Despite all the talk of luxury Swiss watch brands increasing their direct to consumer transactions, the industry remains dominated by wholesale through a global network of retailers.
Of the 12 largest watch brands, half do not have their own transactional websites in the United States, including the world largest privately owned businesses, Rolex, Patek Philippe and Audemars Piguet.
Only five brands do their own ecommerce in Europe and only two are transactional in China.
A research report published by investment bank Morgan Stanley in March this year predicts that the move to direct to consumer (DTC) will be a game changer and highly beneficial to the main watch brands in the long term. However, the report notes, it will likely be significantly disruptive for brands owned by Swatch Group, Richmeont and LVMH because they currently rely on a very large network of third party retailers.
Morgan Stanley calculates that profit margins will be dramatically improved with DTC sales, particularly through directly owned ecommerce sites. However, it concedes that only 4% of sales values came through ecommerce in 2018.
Directly owned boutiques add another 6% to DTC sales for the Swiss luxury watch industry as a whole, which leaves 90% of transactions for the thousands of retail partners around the world.
In its advice to potential investors, Morgan Stanley says that the improved margins from DTC sales will come when brands rationalise their distribution network more agressively and/or make their online offer more attractive, for example by limiting new product launches to their own ecommerce sites or by offering discounts. These discounts, Morgan Stanley suggests, are likely to come in the form of free maintenance services for a certain period of time.
Retail partners that have spent generations building up customer relationships for these brands are angered when brands work around them to sell direct, which is one reason why steps in the direction of DTC have been so limited.
A halfway step being adopted in the United States is to open monobrand boutiques in partnership with longstanding and successful partners; a model that often gives the brands far greater oversight of customer spending habits through information gathered with warranty documentation.