ individual parts in it. I equate it to the auto business. When somebody walks into a luxury car dealership, they are likely to be very passionate about the cars and expect to learn from the salesperson there.
WP: How tough is it to retain staff at bricks and mortar stores these days?
RB: Many of them are seeing a higher staff turnover. There are certainly pockets of family-owned businesses that have kept the same teams for many years, but they are few and far between.
You mentioned Aurum Holdings coming to the U.S. [after buying Mayors and committing to opening Watches of Switzerland stores in key locations] and as you see the multiples grow in the U.S., I think it will be a big challenge for them to keep their staff super-knowledgeable.
Some brands, such as Patek Philippe, have roadshows where they hold full day classes to teach sales staff about the products. That is a big expense and a huge effort, but we love seeing that and it pays off at retail.
WP: What potential do you think Aurum Holdings, and recently Bucherer with the purchase off Tourneau, see in the United States?
RB: I think they see opportunity to grow. Tourneau has more doors than any other luxury watch retailer, with around 28. But that is not that many when you consider the size of the U.S. market. There is certainly opportunity for branded stores. Many authorized dealers (ADs) are located in small pockets all over the country. Creating a consistent retail experience for luxury is a big opportunity.
WP: When I spoke to Brian Duffy, the chief executive off Aurum Holdings, about plans for the U.S. market, he did not want to look beyond four areas: New York, Florida, California and Las Vegas.
RB: I think that is a smart way to start. When you look at any of those regions you get not only a dense population of locals, but you can also capitalize on tourism. So many people make their luxury watch purchases while they are on vacation. It is a special occasion buying a luxury watch.
WP: How do you think the major Swiss watch manufacturers view the U.S. market, given that the spending per capita on their products is so low compared to other developed countries. Do you think they see it as their job to stimulate demand, or are they more passive?
RB: I think that the Swiss look at this market as almost a necessary evil. They know they have to be in the US, but there are other markets that they enjoy more and understand better. The U.S. is a bit of a tricky market. The U.S. luxury consumer is a bit of a challenge for some of these brands.
WP: In what way?
RB: I think the buying patterns are a little more erratic. Americans are a little bit more fickle than other consumers around the globe.
WP: I have heard it said that the U.S. is a bit of a one brand market: Rolex and the rest; or perhaps Rolex, Patek and the rest.
RB: That is fairly accurate – Rolex has about 50% of the U.S. luxury watch market. And when you get to the secondary market, which is a whole other discussion, Rolex gets even bigger. Even within Rolex, it is the steel sport watches, and then everything else.
Brands are all scrambling to understand Rolex, and to figure out a way to take some of Rolex’s share.
WP: And with Patek Phillipe is it Calatrava and then everything else?
RB: Actually these days with Patek it’s the Nautilus and then everything else. Patek did a great job with their Grand Exhibition in New York last year. That was a phenomenal exhibition and a great success for them. The models that they released for that market, the special U.S. editions, of course sold out and are doing crazily well on the secondary market. Patek is upping its game with awareness and PR. That two week exhibition did wonders for the brand and their 2017 sales.
WP: Has there been a halo effect with retailers enjoying better brand awareness and sales to this day?
RB: I think it has. It is a tough line to straddle when you are a luxury brand, particularly at the high end like Patek, You want to maintain that level of exclusivity and also attract 25-34 year olds that are getting into luxury watches. To attract that group you have to break down some of those exclusivity barriers and the exhibition was very effective in that regard.
WP: The Swiss watch industry is ultra-traditional and trading off its history and heritage, but brands and retailers need to work together to broaden their appeal to new customers. I have heard too many stories about Rolex dealers who do great business selling to their golf club buddies, but not much else. Do you think enough is being done by retailers to generate demand in new areas rather than just sit back and satisfy existing demand?
RB: I would agree with that statement. I believe that the local retailer has a big responsibility to foster a community, so whether that is through collector dinners, whether that is through working with other luxury partners on co-branded events; watch people love that camaraderie, they need second opinions from their peers. I field so many questions daily from friends wanting an opinion on what to buy next – it is almost like being a psychiatrist, matching their personality to a watch brand.
That feeling of community is so important, and the best retailers are the ones who are almost therapists to their customers. The mentality of watch customers is that they are not infrequent purchasers once they have pulled the trigger on buying their first luxury watch. They go back, they sometimes trade in their first watch. Because of the nature of a watch, which you wear all the time, it becomes part of a person’s identity more so than their clothes. So the retailer has a huge opportunity and responsibility to keep the customer over the lifecycle of many different watch purchases.
WP: There are jewelers across the United States that have been through very difficult times, and others that seem to be thriving. How much do you think the differences between the two camps are down to environmental and economic factors beyond their control, and how much are they able to contribute to their own success or failure?
RB: I think you can chalk some of it up to their own efforts, but there are economic factors. They may be in a city where the local economy is not doing as well.
WP: What are the greatest challenges that you think watch retailers will need to grapple with this year?
RB: We have to go back to ecommerce. It is all powerful, it is available anywhere 24/7. The younger consumer is used to everything being available to buy online. The market is 20 years old now for luxury watch ecommerce, and the challenge is getting greater and greater to bring customers into stores.
WP: Rolex and Patek Philippe do not sell online, so is the majority of business via ecommerce driven by the secondary market?
RB: For those two brands, ecommerce takes place solely on the secondary market. That might be for models that people cannot find in their local authorized dealers, like many of the Rolex sport models that are so hard to find right now. People will go online to find them..
Those two brands, while they are not doing ecommerce, are doing a good job of protecting their ADs. They are very regionally protective, giving a lot of protection and responsibility to their ADs.
WP: Everybody talks about ecommerce being a threat and an opportunity; and in general it is a threat to smaller stores and an opportunity for the biggest players to dominate online with companies like Bucherer able to dominate the first page of a Google search from a nationwide perspective. On the flip side, the thing about digital marketing is that it can be so targeted, with social media allowing retailers to reach an audience by zip code, income, gender, interests. Do you not think retailers can help themselves stand out in their local areas with smart digital advertising?
RB: You absolutely can, and the ones that have the budget, for example for Google Shopping advertising, can make a great impact. ADs need to get smarter with the Google tools that are available and other search products because that will help them gain new customers and keep the ones that they have. And of course social media is where the customers are living, and retailers, not just brands, need to be there too, and we see certain retailers doing an excellent job connecting with their consumers via social.
WP: How much investment do you see retailers making in improving their showrooms; making them amazing and special places that luxury customers want to spend time in? I suspect that Bucherer and Aurum Holdings, which have been leaders in this sort off investment in the UK and Europe, will be driving a new wave in the United States.
RB: If you look at some of the key U.S retailers like Wempe, they have just completed a major store upgrade and refurbishment. Their Rolex and Patek Philippe boutiques have been built out. Certain brands are demanding that their ADs build out their own boutiques within their stores. That is a challenge for the local retailer, but it is ultimately great for the brands’ identities.
WP: Is that something that your typical family-owned Rolex AD is happy with? Do they want to make that investment?
RB: It is hard sometimes to find the funds to do that, but they are investing in their own futures. They believe in the brand and they believe they have the ability to sell those watches. In order to that, they need to get behind the brands and I know many examples of these family-owned ADs that are doing these build outs and they are excited about it. They are not moaning about being forced into the investment, they are excited about the impact of building out a Rolex or Patek Philippe boutique, or any other brand.
WP: It certainly does make an enormous difference in terms of sales once you have these monobrand build outs as part of a property.
RB: Look at how many Rolex boutiques there are in the UK that are purely branded as Rolex and you do not know which retail partner is behind them. We don’t have many of those here, but right here in New York Tourneau and Wempe now each have Rolex boutiques on the same city block. All the customer sees is the Rolex brand.