I will be listening out during the next quarterly conference call with financial analysts for any details about Watches of Switzerland Group’s acquisition of Hodinkee, but my hunch is it will not come up because the value of the deal to one of the world’s largest luxury watch retailers (turnover of around £1.5 billion) will be little more than a rounding error to its accountants.
WoSG’s share price over the past week supports this theory.
At 10am on Friday, two hours after the deal was announced, the group’s share price was 469p. At 10am today, it is 470p.
Not a blip.
In fact, WoSG shares were down 2.14% in early trading after quite a strong month (luxury stocks appeared to benefit from news of a $268 billion stimulus package expected to be announced by China).
There was very little detail about business matters in the announcements from both WoSG and Hodinkee, but there were a couple of nuggets.
In a New York Times article, it was reported that Hodinkee employs around 35 people today, down from a peak of around 160.
Watches of Switzerland group employs 2,900, according to its corporate site.
Bloomberg did not manage to tease a number out of the group’s CEO, Brian Duffy, for what the deal was worth, but did learn that the retailer won’t assume any debt as part of the deal.
Because Hodinkee has been in such a state of flux over the past year, it is very difficult to estimate its turnover, but we do know it was loss-making before shutting down its retail operation, and is highly unlikely to have been profitable since because of the cost of that turmoil and the lack of traditional advertising to replace it.
If Watches of Switzerland did not take on any debt, then either there was no debt — which is perfectly possible since it raised $40 million in 2020 — or there was some clever accounting involved to keep it off the group’s balance sheet.
My guess would be there was no debt.
Hodinkee spent over $40 million acquiring Crown & Caliber, which is blamed for crushing the business, but it stopped buying second hand watches this year and focused on selling off its inventory before closing down the retail operation.
It also sold the Crown & Caliber brand recently, we are told.
So, despite making operational losses, it is perfectly possible the balance sheet was effectively at net zero at the time of the acquisition by Watches of Switzerland, and that is without any creative accounting that may have been employed.
I take all the positive messages about the future of the media business at face value, and hope that with the return of Ben Clymer to the bridge, the good ship Hodinkee will be on an even keel again.
Despite Hodinkee reportedly welcoming 22 million readers per year to its site, I do not think it will add much to the performance of Watches of Switzerland, which has one of the most sophisticated customer acquisition and relationship management systems on the planet.
In a perfect world, Hodinkee will be left to run at arm’s length from Watches of Switzerland because I see no upside to the retailer if it tries to leverage its investment (in time, if not money in the acquisition) by trying to make it an integral part of its retail business.
There is only the potential for downside at Hodinkee if it is pushed into becoming a cheerleader for its owner, which will only damage its reputation for editorial independence.