Online Sales Aren’t The Future Of Watch Retail, They Are The Past (Watch Brands Are Just Slow): The Future Of Online Sales Is Dynamic, The Future Of Watch Retail Is Flexible Pricing
by Ian Skellern
The digital online world has revolutionized the world of retail business by cutting out middlemen (distributors and retailers) and enabling brands (with the help of targeted advertising) to both reach their end customers directly and to collate and manage information on their customers ever more efficiently.
And while we praise groups like Richemont for their “forward-thinking” digital strategies (see Joe Thompson’s excellent analysis at Richemont Retools For A Changing 21st Century Marketplace), it’s worth bearing in mind that truly forward-thinking companies like Dell, eBay, Apple, and even Antiquorum have been successfully selling expensive products online for more than a decade.
Selling online is not a revolution
There is nothing revolutionary about using proximity to the customer as a sales strategy. The main reason watch brands develop sophisticated networks of distributors and retailers is so they are closer to potential customers, serving those customers better and reacting to customer issues more quickly than they could by trying to manage all international sales from a central hub.
A sales website is just moving the shop front from the center of town to the potential client’s home: it’s certainly more convenient, but hardly a revolution any more than opening a new boutique closer to the customer’s geographical location is a revolution.
Selling online does not address the grey market problem fueled by excess supply and insufficient demand
While having more options to shop online will be a definite plus to consumers, digital sales are unlikely to have much impact on reducing the grey market because it is powered by the rigid pricing and distribution restrictions imposed by brands on retailers and distributors.
There are only two things that truly dictate pricing: supply and demand. And if supply and demand are out of balance, then (under the present system with rigid prices) you have to prop up the fixed price with ever more elaborate (and expensive) support, which opens the door to grey market dealers offering the dynamic pricing the market demands rather than the brand or retailer simply being able to raise or lower prices with changing supply and demand.
Dynamic pricing isn’t new, it’s already pervasive
Dynamic, or flexible, pricing, especially if set – or strongly influenced – by the market rather than the brands, might seem crazy at first glance and a radical strategy, but let’s take a closer look.
First, it’s worth bearing in mind that centrally setting prices with little regard for supply and demand is something that control and command economies like the USSR and China were known for.
Fixed-price currencies create a thriving and expensive black market. Flexible exchange rates at fair prices result in virtually no black market.
Dynamic pricing: auctions do it; airlines do it (even in first class); luxury hotels do it; service stations do it; and currencies do it.
Why are so many auctions houses among the most successful online sales platforms? I posit it’s because they have relatively transparent pricing driven by supply and demand.
And think about this: we are no longer surprised that prices for flights, hotel rooms, and petrol are continually changing to reflect demand. I’ve just checked and on the same day, virtually identical business class seats flights from Geneva to New York cost $1,000 more or less depending on the time of day (aka, demand).
The real future of watch retail
Here’s how I see the future of watch retail:
1. Thinning of retailers so we are only left with the best (location, service, knowledge, range).
2. Customers will be able to try before buying online in both multi-brand retailers and mono-brand boutiques, with commissions going to whoever facilitated the sale.
3. Prices (both on- and offline) will vary according to supply and demand. Collectors should be prepared to pay through the nose if they want one of those first new Royal Oak limited editions soon after launch, but might pay half if they are prepared to wait until demand drops, with the risk of missing out or potentially paying more as demand soars. Think new iPhones.
The grey market will have no reason to exist as authorized retailers (online and offline) will be able to adjust their own pricing to demand rather than have to go through the muddled and expensive process of the grey market for the same aim.
Dynamic pricing keeps supply and demand in balance, and if the brands do not incorporate dynamic pricing then as in every other industry with relative rigid pricing and production with flexible demand, a black or grey market will form to relieve the pressure.
If watch brands and groups have not started discussions about incorporating dynamic pricing into their retail strategies, then they are likely to find that simply selling online isn’t so much a revolution as just a digital version of the same old thing.
There is another way, but . . . promise you won’t laugh
There is of course another method of managing fluctuating demand with rigid pricing, but it’s so ludicrous to think it might be adopted by the large haute horlogerie brands as to be only theoretical: dynamic production, i.e. only producing what you can sell. I know, sounds crazy doesn’t it?
The reason large manufacturers cannot help but continue over producing is because they are high-volume, mass-market manufacturers used to the high profit margins that low-volume exclusivity brings. Those profit margins are something else that will diminish to something closer to mass-market norms.
If brands stop forcing retailers to buy watches they know they can’t sell then the grey market and discounting problems become solved at a stroke. But watch brands cutting production? I’m a dreamer, but not a fantasist!
What about you? Would you welcome dynamic pricing or does it scare you?
You might also enjoy:
Analysis: Why Is Richemont Buying YOOX Net-A-Porter Group (YNAP) Again? Hint: It Has To Do With Amazon
Navigating The Grey Market: A Retail Expert Explains The Whys And Wherefores
A Cautionary Tale On Buying New Watches Online
Bricks And Clicks, Bricks Or Clicks, Just Clicks? There’s A Watch Retail Tsunami Coming, But How, What, When . . . And Why?
Also published on Medium.