Crumbs Under The Table, Or The Synergy Between Incumbent Watch Brands And Micro-Brands
By 2018, Bloomberg was tacking stock of a new kind of direct-to consumer watch “industry” that has been thriving outside of the traditional distribution: What’s Behind the Huge Groundswell of Small, Independent Watch Brands? (paywall). Every two weeks a new Diver or tool watch is being launched on the market. Buyers line up for the thrill and the fun, but also because even if there is a small depreciation, the scarcity and affordability of these watches makes them perfect collecting material.
A grassroots movement has made collectible watches more affordable than ever and it has even rejuvenated creativity amongst incumbent brands.
The analogue watch is a product category that has greatly benefited from cost reductions in the last twenty years. Firstly, expensive manufacturing technology become more affordable every 15 year or so. Production methods that were reserved to high-end watches 45 to 60 years ago are now accessible to cheaper watches as well.
Secondly, globalisation and progress in transport and communication from around the turn of the century have lowered the entry barrier for watch brands.
As a consequence, in two decades we have shifted from a reality where only consumers with passion and a full wallet could enjoy collecting watches, to a reality where even consumers with passion but an empty wallet can indulge into watch collecting.
THE CRUMBS UNDER THY TABLE
The Christian Gospels use the image of “crumbs under the table” to describe situations in which the original recipient (above the table) neglects the content and lets some of it drop under the table, where unsuspected recipients show a great appreciation for it.
The Swiss industry is guilty of focusing on the top of the table and leaving room under it for small brands to blossom. Swiss brands have been raising prices in a slow but steady way over the last 50 years in order to increase their profit.
Between 2000 and 2015, these price increases translated into a drop in exports by roughly 7.7 million watches. The sub $200 price segment was the most impacted by this volume reduction, leaving 7.7 million consumers with a thirst to quench.
These crumbs under the table were eventually picked up by fashion labels and young brands: if you add up the yearly volumes of Ice Watch (4,2 milion), Daniel Wellington (1 million), and assume that a few broadly distributed brands with undisclosed volumes such as MVMT, William L. 1985 or Briston also add up to a few millions, the disappearance of those 7.7 million Swiss watches is easily made up for.
In Switzerland, a Private Label factory like Roventa Henex produced at its peak an estimated 350,000 watches for a revenue of CHF 16 million. That makes them twice the size of Hamilton, a brand of the Swatch Group AG, with half the revenue of Ebel, a brand of Movado MGI.
Besides these lifestyle/fashion contenders, there is an estimated 300,000 watches per year[1] , mostly made in China, from very small brands that offer a more tangible value proposition and a significantly lower depreciation for budget collectors: boutique and micro-brands.
At my consulting agency, we calculated that this grassroots market represents more than USD 75 million per year, which is as much as an international brand like Movado generates in yearly sales.
WATCHES FOR ALL BUDGETS
At the turn of the century, watch collecting mostly involved premium watches, in used or vintage condition. Essentially, only the consumers with enthusiasm for watches and a matching disposable income (true loyalty and spurious loyalty) could afford to collect watches.
Consumers with enthusiasm for watches but an empty wallet (latent loyalty) were left to look at glossy pages of watches they would never afford, with some of them unfortunately resorting to buying counterfeits.
Affordable options such as Seiko 5, Orient, Vostok or Poljot had a much more confidential following twenty years ago than they do today. Information mostly circulated nationally and the World Wide Web was in its infancy.
Hong Kong and Shenzhen watch factories were mostly working as backup supply chains for incumbent brands, but some of them slowly took stake of the new opportunities created by globalisation and went after the crumbs under the table.
In the early 2000s, a few watch collecting experts such as Eddie Platts or Ken Sato navigated the complex network of suppliers to meet the ones willing to put small collections together to meet this latent loyalty of watch enthusiasts who had passion but no money.
FIFTEEN MINUTES OF FAME
Andy Warhol predicted that everyone would have their 15 minutes of fame. I would say that this crumbs story made it possible for everyone to have their 15 minutes of watchmaking fame.
Messrs. Platts and Sato spearheaded a parallel industry of a group of non-professional buyers placing a custom order with a factory. By 2010, the entry barrier had been lowered even further and any aspiring entrepreneur who managed to garner enough support could hire a factory over the Internet, have them produce a few hundred watches and have the figurative 15 minutes of watchmaking fame.
The birth of micro capital raising platform such as Kickstarter, Indiegogo and Rocket Hub made this process even more streamlined, by providing a meeting point for buyers and aspiring entrepreneurs.
There are watches for every taste, including poor one. An incumbent brand must carefully weigh the risk before putting thousands, if not tens of thousands of watches into production. But the originator of a micro capital raising campaign can, and almost has the incentive to take more creative risks since design is the only way to differentiate the project, and since the whole operation is a double or quits.
FROM THE STREET TO THE STORE
As a consequence, these (micro-funded) micro-brands have helped to create new trends with materials and visual cues, that incumbent brands have acknowledged and gradually incorporated into their own product development.
When it comes to risk, incumbent brands are found guilty again of playing it safe, as the trend in 2020 and 2021 has been limited to borrowing design cues from previous decades.
Just like covers of popular songs, fauxtage watches (a contraction of false and vintage) bank on nostalgia and a complex reward system.
“Our brains like both the familiar and the novel. Cover songs provide us with both… The familiarity of the melodies and the lyrics allow our brains to form expectations, which, in part, are confirmed, thus giving us a certain amount of pleasure.” — Stratton, 2019[2]
This is reinforced by the fact that “real” vintage watches are available in limited quantity: as decades have gone by, some of them have been lost, damaged or destroyed.
This puts consumers back in a position where only the ones with a disposable income keep raising prices and outbidding the rest.
Making fauxtage watches broadly available or running micro capital raising projects meets the demand of latent loyalists, which in turn makes this new budget collecting community thrive. It also feeds a second hand market where some models produced in limited edition have a low depreciation, when they don’t sell above original retail price.
The hobby is alive and kicking.
