Hyde Park Jewelers founder, owner and CEO Michael Pollak started his first business in 1973 selling Native American jewelry from the campus lawn of University of Denver, where he was studying retail marketing. Almost half a century later and he oversees a network of luxury watch and jewelry stores serving Colorado, Arizona, Nevada and California. He continues to focus on the US market west of Denver, but, as Rob Corder discovered in conversation with Mr Pollak, he thinks a combination of outstanding stores backed by advanced digital marketing and ecommerce will propel him to further success.
WatchPro: It is always a privilege to meet a self-made entrepreneur who has created his own business and, decades later, can share his experiences of how it all began and the journey from conception to the success we see today. Tell me, how and where did it all start?
Michael Pollak: I got the retail bug from my father, who was also an entrepreneur hailing from Gary, Indiana, which is a great city to escape from. He was a self-made man in the automobile industry who started as a gas station attendant and worked up to become a new car dealer. He was my inspiration and, while I had the opportunity to work for him, what I admired most was the fact that he did it all himself and I wanted to try to do the same thing.
While I was at the University of Denver, studying for a retail marketing degree, I had an opportunity through a friend who was wholesaling South Western Native American jewelry. I bought $500 worth of items originating from Navaho, Hopi and other tribes and set up shop on the lawn of the university outside the main classroom building in the spring and summer.
WatchPro: It is quite a leap from hawking Navaho jewelry to trading in Patek Philippe timepieces.
Michael Pollak: When I graduated, I joined the wholesaler who was my supplier of the Native American jewelry, but after a year I told them that the fad in America was waning and they needed to think about repositioning their offering. I talked them into selling out their inventory and opening an alternative jewelry store in South East Denver. By alternative, what I mean is that at that time in the late 1970s, there was a real fashion for getting back to nature. So I took a contemporary, slightly more edgy approach to fine jewelry that picked up that trend.
Our first store was 1000 square feet, and the most expensive item in the store was $300. That store opened in November 1976, so over 40 years ago. When I opened the store I had a business partner, and he remained my business partner for the next 30 years until, about 13 years ago, I bought him out.
WatchPro: What sort of personality were you in those days. It was a time of counter-culture and you were just leaving university in the prime of life? Were you more hippy, radical, businessman or a bit of everything?
Michael Pollak: My wife and I just made a donation to the University of Denver for a digital development laboratory because I am very committed to the digital side of our business and would like to help develop skills in that area as much as possible. On the day that the university opened up that lab, they sent me a picture from my yearbook.
I look like a young, long-haired college kid. But that was back in the seventies.
WatchPro: While all your contemporaries were off smoking weed, were you a lot more driven and focused?
Michael Pollak: It was a time in America — post-sixties — of discovery and self-expression. People were open to taking chances in lots of different ways. Many of my contemporaries were undergraduates in subjects that I could not see being useful like psychology and sociology. I knew that I wanted to be in business, so the retail marketing degree was right for me.
WatchPro: How did your first store in Denver perform?
Michael Pollak: It started very quietly and modestly. In our first 12 months of business we did sales of $144,000. But we had a lot of fun. It was a unique environment. We sold a lot of silver jewelry and a little bit of gold alongside ceramics and glass art. In the front entrance we had a beautiful bird cage with two doves. We also sold Famous Amos cookies and the New York Sunday Times. We took the approach that we wanted to communicate a lifestyle rather than focusing on a price point of a traditional approach to fine jewelry.
WatchPro: Moving on from the start-up phase, how did the next 20 years develop, and when did you first bring watches into the business?
Michael Pollak: We grew organically in Denver. We went from 1000 square feet to 5000 square feet and then a large developer opened up a mall in Cherry Creek, which is an important and affluent part of the city. The Cherry Creek Shopping Center attracted the first Nieman Marcus and the first Saks to the marketplace. It was about 5 miles away from us but we decided to open up a small store of about 1250 square feet. After 5 years that small store was doing as much business as our original store.
The retail map was moving very quickly. It was either going south of us or north of us. In 1999 we consolidated our entire business in a single location in the Cherry Creek Shopping Center. At that time we went from two smaller stores to a single much larger store of around 12,000 square feet.
WatchPro: It sounds like you must also have learned a pretty valuable lesson about pushing up average transaction values?
Michael Pollak: Yes. From the outset my aims was to learn as much as I could and take inspiration and guidance from a lot of other business people. Right at the beginning, my vision was to get into luxury retail, which we eventually managed.
Only the third watch brand we managed to get was Cartier. This was in the days before it was owned by Richemont and was called Les Must de Cartier. The company made watches, but also accessories like lighters, pens and some leather goods and was being sold through a drug store company. We expressed an interest and Cartier closed with the drug store and opened with us. I remember selling Cartier vermeil watches for under $500 when we first started with them.
WatchPro: At that time in Denver, was there any organizational structure to the way the big luxury watchmakers developed their channels? Was there selective distribution so that brands were not over-distributed?
Michael Pollak: My sense of things was that, wherever possible, we wanted to be the sole distributor of a brand, and that was the case with many but not every brand. At the time there was a retailer we went up against that had a lot of brands we wanted. We fought for them and we won.
Over many years we built our business without Rolex and without Patek. In the 1980s we finally got the opportunity to work with them both, and that had a material change in terms of reputation in the marketplace and growth of the company.
WatchPro: By the time you got to Patek and Rolex, were you top dog in fine jewelry?
Michael Pollak: By the late eighties, we were either the number one or number two jeweler in the marketplace and we have maintained that leadership as we have grown over more recent years.
WatchPro: The early 1980s was a tough time economically and that would have been a vulnerable time for a business like yours. How did you operate through the leaner years?
Michael Pollak: In terms of economic cycles, in the eighties we had a very depressed energy market, high inflation and Denver was particularly hard hit because it was still heavily dependent on energy. That was a period when our business grew very modestly, if at all, for about 5 years. The next major downturn was the great recession [in 2008/9] where we saw tremendous capitulation across the retail landscape.
Our growth spurt came in the late eighties. We opened up in Aspen, Colorado, and ran that store for about 7 years. It was a great place for Hyde Park, but what we did not like was that the business was very seasonal. We had a winter season and a summer season but in between we could not really justify the type of inventory we had there. It needed to be a 12 months per year business.
So we sold the Aspen store to its manager and repositioned the asset in Phoenix, and we have operated in the Biltmore area there for the past 20 years or so and is growing year—on-year, which we are very pleased about.
Last year in Scottsdale, which is an adjacent sister community in the Greater Phoenix area, we opened up three monobrand stores for Hublot, Breitling and IWC. They are all next to one another but we operate them as three separate stores and we do not have a multibrand store there.
In Denver, we have also expanded our footprint significantly with adjacencies to our original store. We have five different stores with monobrands for Breitling and Rolex, a Hyde Park multibrand, and Engage, which is a brand I created last year. Engage is a retail brand infused with a lot of technology, both online and offline, which is specifically targeting the first time engagement ring buyer. The only jewelry you can buy from Engage is a wedding band or engagement ring.
WatchPro: I hope to circle back to speak more about your use of advanced technology and ecommerce, but can we complete the story of your business growth up to the present day?
Michael Pollak: Around 8 years ago we made a strategic acquisition of a family-run business very similar to ours on the West Coast in Newport Beach, a wealthy community in Orange County. When we bought the business it was called Traditional Jewelers, and we felt that it had strong brand recognition because it had been trading for 30 years. We wanted to take the business and slightly reposition it in the marketplace.
We kept it in the same Fashion Island mall, but moved its location to a better position within the mall, and we fitted it so that everything looked like a Hyde Park store except the name. The look and feel, the merchandising, the technology were all ours, but we waited until last year to make the name change to Hyde Park.
Now all of our multibrand stores in Denver, Newport Beach and Phoenix are called Hyde Park. In addition we have eight monobrand stores.
WatchPro: Rolex and Patek Philippe are obviously anchor brands for you, but do you also work with the LVMH, Swatch Group and Richemont brands?
Michael Pollak: Yes, but we have edited our portfolio over the years and paused on brands that do not fit with our direction. We have been successful at getting most of the brands we want in each of our locations. But the brand line up is not 100% consistent from one location to the next.
WatchPro: Can you share any facts and figures on the current performance and size of the business?
Michael Pollak: The most sensitive information for any jeweler is our top line and bottom line figures, but I can tell you that we have over 100 employees. It is an amazing team that has always embraced our strategic goals. We are very clear that our success is as much down to them as anything else.
In the last nine years since the great recession, we have increased the team from about 85 people to the 105 to 110 we have today.
WatchPro: How does your business break down between jewelry and watches, and how has that changed over the years?
Michael Pollak: In the multibrand stores, it is fairly balanced. But because we operate seven monobrand stores including three for Rolex, two Breitling, one IWC, one Hublot, and so on. That impacts the mix dramatically so that across the group, I would say it is 60/40 watches to jewelry.
WatchPro: I hear from both Swiss watch manufacturers and retailers in the United States that there is a disconnect when it comes to one group working with the other. I don’t know if that is a matter of geography, language, culture or just history. What do you think?
Michael Pollak: I think the attitude of manufacturers has changed dramatically in the last three years. America was very much misunderstood. They looked at us a little as renegades and also the United States was treated as a dumping ground for overproduction. Whether it has been through rogue dealers in Europe, Asia or South America, oversupply of watches in one market always ended up in America. Most recently the surge in ecommerce businesses has turbo-charged this flow of grey market watches.
The heads of the large luxury groups had a reality check a few years ago and they had to make a choice between having year-on-year growth in watch sales that they could report to their shareholders, or they could preserve their brand equity. Most of the leading players decided to preserve their brand equity. On one hand, they were spending tens of millions of dollars building global brands, while on the other hand they were diluting the value of those brands by having watches designed to appeal to affluent customers being sold at dramatic discounts online. In some instances watches have been selling at below the prices that authorized dealers pay directly to manufacturers.
We have seen a dramatic change in the past few years with the largest players deciding to right-size production and more thoughtfully evaluate what distribution should look like. There is a move towards brands working with fewer partners, but they have to be the right partners. That has led to margin growth in the watch industry over the past few years and reversed margin erosion that we have seen year-after-year for the past decade.
WatchPro: An important element of what you are describing is the switch in focus among manufacturers from simply selling into retailers to a focus today on knowing what is selling-through to consumers.
Michael Pollak: The best thing that has happened in the watch industry — and some brands understand this better than others — is creating scarcity. If you create scarcity you create pricing power, demand and an environment where the residual value of watches improves. We all know the explosion of the pre-owned market and the growth of some very strong businesses in that sector. That secondary market is healthier when there is scarcity that holds up residuals.
WatchPro: The transparency that the major pre-owned operators have brought to the market has really exposed which watches are over-supplied, which are under-supplied and which are about right because the prices on the secondary market, whether they are above or below full retail, tell the story.
Michael Pollak: That is right, and that information affects the decisions we make when it comes to selecting brands to work more with, and those we should part company with.
WatchPro: How much control do you have over which brands you can stock in each of your multibrand stores?
Michael Pollak: The most successful brands dictate the terms of engagement now. Smart retailers listen very carefully to what the brands want for their most strategic relationships. You cannot take those relationships for granted because those brands understand their status and want to work only with retailers that are perfectly aligned with them.
WatchPro: That should play into the hands of businesses like Hyde Park in places like Denver and Phoenix where you dominate, but is it harder in Southern California and Las Vegas where there are even more powerful retailers?
Michael Pollak: In Southern California, you will certainly find more competition in San Diego and Los Angeles, but in Orange County, even though we do not have exclusivity on several brands, the market there is so strong that it makes for a very healthy business. Southern California is one of the most competitive markets in the United States, but the size of these markets means it makes sense to have more than one authorized dealer for each of the major strategic brands.
WatchPro: Do you have to come up with different strategies for different brands? For example, we know that Audemars Piguet wants monobrands and Hublot is going a similar route in North America. Patek Philippe and Rolex appear more comfortable in multibrand environments and working with the best multiples and family-owned independents.
Michael Pollak: I believe in monobrand stores, and we will continue to expand. We are looking at growth opportunities in 2020 right now in that area. I am very wary about operating monobrand stores in partnership with brands because I think it is compromising to share all our data with a supplier that controls what products you can and cannot get and can take the decision on how they would like to sell to customers in the future. Are they going to sell through me, or are they going to sell directly through their own stores or online. I am a bit suspect about brands that want to have partners as well as their own retail.
The Rolex model is one that retailers can have faith in. Rolex has made it very clear that it does not want to be in the retail business. In fact, Mr Jean-Frédéric Dufour has remarked in the past that the one store Rolex has, which is in Geneva, causes them more grief than anything else.
WatchPro: Pretty much every watch manufacturer wants its influence to extend as close as possible to individual customers, whether that is through ecommerce or its own brick and mortar stores. You sound like you are resistant to that encroachment.
Michael Pollak: There needs to be a level playing field. If a brand is going directly to consumers through the internet, then set the standards that a retailer will need to maintain to ensure the consumer gets the same experience buying online from an authorized dealer or directly from a brand’s site. And give the retailer the opportunity to thoughtfully market to that end consumer as well. In Europe, that is a legal requirement. If a brand is going to sell online to consumers, the retailer must have the same opportunity.
Many brands are coming round to that point of view in America, and we are going to start a pilot program soon with one of the big groups that has resisted going in that direction and allows us to sell their products online. We will sell online in a manner that is consistent with what the brand would do if it was selling direct to the consumer.
Competition is great, just level it. If a retailer maintains the brand standards and communicates in a way that is consistent with the requirements of the brand, then they should be allowed to do so.
By virtue of the fact that some brands do not have a strategy to work in an omnichannel way with their retail partners, they have in effect validated the grey market. Consumers go online and see a scraped image of a watch from a brand’s site and that watch is displayed with the recommended MSRP retail price next to a discounted price. Many consumers have no idea that the grey market retailer is not authorized to sell that product.
So, by not coming up with a digital strategy for authorized dealers, the brands have inadvertently given a much louder voice to grey market players online. Some brands have recently come to realize this and have incorporated into their coop initiatives a piece that says dollars will be directed to search engine optimization, search engine marketing and PPC (pay per click). They hope to generate traffic and direct it either to authorized dealer sites or to their own sites.
Some consumers at this point say, if I cannot buy it online from you, I can see the same product offered by somebody — and they may not know or care if they are authorized dealers — at the same or a more favorable price.
The broken part of that chain is that you cannot necessarily convert that customer into a sale online. You can only convert them into sales by attracting them into your brick and mortar store.
There is an opportunity for brands to take back that online business from the grey market in a couple of ways: by coming up with an omnichannel strategy in conjunction with retail partners and, secondly, to continue creating scarcity in the market so that the watches people want to buy are not available on the grey market.
WatchPro: Some brands create scarcity by producing limited editions, and then making those limited editions available only in their own stores or ecommerce sites. Does that compound the problem you are describing?
Michael Pollak: It does create tension and it goes back to my point about leveling the playing field. If a brand is going to create a limited edition and they have their own points of sale, then certainly they may reserve a significant amount of that production for their own stores, but they also need to make some part of the production for their partners, particularly those that have invested in upholding all of the values of that brand.
WatchPro: It feels to me that the pendulum may swing back from the situation where many brands are increasing their direct to consumer sales because they are discovering how difficult and expensive it is compared to working through retail partners.
Michael Pollak: We have already seen some brands that have had very aggressive bricks and mortar retail roll-out strategies begin to re-evaluate. They are either closing stores of slowing down their rate of growth. They have realized that it is not quite as easy as they thought. The investment is significant and it takes a while to grow sales. It does not happen overnight.
Most brands, if they had to depend solely on their own distribution, they would quickly fail. A couple of companies that have gone that way have found that it may work in the very robust market we are in, but will not survive a more challenging time.
We are experiencing a market that is unique in the history of America. There will be a time when business slows down and that will be the test for brands that sell direct.
WatchPro: Do you think the next few years will see the current pace of change in the watch industry continue?
Michael Pollak: I think things will continue to evolve and change. I expect to see consolidation in the watch industry. If you look back a decade, the US jewelry and watch market had around 28,000 doors in 2008. They were independents, chains, department stores, everything. That has now dropped by more than 40% and I think we will see further consolidation.
WatchPro: What form might that consolidation take?
Michael Pollak: There are two types of operators, the independents like us, and I expect these to thrive and grow their networks. I also think you will see attempts over time by Bucherer and Watches of Switzerland to make additional strategic acquisitions.
WatchPro: Rolex and Patek Philippe are kingmakers for jewelers like yours looking to expand. Do you think they will continue to support independents as much as they will the global groups?
Michael Pollak: You are right that Rolex and Patek are kingmakers. They both very much trust Watches of Switzerland and Bucherer, but they will not want to put all of their eggs in one basket so they will continue to work with successful independents like us.
WatchPro: Is it troubling that we have seen virtually no new openings with Rolex or Patek in Manhattan for years, but Watches of Switzerland swings in and secures the brands — and many others — at two new stores. And, from what I hear, those two new stores have managed to secure decent quantities of the very hardest to find watches.
Michael Pollak: Bucherer is one of Rolex’s longest-standing and largest customers in Europe or America. Watches of Switzerland is probably their second largest. Decisions to allow them to expand their footprints in America will have been made in Europe, not the United States.
WatchPro: You spoke earlier about the importance of digital tools and data. I suspect most jewelers are right at the start of their journey when it comes to this type of thing, but they are going to have to learn fast or ecommerce experts like Net-A-Porter and even Amazon will look at the luxury watch business as a market they can conquer.
Michael Pollak: Most of the independents in our market, are underusing data. I am not going to say I know more than anybody else, but I have made the strategic decision to become expert in this area and to invest in it. All of my peers have great stores and their own websites, but I do not know if many of them have the strategy to ensure they are as effective as they can be. The difference all boils down to data.
We are moving onto a data platform so that we can tell every time somebody touches us, whether that is coming into a store, a website interaction, social media contact, a response to an e-mail; we can tie all of those touch points together and figure out a way to reach back out to each individual based on their pattern of how they interact with us.
We are then empowering our sales associates through smart devices with access to this data so that they have all the information they need about our inventory and about the customer.
We do not want ecommerce efforts to be seen at any point as competition by our in-store sales associates. That would be a losing strategy. We want to do everything possible to make it symbiotic. So, if sales associates develop customers in-store who then convert online, we want to be able to reward the sales associates for their efforts. We want them to embrace all of our digital efforts and feel strategically aligned with them.
WatchPro: Does data amplify advantages for the biggest players that can afford to invest the most in advanced systems such as artificial intelligence, SEO, and Big Data solutions? Or can your local knowledge always maintain an edge for you?
Michael Pollak: The battle is fought within 10-20 miles of where your customer is. I am not trying to win customers in London or Dubai, I want to win customers where I have the best chance of converting them into sales. I cannot win a global war against groups with budgets 100 times larger than ours, but I can win locally.