For the first five years as chief executive of Aurum Holdings, now renamed as The Watches of Switzerland Group, Brian Duffy answered only to his American private equity owners Apollo Global Management. But since May last year, the business is operating in the public glare of a stock market listed corporation with turnover of over $1 billion, more than 140 stores in the USA and UK, and a staff of 2,500 people. How is life in the public eye? Rob Corder spoke to Mr Duffy just ahead of Christmas last year to find out.
WatchPro: You released your first set of financial results just before Christmas, covering the six months to the end of October. How would you describe the performance on both sides of the Atlantic in that trading period, and do you have anything to say about this period in the run up to Christmas?
Brian Duffy: There are some exaggerated numbers in terms of percentage changes to figures like after tax profits because of refinancing we have been doing. Now that we have refinanced, things will be more comparable and predictable.
Overall, the numbers represent really good progress on a top line and store profitability standpoint. The only thing I can say about the current quarter, which is now 11 and a bit weeks through [the half year results were reported on December 10] is to say that it is encouraging.
WatchPro: What does encouraging mean?
Brian Duffy: It means the opposite to when you are really down and pissed off. That is discouraging. This quarter is encouraging.
WatchPro: That is interesting because from what I am hearing in the market, predominately in the UK, things have been a bit choppy all year [an adjective describing rough seas as a metaphor for difficult and changeable conditions — Ed].
Brian Duffy: That has not been our experience. Our first quarter, which covered February to April was really strong. I certainly would not describe it as choppy, but maybe having Rolex gives us a different perspective. We have had great performances from other brands as well. Our view of the market is that it remains robust, strong and growing.
WatchPro: I know that you study indicators like incoming tourists to your key cities. How would you describe the impact of travelers in 2019?
Brian Duffy: Good again. Our market, as you know, is as much about supply-side factors as demand-side. We have seen a continual uptick overall of tourism in London. I read in the Swatch Group financial report, which just came out, that they were affected by disruption in Hong Kong. I cannot say that we have experienced any direct impact of that in the UK, certainly nothing we could measure.
Overall, I would say it was a good, not exceptional, summer for us. There definitely is a bit more American spending in the mix, which may be as a result of the weaker pound and stronger dollar creating a price differential. We are seeing that at our airport boutiques as well. But again it is not a huge driver of any reported KPI for us.
WatchPro: I am not sure how much the rules of engagement have changed now that you are CEO of a publicly-traded company, but you mentioned that supply-side factors are as important, if not more important, than the demand side. I assume by that you mean the difficulty getting hold of the most desirable watches from Rolex, AP and Patek Philippe. How would you describe the situation now?
Brian Duffy: It continues to be an important conversation for all retailers of Rolex, Patek and Audemars Piguet world-wide. What we need is to keep investing, expanding and elevating. As we do that, we find we are more likely to get support from these brands. That is the only tactic we have found to be reliable.
Overall, we have found the brands to be very fair in the way that they allocate their product. The view in Switzerland is that the UK is a very good market, well-disciplined, growing, and a market with consistently high quality presentation. As a result, and because of that confidence, I would say that the UK is favoured.
WatchPro: You say the Swiss are favoring UK retailers with allocations because of the investment, quality and discipline of that market, but substantial independents I speak to in the USA and UK, which also tick every one of those boxes, say they are losing customers to Watches of Switzerland because you can get more of the desirable watches than they can.
Brian Duffy: I would be surprised to hear that. I genuinely think that the allocation system is fair and balanced. As I said, the only reliable mechanism for increasing the support we get from the brands is to keep investing. I think it is entirely fair that we are rewarded for continuously putting in that investment.
WatchPro: When you are looking to spread your risk and work with other brands to limit your dependence on Patek, Rolex and AP, how do you assess and calculate which watchmakers to support? For instance, do you look at whether brands have a strong leaning towards selling direct to consumers from their own stores and online? Do you look at what prices their watches command on the secondary market and avoid brands where oversupply is leading to discounting and grey market trading?
Brian Duffy: Those factors will influence the overall vitality and performance of a brand in the market, but the hierarchy of relationships will be very obvious to you and everybody. After Rolex, Patek and Audemars, we have great relationships with Omega, Breitling, TAG Heuer and Cartier. These are brands looking for high quality growth in everything they do. The investment and expansion we are putting into our stores affords them those opportunities. In addition, we have had great success in the United States with Grand Seiko, and we are doing more with them. We have high levels of growth with Hublot, Tudor and Panerai.
There is a really nice mixture of success stories across the groups and across the brands. Part of what we stand for is to be a multibrand business. We treat every brand we work with professionalism and respect.
WatchPro: Audemars Piguet and Hublot, particularly in the United States, are pushing hard in the direction of selling entirely through monobrand boutiques. That might once have meant those brands owning and operating their own stores, but today they and others — especially Rolex — seem happy to open stores with the likes of Wempe, London Jewelers and Material Good as franchises or joint ventures. How do you see that playing out? Do you expect to be opening more monobrand stores on behalf of the brands?
Brian Duffy: Hublot has a branded space at our Soho [Manhattan] showroom. It is also in Las Vegas and in the store we just opened in Boston. Those are three multi-brands. What we believe is that these brands want really high quality presentation and we feel we offer that.
We are doing more monobrands, particularly with TAG Heuer, Breitling and Omega in the UK and USA, but overall we feel that there is support from the brands for the projects we are doing. The results speak for themselves.
WatchPro: Drilling into your H1 results, your online sales growth was 18% and your overall growth was 22%. And ecommerce growth would be off a much lower base than growth from your stores. It is interesting that so many retail markets are being transformed, and indeed decimated, by ecommerce, but with luxury watches it feels like we have been talking about the transformative impact of ecommerce more than we are actually seeing it in hard numbers.
Brian Duffy: For luxury watches, we have seen 44% compound annual growth rate online over the last couple of years, so it is exponentially growing for us. But it still represents only 5% of our group sales. Obviously, not being able to sell Rolex or Patek Philippe online means we only have half of the market to work with online.
We think having multiple channels is very important, so having the store network to support online sales is vital. People are doing all of their research online, so it is very important that people can see the full range of products that we sell.
We believe people take comfort, when they are buying online, that there are stores near to them where they can get advice, try watches on or do things like get their straps adjusted. It is critical that we do a great job with online and in our stores.
A lot of our digital advertising, our CRM, our social media is targeted at customers that are very much influenced by what they see online but ultimately prefer to buy luxury watches in stores.
WatchPro: The IPO allowed the group to substantially reduce its level of debt, has that given you the opportunity to look at any more acquisitions in the UK or USA?
Brian Duffy: I think it is possible, and over the next two to three years quite likely. But I would not forecast anything of significant scale. In the US, the two big players were Tourneau and Mayors, and they have both changed hands. I think it likely that there could be some very small groups or even single store opportunities that we have set ourselves up to consider.
Our back office systems and head office infrastructure puts us in a strong position to make further acquisitions, so yes I would expect to see some in the next two to three years.
WatchPro: In which countries might those acquisitions be?
Brian Duffy: We will be opportunistic about what comes along. We are geared up to do it and our whole strategy is based on high quality growth. If there is a high quality opportunity of even one store in the UK or USA, we will take a look at it because there are things we know we can bring to any business we acquire in terms of merchandising and marketing. Anywhere we see a business that fits strategically into our group, then we will of course look at it in the same way that we look at new projects and expansions.
WatchPro: Your business in the United States is currently concentrated in the Northeast, Florida and Las Vegas. Do you see yourself expanding to fill the gaps between those corner states?
Brian Duffy: I would not say that we have a geographical strategy beyond looking at the obvious luxury markets of New York, Florida, Las Vegas and California.
WatchPro: California sounds like it must be your number one target market because you do not have a flag in the map there yet.
Brian Duffy: Of course, there are various discussions going on and we hope something will happen there. But there are other good markets, great cities, great developing cities that are under-served because they are in rapid expansion phases.
The great thing about America is that we can get data and detailed information about different market such as income levels, GDP of each state. We have all the information and we are open to look at whatever opportunities come along. That might be new developments where landlords want us to open, it might be acquisitions or whatever.
WatchPro: Is your personal motivation as strong as ever? Does the job feel any different to you since the acquisition?
Brian Duffy: Honestly, not really, other than a sense of relief and accomplishment. As a public company with reduced debt and high levels of governance and accountability, we feel it has made us a better company to represent the luxury Swiss watch brands we work with. It has been very positive for us and our brand partnerships.
Personally, I am enjoying everything I am doing. I have a great team and they are as motivated as ever.
WatchPro: Do you constantly have The Watches of Switzerland Group share price scrolling across your mobile phone?
Brian Duffy: No, I have the latest signings for Glasgow Celtic [soccer team] on my phone!