By Jeff Prine, Senior Editor, Modern Jeweler Magazine, a Cygnus Publication.
There’s a new competitor out there fighting for your watch business. This retailer is open 24 hours a day every day of the year, offering all the brands your store carries-and more. The retailer’s location is convenient for many of your existing customers, as well as some 20 million other Americans. And to make this new competition even more formidable, many of this retailer’s prices are marked at 40 to 45 percent below your suggested retail prices.
If you haven’t already guessed, the retailer in question is only a click away-a watch web site on the Internet. The Internet may be the future of commerce, but for many jewelers, web site retailing today is more about new competition than new customers.
The industry has not yet adjusted to the fact that a business operating on the other side of the world can suddenly become a direct competitor-a daunting proposition considering the competition most jewelers already face within their own communities.
Furthermore, unlike other nontraditional retailers such as direct mail and home shopping networks, who is selling what watches on the web remains a mystery to most manufacturers and retailers. Indeed, it’s difficult to gauge exactly what impact watch web sites are now having on traditional retailers, much less what they will mean in the year 2005, when, if you believe forecasters, nearly half of all retail sales will be conducted via the web.
Watches have a strong commercial potential on-line due to the power of their brand identities. Even stores who do not do a major portion of their business in watches are studying this market for dues to the future of selling branded merchandise in a wired world. In fact, the marketing of watch brands on the web may serve as a test case not only for watch retailing but for other jewelry categories as well.
Many watch manufacturers are well aware of the watch wars on the web. More than 80 percent of the watch brands that sell in America now have their own web sites. Since the brand is paramount for selling watches in the American market, many manufacturers already restrict the use of their brand name, trademark, and catalogs on the Internet. In many cases, even authorized dealers of major watch brands may be prohibited from listing certain brands on their own web sites. Status brands are the most likely to appear on the gray market web sites, but even smaller brands have found their names there. “That’s why we ask all our retailers to agree not to show any of our watches or list prices on the Internet,” says Robert Sirgusa at Maurice Lacroix USA. “We cannot be sure how they will present our brand. We have to protect our image and reputation.”
Nevertheless, in the unregulated world of the web, there are always loopholes to sneak by these restrictions. There are hundreds of web sites, often of unauthorized dealers touting merchandise gleaned from the gray market. These sites boldly name names, brands, prices, and even display huge catalogs of photos of watches. While lawmakers and lobbyists argue over jurisdiction issues that existing laws never anticipated, watch manufacturers and retailers are wondering, what does it all mean to the future of the watch business?
The answer depends upon whom you ask. Richard Paige, owner of the site www.timezone.com, which he dubs “the Disney of watch web sites,” fears that soon U.S. retailers trying to develop a legitimate business on the web “won’t be able to compete with overseas sites that offer discounts that compare to what authorized retailers pay wholesale” Another longtime watch retailer, Ron Oppenheimer of Orologio in New Jersey, says that the change in the market is inevitable: “The impact of the Internet is often compared today with television in the late ’40s end ’50s. I don’t think there’s any doubt that commerce on the Internet is growing.”
Others consider watch web sites as just another in a long line of off-price competitors. “Ten years ago people were predicting the worst because of low price competition from 47th Street,” says Anthony D’Ambrosio, executive vice president at Tourneau. “The response to competition from the Internet is the same: If it’s an unauthorized dealer, the consumer has to be made aware of the consequences of doing business with them.”
Still others question whether even diehard bargain hunters will spend time searching the Internet for watch deals. “By the time you log on, search, wait for photos, you could have gone to the mall, searched for a parking space, made a purchase, and returned home,” adds Nancy Fox, vice president at Jaeger-LeCoultre.
THE PRICE PINCH
While there’s little consensus about the effects of Internet retailing in the long term, many retailers say they have already seen business affected due to web competition. Gray market watch web sites are having the most impact on higher priced watch lines selling for over $1,000 retail. This market is already the smallest, most crowded portion of the U.S. watch pie.
Stories from retailers about customers who are using the leverage of price lists culled from the Internet are no longer unusual. “A customer wanted a special order watch, retail $1,395 from a famous brand. A few days after ordering the watch, he returned with a printout from a site that listed the very same watch for $900 retail. I explained that the watch offered on-line was from an unauthorized dealer, wasn’t covered by a warranty, etc. I also offered him $200 off. Satisfied with that, the customer bought from me. But the web site put a question in the customer’s mind about price and that he could find a watch for much less on the Internet,” one retailer recounts.
The anecdote points out the biggest problem for watch retailers created by web competition. “More and more customers are coming in quoting prices they found on the Internet,” says Oppenheimer.
Retailers say the most drastic effect on their business isn’t losing sales to web sites, it’s being forced to take bigger discounts to keep from losing sales. “These sites are fueling more discounting in a market where retailers’ margins already are getting the squeeze because there is so much competition for watch brands,” says Paige, who also owns Paris 1925, a watch retail store in California.
The new price competition increases the pressure on already slim profit margins: In order to sell the most desired watch brands, retailers often must buy dealerships. Then, because of competition from local retailers, national chains, and catalogs, retailers must discount to satisfy and maintain their customer base. If they are forced into discounting further to match Internet prices, where’s the return on their investment in stocking the brand?
Retailers aren’t the only ones caught in a squeeze. Watch distributors, too, are feeling the pinch. Distributors typically add a markup of 30 percent to the watches they buy from the Swiss factories to pay the cost of marketing, distribution, and service. Some web site operators apparently also buy direct from the factory but because their overhead is low, they don’t need as great a markup. With discounting and the benefit of a favorable exchange rate, these web operators may sometimes offer on-line prices close to the wholesale price of the U.S. distributor.
In fact, much of the merchandise on discount watch web sites comes from the gray market. Sometimes manufacturers have distributorships in foreign markets where it’s difficult to scrutinize where and how the watches are sold, making it easy for the distributor to divert merchandise to other locations, such as a web site based in Europe or the U.S.
But not all the merchandise offered on the web is really available. Some sites also use “bait and switch” tactics. While their sites may list a who’s who of Swiss brands, many times browsers cannot find any “in stock” models. If a web site shopper asks for a specific style that isn’t available, the operator often will suggest another brand or offer to find another model for you.
“I browsed one of these sites and asked for the best selling Bell & Ross military model in a white dial,” says Pierre Halimi, U.S. distributor for Bell & Ross. “I was told they would get it for me in eight weeks. That I’d like to see. Bell & Ross never made such a style!”
COLLECTOR’S CORNER
One of the reasons that the watch market on the Internet is important for high-end watches is because the web customer is increasingly educated, sophisticated, and discerning.
Internet sites have become popular meeting places for watch lovers and collectors, many of whom have more technical proclivities than the average consumer. In fact, early Internet users immediately started using the web to locate desirable limited editions or second-hand watches from other collectors. Collectors are the heaviest users of watch web sites
According to Ray Grenon, a watch collector and sales manager at Alpha Omega in Massachusetts, during the early days on the web “users were like a family. You got to know who the watch collectors all over the world were on a first name basis.” The growing traffic on the information highway, however, soon altered the scene. “Now you have to be more cautious. Collectors now post queries about sites or those offering watches for sale. They want references from anyone who may have done business with them.”
Indeed, several U.S.-based watch web sites have become definitive watch meeting locations. These sites, including TimeZone.com , have become “virtual villages” of watch enthusiasts.
Paige was one of the watch lovers who became a regular on TimeZone.com when it was part of a larger company based in Singapore. As one of the resident “experts on-line,” Paige was approached about buying the site when its owner decided it required too much time and work. Now TimeZone.com has become one of the most popular watch web sites, attracting more than 4 million hits monthly.
Timezone.com has background and information on nearly all brands of timepieces, chat rooms, watch expert essays, updates on new technology and complications, interviews with watchmakers, and even critiques of particular watches. Although TimeZone.com doesn’t sell watches, interested consumers can link into Paige’s watch retail site, Paris 1925, where they can purchase watch styles directly from his store, an authorized dealer.
At first, Paige explains, watch manufacturers were wary about being represented on the site. “About a third of the market considers any on-line site a pariah. Another third feel it is a positive phenomenon. And the last third are fence sitting, unsure of what to do,” says Paige. Those that are interested have found sites like TimeZone.com to be another marketing tool to reach avid watch consumers. Paige estimates that 30 to 40 percent of his users link into individual manufacturer sites for further information.
Of the 5,000 to 10,000 “regulars” that visit his site, Paige says that 99 percent of them are men of higher intelligence and income and are some of the most educated consumers about watches. Paige updates his site about five times a month, sometimes showcasing articles and reviews supplied by his users.
The exposure watches receive on his site is one of the chief ways Paige believes the Internet can benefit the watch industry. “Sites like this attract even those who may not have had exposure to prestige brands or even heard of them. Just as with car lovers, you don’t have to own a Ferrari to want to read and know facts about it.”
On the other hand, these same educated consumers are most likely browsing gray market watch sites as well. “They are longtime web users and they are used to dealing on-line,” Paige says. Consequently, these users are more likely to realize how much cheaper gray market watch sites are and are more willing to forgo the authorized dealer and warranty. Not to mention the word-of-mouth they send out to their computer clique. “They know enough about watches to realize that it’s unlikely anything would go wrong or need repair during the first year of use,” Paige says. “And if they do have to spend $500 on their own for a repair, they still feel they came out ahead since they initially saved much more than buying from a traditional retailer.”
GETTING RID OF GRAY
While protecting against gray marketers has been a priority with manufacturers in other retail arenas, some have yet to realize the potential danger on the Internet, U.S. distributors and retailers complain. “Many watch brands don’t believe there’s a growing Internet market for watches. They put up their own web sites and find they don’t get many browsers,” Paige says. “That’s because they don’t promote their web sites. There are millions of web sites. Sites have to be marketed otherwise it is just like putting your name in the Yellow Pages along with hundreds of other listings.”
Retailers say it is the manufacturer’s responsibility to protect their authorized dealers as well as their brand image. Cartier or boutique watchmakers such as Daniel Roth or Franck Muller can track their merchandise by serial number to find where it originated. “Product gets diverted somewhere between the manufacturer and the distributor to the store,” says Halimi. “If one link doesn’t follow the rules, then the whole process gets interrupted.”
“I think the industry is going to have to band together and deal with this,” says Oppenheimer. “Some manufacturers will buy their watches from gray markets just to track the serial numbers to find out where the leak is.”
In the meantime, retailers are on their own in combating this “gray menace.” One of the chief means of accomplishing this is to emphasize the characteristics and service that a jewelry or watch retailer can supply. “The customer who enjoys fine watches is usually someone who likes attention when he shops,” says Andrea Suriano of Hour Glass USA, distributors of Daniel Roth and Gerald Genta. “He can read about a complication or Faberge-style dial but he can’t really appreciate the color and richness or understand how it works unless he holds it.” Special gifts with purchase are also appreciated by these customers, she adds.
Service a store provides after the sale should be stressed too, says D’Ambrosio. “There are pitfalls to purchasing from an unauthorized dealer besides not being covered by a warranty. Is the watch genuine? Is it new or refurbished? Was it enhanced with diamonds after market? These are questions to bring up with web users.”
Several of the gray market sites state their watches are “certified new” and that they have a repair staff to service the product. Since most of these sites are overseas, the lack of the convenience of nearby repair service and return is clearly a disadvantage.
Although Fox of Jaeger-LeCoultre thinks on-line selling of any magnitude is still a long way off, she thinks manufacturers and retailers need to learn how the Internet can benefit them. “The web is a great means of educating people about a subject visually and even by sound. On the Jaeger site, for example, a user can hear, as well as see, the brand’s minute repeater chimes.”
A handful of manufacturers already sell their watches on-line at full suggested retail prices. For some, it has been a cost-saving investment. Raphael Cohen, president of Universal Time, marketers of Akteo and Boccia, reports he sells one to two watches per day via his site. “We used to print a catalog showing every watch. Now when a retailer or consumer calls for a catalog, we refer them to the web site. More than 80 percent of them have easy access to it.”
The advent of on-line retailing could be an incentive for traditional retailers to hone their skills and provide services that the Internet could never match. In addition, this strategy also shifts focus from price point and discounts to what really distinguishes a watch purchase at a jewelry store. Says Halimi, “Let’s face it, if price were the only parameter when buying a watch, we all would be buying and selling Timex watches.”
Permission to reprint this article granted by Modern Jeweler, a Cygnus Publication.
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