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Watches of Switzerland weens itself off Rolex, Patek Philippe and AP dependency

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Ben Bridge's showroom in Mall of America in Minneapolis converted to a Watches of Switzerland store.

Watches of Switzerland used today’s H1 2022 financial results conference call to highlight how it is reducing its dependency on Rolex, Patek Philippe and Audemars Piguet.

Grouping these watchmakers into a category it calls “supply-constrained brands”, WOSG CEO Brian Duffy shared that their contribution to total sales has dropped from 60.5% in H1 2020 to 58.6% in the six months ending October 31 this year.

Over the same period, the contribution from “other luxury watch brands” increased from 24.8% of the total to 28.2%.

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Mr Duffy named Omega, Breitling and Cartier as star performers among these “other” brands in both the UK and the USA.

He added that, while average selling prices for the supply constrained brands have plateaued this year, prices per watch have been rising for the likes of Omega, Breitling and Cartier.

The sales mix comes from total top line revenue of £586.2 million for the six month period, keeping its full year forecast on track to hit between £1.15 billion and £1.2 billion.

That represents a 42.3% year on year increase and a rise of 31.8% over the same period in calendar year 2019.

Everything about the most recent financial results suggests the business is establishing broader and deeper foundations that make it less exposed to the supply constraints of Rolex, Patek Philippe and Audemars Piguet; less reliant on tourists in an era of dramatically reduced travel; and even slightly less dependent on in-store sales, with clienteling and ecommerce maintaining growth compared to last year despite all stores in the USA and UK being open throughout the reporting period.

Group ecommerce sales grew by 28.7% year on year in the last six months.

Group sales from tourists, including airport spending, dropped from 33.6% of overall revenue in H1 2020 to just 1.7% in the most recent six months.

The impact of travel restrictions has been most dramatic in the UK, with the share of sales to domestic customers rising from 40.5% two years’ ago to 69.7% today.

Weening itself off an over-dependence on the unicorn watch sales appears to be a sustained strategy.

Mr Duffy said its stores, particularly in the United States, are intentionally oversized so that more watchmakers can be given appropriately large areas, and customers are actively encouraged to look at multiple brands.

It is almost impossible for customers to simply walk into a store and walk out with a Rolex, so in the gifting season they are encouraged to look at alternative watchmakers.

Rolex in the USA has taken the decision to supply authorised dealers with “exhibition watches”, so that cabinets look like they have stock of the latest Subs, Explorers and Oyster Perpetuals, but they are for display and demonstration purposes only.

The practice has had a mixed response from retailers and customers who, on one hand appreciate the opportunity to try on one these unicorn watches, but at the same time are frustrated that they then struggle to even get onto multi-year waiting lists for them.

In the United States, Watches of Switzerland is steering customers towards alternative brands by launching an advertising film described as “the most extensive multi-branded timepiece campaign the industry has ever seen”. It features eight brand partners: Grand Seiko, TAG Heuer, Omega, Breitling, MB&F and Ulysse Nardin”.

Rolex, Patek Philippe and Audemars Piguet did not make the cut.

The financial half year saw the completed acquisitions of Betteridge, Timeless Luxury and a Ben Bridge store in the USA.

No update was given on plans for further acquisitions in the USA or Europe, which is a stated aim for the business.

Adjusted EBITDA2 increased by 58.8% to £82.8 million, encouraging investors to drive WOSG’s share price to a new record 1,468 pence in today’s trading.

That values the group at over £3.5 billion, a rise of more than £2.5 billion this year, alone.

 

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