What are the Economic Drivers of a High End Watch Company?
In short, the economic driver of cutting edge “haute horlogerie” is to offer a more holistic brand equity. You have more differentiators with the competition and you work at a scale that is easier to manage and that allows to focus more on brand experience and customer care.
What constitutes Haute Horlogerie (high end watchmaking) may vary from one person to another, and even though this might not be the consensus I would suggest that the only watches that fit the Haute Horlogerie segment are one-offs, or watches produced in less than 25 units.
With that being established, let’s see the example of completely opposite brands on the price spectrum that both operate with a turnover between $20 million and $30 million:
On one hand you have a brand like Hanowa, which specializes in Swiss Made watches in the fashion segment ($ 300 or below). They manufacture and sell more than 400,000 watches per year to generate more than $27 million in turnover.
In order to fit within their target retail price, Hanowa must dispence with complex designs or fine materials, and must stick to industrial processes. They must also do economies of scale, so they buy movements in bulk from the same factories as their competitors.
Their brand equity lies in their name only. Everything else can easily be replicated: the designs, the materials or the movements that they use, and perhaps the factory where their watches are being assembled is also open for business to competitors.
Statistically, 10% of what they sell will come back for a repair, either due to customer’s fault, or due to a warranty issue. That’s about 40,000 watches to fix on a yearly basis.
On the other hand you have a brand like Greubel-Forsey, which specializes in high-end watches that trade North of $ 100,000. They produce barely more than 100 watches per year to generate a little bit more than an estimated $21 million in turnover.
In the brand’s history, they have produced more than 28 different designs, and most of them have been available in less units than can be counted on all fingers.
Because of their business model, Greubel & Forsey can spare no cost in procuring the finest materials and the highest finishing grade. Each watch is practically built from scratch, by hand controlled tools or by hand controled machines, which allows them to create extremely complex shapes and to try a new thing every time.
Their brand equity lies in almost every detail. Nothing can easily be replicated: the distinctive case and movement architecture, the expert manual refinishing of materials, the proprietary movements, and the proprietary production that they control.
If 10% of their watches come back for servicing, that only represents about a dozen watches every year, which afford plenty of time to provide outstanding customer care.
In Rambourg’s pyramid, a brand such as Hanowa competes in the “Affordable Luxury” segment: there are a lot of customers, but there is also a lot of competition from similar brands. If all competitors have more or less the same price breakdown, materials and movements, there is not a lot of wiggle room for differentiation. This is why since the introduction of the first Gucci watches in 1972, fashion licenses have been increasingly used as the only tangible differentiator, and from 2007 onwards they have been seconded by lifestyle brands. In both cases, the equity lies in the brand name alone.
Greubel Forsey competes in the Bespoke segment. Quite interestingly, the segment is never short of customers, as millionaires and billionaires come and go.
