In September of 2008 large and supposedly robust lending institutions such as Wachovia Bank, Lehman Brothers, Merrill Lynch, Fannie Mae and Freddie Mac ran out of operating capital. Built upon the slippery foundation of subprime mortgages, the financial system imploded into red-ink rubble when interest rates rose and home values plummeted. A high-strung bunch in the best of circumstances, Wall Street investors went into a frenzy, selling off positions that culminated in a 7%, 777 point drop in the Dow Jones Industrial average on September 29, after the House of Representatives failed to approve the government sponsored bailout. (The bill passed 5 days later on October 4.)
Since the financial crisis began, economic pundits have gathered in Washington D.C. to study and assess economic data, giving out grave warnings about the future like a crone relaying a catastrophic Tarot card reading. However, more than hard data (and I won’t deny there’s plenty of that), collective emotion sways markets, bringing the stampeding herd along with it in an ironic gathering momentum of spending paralysis.
“A lot of consumers who have not been terribly affected are just not in a good mood to make a watch purchase,” says Leon Adams, President of Cellini Jewelers. “There is a feeling of guilt as they see their counterparts losing jobs and suffering.” As a result, the watch industry’s long economic honeymoon of unprecedented growth that began in the 1990’s came to an abrupt halt. “In general sales are down 30% in the lower end and 20% in the higher end,” reports Adams. Up until the big bust, companies new and established rushed to cash in. “Basically a lot of brands tried to come out in the past 3 years with crazy prices, with unfinished watches to show,” candidly states John Simonian, founder of Westime and distributor of such brands as Richard Mille and Urwerk. During those heady days of double-digit profits, the industry took on an unappealing swagger. Over-inflated prices and poor customer service alienated even the most loyal devotees.
Now that the balance of power has tilted back towards the consumer, dilettantes will fall by the wayside and veterans will have to put their best foot forward. In Simonian’s opinion, the watch brands that will survive have a story to tell and a legitimacy in the watch industry, those that show concepts and value for the money. Simonian concurs with Adams of Cellini that his customers have the money to spend but are refraining from doing so because it’s not politically correct. People come into his store Westime and admire the products without buying, but Simonian believes they eventually will make a purchase. For his current business strategy, Simonian invokes Napoleon’s philosophy, which is to be different in order to be inscrutable, and thus achieve victory through surprise. Therefore, “When retailers or brands reduce advertising,” says Simonian, “I am trying to maintain it or find new axes of promotion.”
Value each and every customer
Westime started a long time ago taking a new approach to sales by offering advice and education. Since the same sales staff has been in place over 12 years, customers feel confident coming in and seeing the same faces. Each client has his own personal sales associate, creating a relationship of continuity and trust. Andrew Block, Executive Vice President of Tourneau, realizes the consumer has choices and that’s why he believes customer service will become an even more critical element to the retailer’s survival. “Make sure that you value each and every customer that walks through your door,” he advises. While Tourneau is still selling through the same brands, and, in fact, the average price point within those brands has actually gone up, there are fewer customers.
Many of those customers are taking a close look at the merchandise and balking. “We do run across price as an objection more than we had in the past,” says Block, “but we do have many options available to the customer to overcome price objections.” Good news for the serious buyer. With the world market currently saturated with timepieces and retailers hungry for cash, customers with capital are in a position to negotiate and get the best deal possible. It’s still a delicate balancing act because companies don’t want to lose brand equity and undermine a longstanding heritage.
Now more than ever brands and retailers need to form a true partnership. The brands that are willing to work with retailers during these turbulent times by extending terms and exchanging goods will find retailer support when the economy shifts for the better—and eventually it will. Of course, any reorganization is difficult and painful. But once the watch industry goes through some much-needed therapy, it will create better products and comprehensive value—making for a much healthier relationship with its clients.