As I’ve detailed before in Brands, Marketplaces, and the Battle to win the Consumer, the value chain for any industry — including the watch industry — is divided into three components: suppliers, distributors, and consumers. The best way to make out-sized profits in a consumer market is to either gain a horizontal monopoly in one of these three parts or to integrate two of the parts such that you have a competitive advantage in delivering a vertical solution. In the pre-internet era the latter strategy depended on controlling distribution. For example, in the watch industry, a company or brand would focus on manufacturing (i.e. supplying) watches and then build out an exclusive network of distribution, namely by signing on authorized dealers to sell the company’s watches on the ground.
The internet has turned this dynamic (integrating supply with distribution to enjoy outsized profits) on its head. The internet has made transaction costs zero, making it easier for distributors to integrate forward and connect with consumers at massive scale. This has fundamentally changed the plan of competition: no longer do distributors compete based on exclusive supplier relationships with consumers as an afterthought. The authorized dealer in your town is competing with internet-based authorized dealers, grey markets and marketplaces, and basically everyone else out there trying to sell a watch.
It’s similar to what happened in print media: city newspapers once had a monopoly in their geographic territory. But when the internet flattened the plane of competition, these newspapers were competing with every publisher out there: from the New York Times down to the smallest blogging operation. As we’ve seen in publishing, this shift has left a lot of losers (and a few winners) in its wake.
The Wall Street Journal profiled the growing trend of watch e-tailers, and a few of the companies trying to own the online watch space: Mr. Porter, the RealReal, Hodinkee, and a few others.
The Journal quoted Toby Bateman, the Managing Director of Mr. Porter (which is now owned by Richemont, which also owns many watch brands, including IWC, Piaget, JLC, Panerai, A Lange), who explained the trend as such:
Selling a watch is not the same as selling a T-shirt. “You have to respect the fact that these watches, they’re pieces of engineering, they’re craft,” said Mr. Bateman. “That level of detail needs to be displayed.” He added that Mr Porter invested in specialized photographic equipment to capture each crank and cranny. Every crystal-clear watch photo on the site is actually a composite of images, each focusing on a component of the face—the second hand, the date, the hour hand.
Watch nerds can certainly agree with that. The article also focuses on the efforts of large brands like Omega to sell online. By the way, while luxury brands like Omega and IWC are starting to sell directly online, brands that watch nerds love to scoff at — Daniel Wellington and MVMT, namely — have been doing this for years. We have direct-to-consumer brands like this to thank for giving consumers the confidence to buy ever more expensive items online.
No doubt it’s an exciting time to be in the watch retailing business — there’s innovation everywhere. From Watches of Switzerland’s experiential retail to Hodinkee or Mr. Porter’s content-drives-consumption models, it’s a great time to be a consumer. But it’s important to understand why. And the “why,” quite simply, is because the internet made it so. The internet has given consumers the power in a way they didn’t a generation ago.
These brands, that for years focused on building superior in-house movements (supply) and exclusive networks of dealers and sellers (distribution), must now find a way to connect directly with the consumer. This means creating a superior user experience that gives the consumer confidence that they’re getting a great watch at a great price, or perhaps a more subjective feeling. No one needs a watch, after all.
Either way, what we’re seeing happening in the watch industry is in direct response to win consumers. It’s a great time to be a consumer; everyone wants you.
Read the Wall Street Journal’s full article, Would You Buy a Luxury Watch Online?