Brands Move to Control Distribution

A trend toward company-owned stores gains momentum.

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WWD Basel Preview issue 03/24/2011

Last summer, David Sadigh, managing partner of the Geneva-based marketing consulting firm IC Agency, made a trip to Florida and remembers feeling sticker shock during one of his shopping trips.

This story first appeared in the March 24, 2011 issue of WWD.  Subscribe Today.

Sadigh, whose company publishes the annual World Watch Report, an analysis of consumer demand for the top watch brands in key markets, said he saw luxury watches on sale at 30 to 40 percent off.

“It’s a luxury brand’s worst nightmare, seeing that level of discounting, isn’t it?” he said. “During the credit crisis and the recession, so much inventory was discounted or ended up on eBay, sometimes at cost price, just so the watch distributors could get their cash back and move on.”

In May 2010, a few months before Sadigh took his Florida trip, Compagnie Financière Richemont SA, one of the biggest watch companies and the parent of brands including Cartier, IWC, Piaget and Officine Panerai, had just begun to bounce back from the credit crisis. To keep the new momentum going, it unveiled plans to invest in retail units and clean up its wholesale distribution, terminating accounts it no longer deemed appropriate.

Norbert Platt, then chief executive officer, said during a video conference: “I’ve created the slogan ‘Less partners for more partnership.’”

That slogan has not only become a rallying cry for Richemont, but for other luxury and midmarket watch brands, as well. The period of economic hardship following the credit crisis has forced brands to build more of their own stores, bulk up profit margins and rethink relationships with wholesale partners.

“One of the big trends we’ve seen over the past two years with brands like Cartier, Omega and IWC has been the opening of retail boutiques and the rationalizing of wholesale channels,” said Alastair Laidlaw, co-founder of Jura Watches, a multibrand retailer that generates 50 percent of its sales online and the balance at its flagship on London’s Burlington Gardens. “The brands are opting for fewer, better retailers.”

Sadigh of IC Agency agreed that, “Many of these brands see store openings as advertising investments, a place to tell their stories. They want to control the color of the walls, the scent you smell when you walk in. And it’s not only the watch brands that are doing it. You see a similar strategy with espresso companies.”

The only exception to the latest trend is Rolex, the luxury market leader. Famously press shy, the company declined to comment for this story. A spokeswoman, however, confirmed that Rolex does not own or operate any of its own stores and sells exclusively through authorized dealers. There are, though, stores branded Rolex — Tourneau is opening one on Fifth Avenue in New York this spring.

Richemont-owned Piaget and Panerai are two brands taking the retail route on their own while preserving select wholesale clients. Piaget currently has 71 stores, which generate well over 50 percent of the company’s revenue. The remaining sales come from wholesale clients, of which there are 500 worldwide, according to Philippe Leopold-Metzger, the brand’s ceo.

“Retail is definitely our route for the future,” Leopold-Metzger said. “We will continue with wholesale, but retail will lead the way. Brands need to be more and more in control and sell as close to the retail price as possible.”

The recession, he admitted, may have quickened the pace of the expansion, but it did not precipitate the retail strategy.

“Ultimately, from a luxury point of view, it’s all about control,” he said, adding that Piaget plans to add 10 to 15 stores annually.

For Piaget, a retail-heavy strategy makes sense on other levels, too. In 1992, the brand launched jewelry, which thrives on customer traffic and costs a fraction of a Piaget watch. Together, the product categories complement each other and generate the sales to justify a stand-alone space.

Panerai is pursuing a similar plan.

“It’s all about the image of the brand: When a boutique opens you cannot imagine the enormous impact it has on brand recognition,” said Angelo Bonati, the company’s ceo. “And with your own store, you can offer the total product assortment. Something you cannot do at wholesale.”

Panerai has 24 stand-alone stores and plans to open 25 in the medium-term, mainly in Asia, the U.S. and Europe. And while the focus is on retail, wholesale remains an important channel. “You cannot reach all your customers through retail,” Bonati said. “A boutique is like a club. It attracts people who know and love the brand, people who know they want to buy Panerai. Multibrand stores are for watch lovers, people who like to collect, and to see what is happening in the watch world. They may or may not decide to buy Panerai.”

For Piaget and Panerai, the own-retail strategy is a must in Asia.

“In Asia, you’re dead if you don’t open your own boutique,” said Bonati. “For the Chinese people, if you have a big space, you are important. If you have a small space, you’re not.”

It’s no wonder, then, that Richemont wants to have its own stores in China in tier-one cities and is rolling back franchises in those places. Richemont has also set up its own distribution infrastructure to service the Chinese market, as well as an after-sales service program and training schools to improve service among Chinese staff.

Hermès is taking a similar retail route in China and beyond.

Luc Perramond, ceo of La Montre Hermès, said the French luxury brand was pursuing in-store shop formats or stand-alone Hermès watch and jewelry stores in China. The first stand-alone store opened in Beijing in January 2009, with similar stores following in Taipei and Shanghai.

About 10 other units are planned for key cities, including London, New York, Dubai and Moscow. Perramond said he thinks of single-brand stores as “an opportunity to draw the client into the watch or jewelry universe, to work in-depth with complete collections, and to benefit from appropriate technical advice because the staff will be specialized. All of this takes place within an environment that is fully controlled by the brand.”

That said, wholesale does have its place with Hermès. “We can’t replace [multibrand retailers] who are local experts,” he said. “However, we can complement their distribution through single-brand, single-product stores.”

Even with the trend toward opening branded stores and pruning wholesale accounts, the future appears to be bright for the multibrand channels.

Laidlaw of Jura Watches said, “When a brand opens a boutique, it does not mean that another store closes. In a high-traffic area, the multibrand stores tend to increase their sales because of the branding impact of the new unit. New openings drive demand.”

Laidlaw believes there is enough business out there for everyone.

“It’s not commercially viable for smaller, niche brands to open their own stores, so they need multibrand retailers to bring footfall and an established customer base,” he said. “And there is no shortage of small watch brands available.”

Not all big brands are going full throttle with their retail rollouts. Some said they are reliant on their relationships with wholesale channels, especially in particular markets.

“I think we even have a stronger partnership with American retailers than we had before the crisis because we decided that we needed to reinforce our support for them when times were difficult,” said Philippe Pascal, president of the watch and jewelry division at LVMH Moët Hennessy Louis Vuitton.

Watch brands belonging to LVMH include Tag Heuer, Hublot, Zenith and Chaumet. This month, LVMH doubled the size of its watch and jewelry division with the $6 billion acquisition of Bulgari.

Pascal said in the U.S., LVMH will continue to nurture its partnerships with the top multibrand retailers, as well as opening a few stand-alone stores “where we think it makes sense both in terms of economics and image.” A Tag Heuer store is in the works in Las Vegas, and Hublot units have recently opened on Madison Avenue in New York and in Bal Harbor, Fla.

ToyWatch, the midmarket Italian brand known for its brightly colored plastic watches, is playing the retail and wholesale game with vigor.

“We’re in expansion mode and we’ll continue to support both distribution channels,” said Riccardo Ciprian, sales development manager.

The brand, which began selling through fashion stores such as Gio Moretti in Milan, expanded distribution to watch and jewelry retailers, and eventually began opening its own stand-alone units. Today, it has 30 stand-alone stores in major cities and resorts, and 1,600 wholesale distributors worldwide.

“We’re about affordable luxury and innovation, and we choose our outlets carefully,” Ciprian said. “It would be crazy for us not to be in stores like Selfridges or Harrods.”

Running counter to both trends is Georg Jensen, which currently sells the bulk of its watches through its name brand stores, but plans to ramp up wholesale distribution. About 85 percent of watch sales come from the Georg Jensen stores, with the remainder coming from wholesale outlets.

“Over the next three to five years, we’d like sales to be 70 percent wholesale and 30 percent retail,” said ceo Ulrik Garde Due, adding that distribution would be highly selective.


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