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What now for watch distribution?

What now for watch distribution?

Monday, 11 July 2016
By Xavier Markl
Xavier Markl

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3 min read

Flagging demand, a strong Swiss franc, competition from smartwatches, changing consumption habits… multiple factors are prompting watch brands to rethink their strategy. Particularly distribution.

Integration of distribution began in the 1990s and is now part and parcel of the watch industry, with brands setting up subsidiaries in the main markets and selling their products through a raft of own-name stores. For major groups such as Richemont and Swatch, it has become the backbone of distribution strategy. The decision to bring distribution in-house is driven by consolidated margins, but also a brand’s desire to have full control over its development and sales activity. Today’s customers expect more, and watch brands have responded by delivering immersive experiences, accentuating merchandising, and through sales staff training, improved service and customer relations management. In many cases, to be successful these strategies must combine with prime locations such as Place Vendôme in Paris, Madison Avenue in New York or Geneva’s Rue du Rhône.

No avoiding ecommerce

Alternatives have emerged alongside these monobrand stores, in particular the multibrand concept that Swatch has developed with its Tourbillon and Hour Passion points of sale. Richemont recently initiated a similar concept, TimeVallee, in Nanjing, China. Needless to say, all of this puts pressure on independent retailers, who nonetheless continue to play an essential role in many markets. For the year ended March 31st 2016, Richemont made 55% of sales through its retail channel of directly operated stores and ecommerce. This is 13% up on the previous year. In contrast, sales through its wholesale channel fell.

McKinsey and Altagamma estimate that ecommerce will account for 12% of total luxury sales in 2020, and that this will rise to 18% by 2025.

As Richemont’s figures show, and despite bricks and mortar being better suited to selling fine watches, given their price and complexity, distribution now extends to online sales. McKinsey and Altagamma estimate that ecommerce will account for 12% of total luxury sales in 2020, and that this will rise to 18% by 2025. The question is no longer whether or not watch brands should sell a significant share of their production online, but rather how to go about it while keeping counterfeiters and the grey market at bay.

The impact on prices

Following on from retailers, who were first to put their inventory online, more and more brands have opened their own e-stores, starting in the American market before expanding to Japan, Europe and China, in response to demand from clients for whom online purchasing is now second nature. In the Richemont stable, after Montblanc, Cartier and Van Cleef & Arpels, Jaeger-LeCoultre and Panerai will be launching online sales in China later this year. Specialist websites, which focus on the under-CHF 1,000 bracket, are beginning to add more high-end products to the mix. Mr Porter, for example, sells watches by Zenith, Ressence and Bremont. A sign of the times, Richemont’s executive chairman Johann Rupert has invited LVMH and Kering to join the Yoox/Net-à-Porter online venture to better counter rival platform Amazon.

Digital and new technologies have profoundly modified consumer behaviour and modes of consumption. The challenge facing brands today is how to leverage the complementarity of the various distribution channels: own-name stores, multibrand retailers, shop-in-shops, duty free, ecommerce, even outlet stores. This puts greater onus on them to manage prices, margins, product offering, communication and the grey market. In a context of heightened competition, brands will have no choice than to review their pricing policy and, in the wake of this, make the adjustments the new market situation will in all probability impose.

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