← Openwork: Inside the Watch Industry
Openwork: Inside the Watch Industry
Against All Odds – How Richemont, LVMH and Swatch Recovered in Q4 2025 – Episode 79
00:50:52
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- [00:01]
A
If you told me on that day that we would be looking at these kinds of results for the last quarter of the year, I wouldn't believe it. It's absolutely remarkable. This is openwork, a look inside the watch industry, a podcast from Collective Horology. I'm Gabe Riley, co founder of Kollective.
- [00:24]
B
And I'm Asher Rapkin, co founder of Collective. Collective Horology is an independent watch retailer based in Southern California. We carry a wide rang of independent brands including Archinaut, Chapek, Toledano and Chan and more. To learn more about us and check out our available inventory, visit collective horology.com we don't, we don't get to announce new brands all that often. As listeners of the show know. We are very particular about who we work with because we want to make sure that we give everybody as much attention as we can and focus on bringing in the watches that we really admire. And both Gabe and I have had our eye on Toledano and Chance watches for some time now. And when we finally were able to seal the deal in Geneva during Watches and Wonders and got a full look at the, not only what the vision for the brand is moving forward, but what they've accomplished to date, I think it was a bit of a no brainer for us to be able to move forward. It's, they're two wonderful guys making exceptionally unusual watches and I am incredibly happy to say that as of this recording we have a handful of the most recent release from Toledano and Chan in stock and ready for delivery and moving forward of course as new watches are released you will be able to find
- [01:33]
A
them@collective horology.com yeah, we had a fortuitous meeting with them at the Grand Duke Pub.
- [01:39]
B
We do a lot of business at the Grand Duke Pub.
- [01:41]
A
We do a lot of business in, at the Grand Duke Pub. We probably owe them a commission or something like that. But yeah, if you're meeting with a watch brand at the Grand Duke Pub, it's probably a good sign. I mean that goes back to man, our second collaboration with Zenith. We met with Romain Marietta, Grand Duke Pub finalized that one, saw some renderings, prototype dials, things like that was fortuitous. Holon Ricks, that all went down at
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B
the Grand Duke and now Toledano and Chan.
- [02:12]
A
Toledano and Chan. Yeah. So I, I was, I was really blown away. Not just by the watches, the watches are cool and this is a brand that makes watches that just speak for themselves. There's not much we have to Say there. But both of the guys are, are, are lovely. Phil and Alfred. And what was Phil wearing? Was he wearing anything?
- [02:30]
B
Yeah, yeah, exactly. I believe he's wearing a denim jumpsuit.
- [02:33]
A
Oh yeah, he was wearing a denim jacket. What watch was he wearing? He was wearing some kind of geezer watch, of course. But what struck me the most is just like Holton Ricks actually. What a clear creative vision they have and how much Runway it has. We saw some of their future collection both, you know, in a format similar to what you've seen from the brand already, but also some new thoughts on approaches to case design, dial design, things
- [03:03]
B
like that and crystal design.
- [03:04]
A
Crystal, yeah, Chris, that. Okay, this, we wax poetic all the time about watch brands and case design and movements and finishing and architecture. This is the brand where we'll wax poetic about sapphire crystal design. Because packaging, the sapphire crystal changes the character of the watch as you look at it on your wrist and experience it and tell time it. It. It's really cool. And yeah, their packaging is just awesome. One of the few brands that has packaging that's like, yes, okay, this is cool packaging like this has a reason for, for being Gaga Laboratorio. Another brand that does awesome packaging and likewise has a clear creative vision. And Mark marches to the beat of their own drummer. So it was a no brainer. Toledano and Chan now at Kollective.
- [03:54]
B
Welcome guys.
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A
But we're not here to talk about the independents. We're here to talk about the big bohemian holding companies and.
- [04:02]
B
Well, on this episode.
- [04:04]
A
On this episode. Yes, exactly. This episode is brought to you by the big behemoth holding companies.
- [04:10]
B
Slow may they turn.
- [04:12]
A
Slow may they turn. Yeah. So what's interesting is we now have a picture of where LVMH Richemont and the Swatch Group ended last year, calendar year 2025. These holding companies, Richemont in particular, have their own financial year calendar that doesn't quite align with with the calendar year. So what we're doing now that we have the data has and the reporting has come in from the holding companies is we're looking at the period of October through December of 2025 and how these holding companies perform not for the sake of doing it, but because there's actually a lot of interesting data and insight in what we're seeing. I think in broad strokes, what we're seeing is a turnaround. We'll talk about the numbers and what that means, but underneath the surface of that turnaround, there are bigger macro forces at play that are driving that turnaround. And Also importantly, management decisions, or lack of management decisions in some cases that are also affecting these companies and how they're adjusting to. How they're adjusting to the current market realities and adjusting their, their businesses, which I found really interesting. We talked about how Breitling is taking a very unique approach to the market in our last episode. I think what we're seeing from these brands is signs of recovery, but also clear signal on how they're operating in a really challenging market.
- [05:36]
B
I think it's also important to look at why this matters. I mean, look, we, we are independent watch retailers and this is a podcast about the business of watches. And sometimes I think, you know, we do talk about the holding companies probably more than you and I do, just in our normal course of business.
- [05:54]
A
Yeah, because that's what we have the data on. It's harder to research some of the smaller players.
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B
I think there's sort of two things about that and why this, this matters in that sense. One is availability of data.
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A
And they're. They're bellwethers.
- [06:06]
B
Yeah, well, so they're bellwethers for a few reasons, and we'll get into this. But one of them is that because these big holding companies are such voracious consumers of raw material and components and essentially are the large scale patrons of the supply chain, you cannot remove them from the conversation about the industry, especially independents, because a lot of the folks that operate in the long tail of the supply chain survive off of the revenue that they get from these holding companies, so that they are also able to support independence. So when we look at this, we get a few points. One is that we get a bellwether of the industry, which helps us understand the health of that industry. And then the other thing that we get to see here is the success of these brands and these businesses ultimately can help us understand where the supply chain is going to be and how that will impact independence. So as we talk through all of this, good to have some context on this because I can understand if you're an independent watch collector, you could sit there and be like, why do I care what's happening at Richemont or lvmh? Well, for these reasons, and I'm not saying that you need to go out and do some, like, corporate, you know, like charity and be like, oh, you know, let me give you some money. Poor Louis Vuitton. Not suggesting that.
- [07:18]
A
Oh, no, no.
- [07:19]
B
But, but important for us to understand in the same way that this is true about publishing or independent media or like, you know, indie menswear or whatever. Everything is interconnected and we have to look at these things at a macro level.
- [07:32]
A
Yeah, exactly. These are the brands that stirred the drink, not just in terms of their overall revenue and market share and watch sales, but in the industry at large. They are the biggest player when it comes to the production of Swiss watches and Swiss watch components and the supply chain in Switzerland and beyond. And so that's why this matters. Great point. So I don't want to get too much bogged down into the details. I'll put all the numbers for what? The financial. And we got to get green visors for these. Oh, yeah. Nice. I should bring my calculator. You know, Asher knows my calculator. I stole this calculator from, from my first job in advertising at Y and R San Francisco in 2005. And this calculator had clearly been in the, in the agency office since the 1980s. It's this giant Casio solar powered calculator. It looks like the kind of thing like you'd open up like a, a banker's drawer in the 1980s and you'd find it in there. Well, I still have the calculator to this day, so I should bring that in a green visor on here and we can crunch it. Our accountant has cooler setup. He's got the, the, you know, the receipt.
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B
Oh, yeah.
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A
So, and I didn't, it didn't occur to me why you would want receipt paper on your calculator until recently, which is like, oh, you can see the numbers you just entered. So if you're like, oh, wait, did I just divide this or multiply it or write the right number, Wrong number. Why isn't this adding up? You go back and look at the paper trail.
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B
Great product development from the good folks at Casio.
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A
Yeah. All right. In any event, I, I don't want to get too much into, into these numbers because it might be a little bit boring to go through it all.
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B
But let's look at the trends.
- [09:06]
A
I think suffice it to say we'll put the details in the blog post@collective horology.com blog. But I think what we're seeing from Richemont, LVMH and Swatch was in the end of the year. So this is October through December. Yeah, they're all telling us in one way or another their watch businesses are stabilizing or improving. And this is both in term. Well, this is primarily in terms of revenue. So let's start with Richemont. So for Richemont for the end of the year for that final, those final few months of the year. What they're telling us is their watch business. And we've talked a lot on this podcast about how their watch business has really been a problem for them and a weight on the business. Jewelry has been driving the business. It continues to, but watches were actually up 7% year over year for that final quarter of the, of the calendar year.
- [09:52]
B
That's meaningful.
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A
So that, that, that's meaningful. Jewelry was up 14%. So jewelry remains the behemoth and the most important.
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B
And these are gross numbers, right?
- [10:02]
A
Yeah, this is gross revenue. I did look at profitability for all three, which we'll talk about in a second. But suffice it to say they're doing more business. They're doing more top line business at Richemont in watches. Yep. Great. Up year over year. Nice. Lvmh. They actually lump watches and jewelry together. They're a far more diversified holding company. But what they're telling us is the watch and jewelry business held up and is essentially flat year over year. They don't get into the numbers in particular. They have said, however, that more broadly speaking, in their portfolio, fashion is soft. So they're into the, you know, fashion. They have many maisons that play in fashion on a level that these other holding companies don't. And that's really accounting for the, the softness in their, in their business. Overall, the business was up 1% in revenue.
- [10:52]
B
That's interesting. So a decline in haute couture, but, but some degree of stability.
- [10:56]
A
Yeah. They're saying watches and jewelry performed, held up better than, than fashion. And they point in particular to Tiffany and Bulgari as the stars, the star players within the watches and jewelry division. Now, of course, both Tiffany and Bulgari are in watches. Tiffany not so much Bulgari, more so. But jewelry is really the driver there as it is with, I mean, they
- [11:18]
B
don't break it out. It's of course hard to know how you know, how much one or the other is buoying, you know, that number. But if they lump them together and they consider it one P&L essentially at the highest level, then maybe, maybe it doesn't matter.
- [11:31]
A
And look, they're transparent enough to say like, you know, fashion's not going so well. Well for us. If watches was really down significantly, I'm sure they would point. It would stand to reason that maybe they'd point to that. They're pointing to fashion. Fair enough. Swatch Group. They claim that for the final quarter of the year they were up 7.2% year over year. So that's consistent with what we're seeing from the watchmaking division of, of Richemont. And we've talked a great deal about Swatch. We'll chat a little bit more about some of the palace intrigue, the board drama that's happening there. There's news there, but they're, they're up as well now, of course, Watch is pure play watches just like the, the watchmaking division of Richemont. So what we're seeing is top line revenue, there's growth and Swatch is telling us that it's across the board. So Swatch is obviously diversified within watches across the low, mid and high end, whereas Richemont is focusing more and more on, on the high end.
- [12:29]
B
I feel like shaking your head. Well, because I just wonder how much of that, since these are gross numbers, are tied to some of the pretty significant price increases that we saw at the Swatch group. I don't know enough about, I haven't paid enough attention to Richemont's price increases, as I have to say. Rolex and Omega, we certainly have seen Omega and Blancpain for sure raising their prices quite significantly over the course of the last 12 to 18 months. Tariffs and currency obviously being a factor in this. So I am kind of curious to see how those gross numbers, numbers play out against actual revenue. And also, you know, we've seen a lot of these sort of like, you know, hold and release moments over the last 18 months, especially with tariffs where, when, you know, when, when the tariffs become chaotic, we see pullback. When the chaos goes away or we have a taco moment, then we tend to see sales, you know, flood.
- [13:30]
A
So it has to talk about the export data. And we saw a huge surge in exports from Switzerland to, in general, but to the US Specific in December.
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B
Right.
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A
So that could be, that could certainly be part of it. But keep in mind, many of these companies are exporting to themselves.
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B
Right.
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A
So that's a little bit different from like they make a sale into a retailer and then ship it the way independents do. So harder, harder to say, but yes, certainly there was more activity in terms of export.
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B
I guess my point is when we look at some of these numbers, we could look at each other and say, oh, that looks okay, but I think there's probably a lot going on under the scenes that are behind the scenes there make these numbers.
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A
You think I just left it there? No, man, I dug deeper.
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B
Well, I'm setting you up.
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A
So a couple, couple things. First thing, I looked at Was profitability. Like it's great that sales are up and so sales could just be up.
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B
Revenue is up.
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A
Sales, revenue, sales, receipts. So sales are up. That's great. What's, what's going on here? What's the story with profitability? And in all cases, profitability is generally about flat year over year for this.
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B
So this is my point.
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A
So what the. Well, no, this isn't your point because if, look, if, if you were saying like, look, let's attribute this to price increases. You know, maybe they're doing more sales because they've increased their prices. The challenge there would be like. Well, if that was true, they're just increasing prices, their margins would expand, their profitability would expand.
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B
What I. Oh, that's not what I'm saying. What I'm saying is that I, the reason prices are increasing are because of a drag from currency and from margin and from tariffs.
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A
Even though the.
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B
Right, so even though the, the all like, like the, the absolute number is bigger, that doesn't necessarily mean that the margins are.
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A
No, and, and the margins really haven't improved. So we know there's currency pressure here. The reporting is based, is adjusted for constant currency.
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B
Okay, but.
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A
All right, but you know, like there is currency pressure is real. It softens demand, it weakens demand and it may shift demand from a lower price segment to a higher price segment that's less price sensitive.
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B
Yeah.
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A
The other thing is tariffs, of course. And again, if these, these holding companies are self importing, which they do, they're absorbing a lot of tariff related costs and that erodes. That erodes, yeah.
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B
And there's another interesting thing with tariffs going on right now, which is that the Court of International Trade here in the United States has essentially mandated one of your favorite courts as these days has, has mandated the refund of IPA tariffs, which is a monumentally massive amount of money. And it will be interesting to see how some of these companies metabolize that money when it does eventually come back to them and how they categorize because that was OPEX and, or revenue that they had access to previously that was taken from them illegally by the United States government and now is being returned to them with interest or presumably at some point returned to them with interest. And that money is going to go somewhere on the books.
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A
Yep.
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B
So it'll be interesting to see how, how that that cash will be, will be, will be notated.
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A
I don't know that we'll see a huge turnaround in the, in the financial performance of these businesses because of it or at least in the trading of their, their stocks on the open market because all of this is baked in.
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B
But I'm sure that day to day
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A
basis will help their bookkeeping for the year. It will certainly pad their margins for.
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B
Oh, I know, I know that a return of our tariffs would make a material difference to us from an OPEX standpoint.
- [16:53]
A
It certainly, it certainly would. So the, you know, revenue is up, sales are up, but profit is generally for these guys about flat or where it had been before. And that's just because of all the pressures that they experienced in, in 2025. And you know, the cynical thing to say when price up or when, you know, the cost of tariffs get passed on to consumers to some extent, it's just to, you know, blame these companies for being greedy. And I think what we've seen is even if prices are increasing, even if the top line figure for sales are increasing, these companies still aren't materially making much more money if, if any more money at all. They're just treading water. At least when it comes to their, at least when it comes to their watch businesses.
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B
Inflation is, inflation's a drag, man.
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A
Inflation's a drag. Tariffs are a drag. It's not fun for anyone. And certainly when it came to that stuff, I don't think, you know, we can be cynical about these companies and how they operate. But when it comes to price increases and things like that in 2025, I think we, we need to give them some degree of benefit of the doubt here now the other, the other drivers of all this. So when we looked at, okay, well why exactly is revenue up? What is driving it? We looked at the statements that these companies made in their most recent financial reports, the financial reporting for this period of time, and they told us a few things. So first is China and travel, good old travel retail China. We've talked a great deal about the struggles that the holding companies and the watch industry has had in China in the last few years and how there's been nowhere to hide recently because of of course, all the tariffs and trade issues in the United States, Europe being really soft and China pulling back massively. So what we're hearing now from these companies is that China in most cases is either now neutral, so it's no longer retreating or declining to positive to mildly positive. So China seems to at least have stabilized or for some brands and companies in particular, it's doing a bit better. So that's helping, that's helping them travel retail as well. So this isn't just buying watches on Cruise ships. This could be buying watches and you know, major reports of call around the world. Hong Kong is a famous travel retail market. A lot of folks I remember flying out of Hong Kong years ago and just the number of people getting on the plane and stuffing the overhead bins with like luxury shopping bags. Yeah, like major travel retail destination. So Hong Kong would, would probably be part of that greater China market. Certainly, certainly it's part of China. Distinct in some ways that travel retail picture is improving as well. So that's good news for the industry at large, especially given all of the challenges they went through last year. And then another one is channel and product mix cleanup. And this probably impacts more the bottom line, but to some extent it does impact the top line as well. So cleaner inventory. So this means less basically less overproduction of watches. This helps the bottom line. This helps financial health. It also helps the demand of new watches sold through primary channels, whether that's dealers. The other pieces increasingly are continued shift to their own company owned and operated retail. That helps preserve pricing. We've talked in the past when a company like let's take a brand like Omega, when they sell a watch through their own boutique, they realize the full retail revenue on that versus when they wholesale it. They realize just the wholesale revenue. So it helps the top line number as well. So as companies shift to company owned and operated retail, they're capturing more retail dollars and that helps their top line revenue as well. The other thing in terms of product mix and mix, whether it's channel mix or product mix that is happening is in the case of LVMH and Richemont, they are shifting their product mix to what they call like permanent luxury. So these are essentially more high end products. So these, these permanent luxury items within watches would include not just like high price watches, but things like jewelry watches and what are described as iconic timepieces.
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B
Heirloom kind of stuff.
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A
Heirloom kind of stuff. But you know, that could be like the most desirable pieces in their collection versus you know, just trying to probably
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B
like the, the Regia Brazepi collabs or the, the debitune collabs, things like that.
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A
It could even be like in the case of, of, let's take, I don't know, Cartier, you know, focusing on certain tank lines that.
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B
Oh, forgive me, I was thinking LVMH brands. Excuse me.
- [21:41]
A
Yeah, I mean LVMH is part of this as well. So they're shifting to these more permanent items. Well, in the case of Swatch, again they're claiming it's broad based and across the board and they're seeing demand across the board. I think that's because they do have some brands that do particularly well right now at the lower end. Tissot and the PRX in particular, as a poster child for that. I don't know the state of the Swatch brand business. But I would guess thanks to things like the Moon Swatch and collaborations and things like that, they're maybe doing okay or better than usual.
- [22:16]
B
I guess the main takeaway that I, I'm. Because I'm, I'm listening to all of this and I'm trying to just summarize in my head where we're landing in the third quarter last year Switzerland was in a bad way. They were under the, they were, they were being under heavy pressure from an illegal American tariff.
- [22:34]
A
Yeah, that. So the 39% tariff that was in effect essentially August through the beginning of December.
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B
Essentially.
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A
Yeah.
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B
So, so basically for, you know, third quarter into fourth quarter, it was, it was poor and a poor economic reality. That was an invented scenario by the US Government that created cascading issues throughout the Swiss economy and through Europe really writ large. Even though Europe was operating at a lower net tariff tariff, we were seeing things like job eliminations, severe cutback in budgets. I mean, it was some serious stuff going on there. And the second and third order consequences of that are still in effect. I mean, that didn't just go away because the tariffs were negotiated lower and then ultimately found to be illegal. So what I'm really taking away from all of this as I look at it is we had an industry that was pretty heavily battered for the last 12 months, for sure, 18 months to a degree, and is still somewhat resilient,
- [23:36]
A
I'd say remarkably resilient given the context.
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B
Exactly. So on the one hand, you know, there's the economic, there was the economic brutality that this, this industry and this, this nation was subjected to. And by this nation, I mean Switzerland. Switzerland, but also frankly, America. And then there is the impressive nature of the resiliency and the bounce back of both the global consumer to a degree and also these businesses. The question for me then says, all right, well, you know, again, these things don't happen in a vacuum. So the pullback and some of the cost cutting that's going to start hitting on product that is coming in 2026 and 2027. Because if you have to start cutting costs with supplier or lowering production or you had to eliminate some jobs or things like that.
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A
Oh yeah, the last quarter of the year they're assembling watches from orders that placed with and were delivered by suppliers months prior.
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B
Correct. So now we're going to start seeing the impact kind of like, you know, certainly not a one to one analogy, but certainly to a degree what we're seeing in terms of, you know, oil shocks and energy shocks based on, you know, what's happening in the Strait of Hormuz. So I think we are, are we're probably going to see some inventory constraints, we're going to see some pain and pressure on supply chain and suppliers and then as the, you know, the giant Titanic, you know, wheezing beasts of these corporations start to return, you know, the ships towards, you know, reactivating partnerships, sending money to suppliers. That's going to happen and there's going to be a dip, I suspect. So, so I think part of what I want to see here is like, you know, first of all, like this is good. Like I don't want to see anybody's job get hurt. I don't want to see an industry suffer, let alone one that we're part of. But realistically, there's going to be a dip, I have to imagine.
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A
Well, first things first. If you told me when was August 7th or something like that when that
- [25:42]
B
a day that would live in infamy.
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A
The day that I think that was
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B
it, something like that.
- [25:45]
A
Price seared into my mind the day that the US government announced it would be a 39% tariff on Switzerland. If you told me me on that day that we would be looking at these kinds of results for the last quarter of the year, I wouldn't believe it. It's absolutely remarkable. On the other hand, the impact is real. So one of the things, yeah, somebody
- [26:12]
B
lost their job, they're not getting it back right away.
- [26:14]
A
Yeah. One of the things I looked into is well, how is this impacting the supply chain and suppliers in particular? You know we were talking about Dubai Watch Week months ago and one of the panels at Dubai Watch Week and a Number of brand CEOs at Dubai Watch Week were saying that their suppliers were under just tremendous pressure with orders canceled. We also talked about the fact that at the end of last year, I think it was 20% of the companies watch businesses in Switzerland were taking advantage of like a furlough program from the government or a part time work scheme from from the government. I mean that's really high and unfortunate. We heard from a well placed watch executive pretty recently that mainstream high end brand we both love and admire had basically stopped production and stopped their production lines not entirely, but effectively predominantly so. You know, when I dug into this and I was like, well if part of what I'm hearing here is that in some cases, at least in the case of Richemont and LVMH who are telling us, yeah, we're making fewer watches, we're focusing more on the high end and these permanent pieces, well, that's fewer watches being made, fewer parts being ordered. The question I had was, well, how is this impacting suppliers? And I just expected it to be like a roundly disastrous kind of answer I would get on this. And it turns out it's actually a tale of two cities. So for suppliers who are supplying kind of the 10, $10,000 and under segment, it's brutal. Their businesses are really, really hurting. Their orders are being cut, they're engaging in these park part time work schemes. It's not pretty. And these are real, real people when, when the, you know, the, the record stops, these are the people who get left holding, holding the bag or without a chair. However, on the high end, it's having the opposite effect. So the shift to more jewelry pieces, the shift to more metier des art, the shift shifts to more high craft pieces, are requiring more of specialized suppliers and it's actually creating a boon for specialized suppliers. So what's interesting in the last couple years, what we've heard from the brands we work with and we work with independent brands priced anywhere from, you know, a few thousand dollars all the way up to $100,000 or more. What we've been hearing from them over the last few years as the COVID bubble has unwound is that the bottlenecks they've had around supply have gotten a lot better. You know, what we would hear from them in the COVID days was, oh, that watch that I promised you is going to be delayed another two months and another two months and another two months because I can't get dials or I can't get the person who does the, you know, the, the coding, you know, PVD coating of some component, they're backed up or whatever it is like all it takes is one component for the whole thing to fall apart. This was a story we would hear over and over and over again. The last it's gotten materially better. And in the last year in particular, my gosh, have the brands we carry never been better about hitting their deadlines. And it's, it's. So the pain that's inflicted by these major companies pulling back from the supply chain is real. It's helped the Independents for some, in some instance to get caught up on production. Because what we'd hear from them is I'm the last in line because, you know, I, I use the same.
- [29:43]
B
My, my order is ten, not a
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A
thousand, you know, my handset supplier is the same supplier who supplies. I'm making it up, Breitling or whomever. Like I'm the last in line here and I have to hope they can squeeze me in between production and the orders are only ramping up. Well, that went away. However, if what we're seeing now is a move in the industry towards higher end pieces that are putting more of a burden on smaller suppliers, more specialized suppliers, more high end suppliers, I wonder if the independent will end up in that crunch again.
- [30:14]
B
Well, yeah, it also opens up from an episode ago, you know, some of our conversation about how some of these newer, you know, know, I'm reluctant to call them holding companies, but like collections of brands are also keeping an eye on what those supply chains look like to create some degree of stability there. Right. So like we know that autorologie Dominique Renault has been investing in their supply chain significantly and that will create some degree of stability whether those suppliers are exclusive to them or not. This is certainly something that we've seen Parmigiani do for many, many, many, many years, you know, with how they've slowly brought in their own suppliers. We've seen this with Kari Vudola, you know, and the way that he has approached creating a supply chain for the various brands and manufacturers that he is responsible for managing, leading or working at. So this goes.
- [30:59]
A
Will we see a cycle of acquisition of suppliers where, I mean, it's interesting where these holding companies or independents realize like, I need to lock down and have more control over my supply chain.
- [31:11]
B
Well, it leads you to cease where. And this is what, what I was saying is a recurring theme in our conversations. Like this is a grand reorganization of the watch industry, right. Why does the alternative horological alliance exist? It exists for the sharing of intellectual property and resources. Right? So the idea being that you have five brands that can come together and essentially say we can, you know, if we pool our resources creatively, intellectually and on occasion from a production standpoint, then we, we insulate ourselves from some of the industry shocks that have hit this business over the last few years and inevitably we'll hit it again in the future. That is the same logic that we see from an hdr, the same logic we see from a Parmigian, the same logic we see, you know, from even A Richemont buying a Val Fleurier years ago. You know, these or Swatch, of course. And you know, being the proto here with the.
- [32:00]
A
Is a fantastic example because it's an independent brand. It's not part of a large holding company, and they were very wise to acquire.
- [32:07]
B
Yeah. And they make a. I have to
- [32:09]
A
imagine they make a pretty part of the success of that brand.
- [32:12]
B
Well, and they make a good living, especially with like, voucher. Yeah, you know, I mean, voucher supplies calibers to all sorts of folks, even Ming. So I think. I think it's an interesting reality check here when you see, okay, industry shock, gut punch to the industry. Some businesses are now realizing what they need to do in order to create some more stability. Supply chain has been proven to be one of the weakest links in the revenue chain of the Swiss watch industry. Covid proved that the illegal tariffs that have been imposed and the economic brutality that came out of that has created a second example within one decade, decade of why managing, supporting, and having a solid supply chain is so critical. So I think, you know, it begs these kinds of interesting questions. And to be clear, I'm not suggesting this is what Richemont did. This is complete conjecture. But it's an interesting thought to be like, well, what would you rather have, A Bauman Mercier or a dial workshop? A hand workshop? You see what I'm saying? Yeah, it's kind of like this. Interesting.
- [33:13]
A
Very interesting. Yeah.
- [33:14]
B
Like if I were sitting there looking at. I'm like, well, what would I rather have? Another brand that is dependent at high scale, or take that money and reinvest it into my supply chain, reorient around the high end and make sure that I built a fortress of a business.
- [33:26]
A
Yeah. I'm not saying Richmond's done that. I mean, Val Fleurier is a good example. They also control their own foundry.
- [33:32]
B
Yeah, totally.
- [33:32]
A
Who, you know, supplies their cases. Yeah, it's interesting. The market can also adapt. So when we were in. The voucher example is a great one because you're right. Voucher owned by Parmigiano Parmigiani seems to be doing remarkably well as a brand. So you have to imagine vouchers producing more. More calibers for. For them, or certainly doing quite well supplying Parmigiani than they're supplying Independence. For years, you know, Urwerk has used voucher calibers. A number of indies have used voucher calibers. Now Ming is knocking on their door most recently with the Starfield that's got a voucher caliber caliber as the market Moves.
- [34:10]
B
Yeah, as in fact, if I'm not mistaken, I think even Richard Mille uses some voucher calibers.
- [34:15]
A
Chapek uses their awesome chronograph caliber. So as the, as the market moves up, right, you would say like, okay, let's just take the movements and look at voucher. Like, oh my gosh, it's going to create so much demand for voucher, wouldn't you imagine? What's going to happen is Parmigiani is first going to say, well, we have first right of refusal on these movements. Number two, the partners who either place the biggest orders or who have been with us the longest get, get access to our calibers and everyone else just needs to get in line and wait. However, the market will adapt. When we were in Geneva, and I don't know, I'm not going to say who this was or what the watch was because I'm not sure it's announced yet. But I met with a young up and coming independent watch brand who showed me a prototype of forthcoming release. Beautiful watch. And I turned the watch over and I was looking at the movement and I didn't recognize the movement. I figured like, you know, there's gotta be a chronode movement in here or maybe a voucher movement or something. I was like, it's a really pretty movement. It was beautifully architected.
- [35:21]
B
This brand have five letters in its name.
- [35:23]
A
I don't even know. Beautifully. It was beautifully architected, beautifully finished. Looked every bit a high horology movement you would expect to see in a watch $20,000 up. The supplier of the movement was Solita. Oh yeah, there is a. And I had no idea they could make a movement like this. And I was like, Solita, really? And he's like, yeah. There's a division within Solita that makes high end movements and supplies high end movements, custom movements to independents. And this is a movement that was executed again on the level of something like a cross or a voucher or anything like that.
- [36:04]
B
You can beep it out. Who was this?
- [36:07]
A
Really? Yeah, yeah, yeah. You saw the watch? Yeah.
- [36:11]
B
So that's.
- [36:12]
A
That was, that was a Solita movement. And so my point here is, if voucher is winning, that doesn't mean Sellita loses, right? Yeah.
- [36:22]
B
No, for sure.
- [36:22]
A
Sellita can adapt and the market can adapt and evolve around it. And of course, the businesses that will win over time are the ones who can evolve and adapt.
- [36:30]
B
Yeah. So I mean, look, if we. So to put a pin in all this, obviously we see, you know, there'll be some bumps in the Road ahead. And that's, you know, excluding all of the various economic, you know, tomfoolery that we're currently experiencing, who knows what'll happen? Well, sure. I mean, there's other things too that we haven't accounted for too, like the cost of jet fuel, if it is even available, will also impact the delivery of watches and timelines and things like that. Like that's not a joke. I either. So all of these things are a witch's brew of challenges. But the industry has proven it's resilient. The reorganization continues. The supply chain clearly needs to be bolstered and supported and nobody's position right now is really cemented and guaranteed. Which might sound ominous and onerous, but I don't mean it to.
- [37:23]
A
No, the Solita example is a perfect example of that. How, you know, change and difficult circumstances can bring around really exciting developments.
- [37:31]
B
Totally. And it may end up creating. The other thing too is if you think about it, if you have heavy upfront costs in investing, in bolstering, maybe even buying your supply chain, sure, that will impact, you know, near term costs, but over time, amortized value will be significant. Yeah, significant. And will create hopefully a more stable business. The question then, of course being if everything moves around and you do have a more bolstered system like that, will it be harder to break in as a new brand?
- [38:00]
A
Yeah. I want to ask you a final question here about the Swatch Group. Yeah, so great for swatch group, up 7.2% in the final corner of the year. We covered this in the past their full year reporting. They were down for the year. Revenue is down. Profitability was really rough. I mean, it was essentially they made a modest profit, but it was essentially, essentially no, no profit compared to their, to their revenue. And if you zoom way out and you look at Swatch Group relative to LVMH and Richemont, it just isn't performing. They're not, they don't have the margins, they don't have the performance. If you're an investor and you're looking at how those two businesses perform both in terms of their revenue, their profitability and their share price price, you know, like an investment you'd want to hold. Swatch Group leaves a lot to be desired. We talked about that. Now the news here is that ISS and this is a company that, it's a research company that provides research, analysis and recommendations for institutional investors on how they should vote in proxy votes. So if there's a shareholder vote, you know, and you're an institutional investor who has lots of holdings. You need someone to do the research to tell you like when the proxy statement comes in, how you should vote. Whether you're, you know, blackrock voting, you know, because you have iShares or you're an endow, large endowment or whatever it is, you need some, someone out there to do the research and give you some recommendation on.
- [39:36]
B
Yeah, you know, you got any good stock tips?
- [39:38]
A
So ISS recently published a recommendation to give the activist investor who's going after the Hayek family. We talked about this. I think it's Woods Capital to give them a board seat. And this is really unusual. Usually these, these analysts kind of stay out of proxy fights or you know, they might say like a, you know, the shareholders should vote for a board change or vote for, you know, addition of a board seat or a change, but they won't necessarily endorse like a specific, specific candidate. Yeah, for a board seat. So this is very unusual and it points to essentially if the outside view that the performance of the Swatch Group is probably in their view, just not acceptable, comparable to two competitors and that there needs to in particular be an aggressive shake up there. So my question for you is, let's assume there, there needs to be a board shakeup at Swatch Group and we can make the argument against that. Oh, look, they're starting to turn things around and oh, look, who knows the business better than the high X over the long term, sure, but if you were given a board seat at Swatch, what would you advocate for? What would you want to change at this moment in time in the industry? If your thesis here is that these difficult circumstances force change and that can be a good thing, what would you change at Swatch?
- [41:07]
B
I think that the Swatch Group, for a fair amount of time, with a few notable exceptions like the moon, Swatch has suffered from a lack of clarity of vision. There are something like 700, maybe 600 in production SKUs for Omega. I can't understand why that is. Omega, as we've discussed in the past, is an incredibly powerful brand and one with tremendous opportunity, heritage and quality. I love Omega. I do.
- [41:39]
A
I'm wearing a Speedmaster here, here.
- [41:42]
B
And I think it lacks at this point focus. It is a surmountable problem. But I will think, I really think it would be a critical component. And then there's all sorts of like nitpicky stuff, but really I think it's that. And then on the high end, for their high end watchmaking with Blancpain and with Breguet, I'm wearing A. I'm wearing a Neo vintage Breguet right now.
- [42:04]
A
Oh. It turns out this podcast is sponsored to you by the Swatch group.
- [42:07]
B
Exactly.
- [42:08]
A
Make sure to send in your proxy ballots.
- [42:10]
B
Let me tell you something. If we're ever going to be sponsored, I'm pretty confident it's not by the Swatch Group.
- [42:14]
A
But think AP might sponsor. Jesus.
- [42:18]
B
Could you imagine? But I think Breguet is a perfect example, you know, And I mean, you and I both love Bre. Different eras for different reasons, but, like, you know, we. We do. And that's another brand along with Blancpain that just.
- [42:34]
A
With some focus, all the ingredients are there.
- [42:37]
B
Yeah. You know, it really could, I think, make a me. And I'm talking obviously here in the United States. I. I can't speak to how these brands work in other markets, but here in the US it really, really could benefit from and I think would succeed with Focus. And what I mean by that is, you know, where you have an overabundance of references from Omega with Breguet and with Blancpain, far fewer watches being produced. Far fewer references being produced. But I still maintain that, especially with Breguet, it's very difficult to understand who these watches are for at the prices they're being made, being sold at. I think under their new leadership, there are some signs of focus. Some of the experimental stuff we saw at the end of last year was. Was very interesting. Their acknowledgement that the tradition line is where the attention is.
- [43:30]
A
Well, even some of the changes made to the Classique line, too, like the new case architecture they've introduced, I think is a good update.
- [43:38]
B
They are. And these are good choices, which is why I'm like, I'm optimistic.
- [43:42]
A
Yeah.
- [43:42]
B
But I still need to see that get pushed a lot further with clarity of message to the market. And that's not there yet.
- [43:50]
A
Yet.
- [43:51]
B
With Omega, I don't know.
- [43:53]
A
Yeah.
- [43:53]
B
But with. With Blanc and Blancpain, I don't know. But with Breguet, I have some degree of. Of optimism, and that might just be my own. Just hope for, you know, a brand that I like.
- [44:04]
A
Sure, yeah.
- [44:05]
B
Yeah. You know, so maybe I'm on Hopium, as they say, but, like, I gave
- [44:08]
A
you the board seat. You can do what you want with it.
- [44:10]
B
Yeah, but that's. That's kind of where I. I would focus and, you know, whether that would make much of a difference, I don't know. But just speaking from my perspective.
- [44:21]
A
Yeah. I'm going to go all the way back to the beginning of this episode when we talked About Toledano and Jam, which is a brand defined by a clear idea and point of view. I think that's what they need across the board. Swatch Group credit to Nick Hayek, Scene Senior, for architecting the modern day watch and luxury holding company. Essentially, you know, kind of he and Gunter Bloomlein, in their own ways, kind of they created the template for this world that we know, this ecosystem we've talked about. The masterstroke of Nick Hayek in creating the holding company was to say, I'm going to diversify this holding company not just with a collection of brands, but brands across different price segments. Sure, right. I think that insight has worked for a while. It worked in a world where everyone needed a watch. You know, it no longer works like what you need to do now is define your brands and your brand roster not by price point, but by creative point of view. Look at the brands that are succeeding in today's market. They're defined not by a price point, but by a creative point of view.
- [45:26]
B
100% right.
- [45:27]
A
Ming is a great example of this. A Ming at $5,000 can be just as successful as a Ming at $50,000. Not because, you know, they own one segment of the market another, but because they're divine, defined by a creative vision and approach to watchmaking. Toledano and Chan has moved up in price point as they move their production,
- [45:47]
B
but these are all independents. So do you see anybody in the mainstream that you would categorize in that way?
- [45:52]
A
I think Cartier is a good example of that.
- [45:55]
B
Cartier has been doing this stuff forever.
- [45:57]
A
Yeah, but this is a brand part of the reason they're able to succeed. Rolex is able to succeed. Lead, I think they're, they've defined themselves not by a particular price point, but by a point of view, who they're for, what they stand for. I think Swatch needs to be less parochial about positioning brands around price point and do a brand audit and say, you know what? First, first, first things first. Does each of these brands, Hamilton, Meo, Tiso, Certina, the list goes on and on. Does each of these brands have a clear point of view, a clear reason for being? Are they just occupying a price point? If they're just occupying a price point, we need to move on and we need to focus on a roster of brands where each brand fulfills a particular vision and then they can activate the second creative vision. Creative vision, because not everyone needs a watch anymore. You know, if you're a dude. When the Hyex created the Swatch Group if you're a guy or whatever it was called before, it's called Swatch Group. If you're a. A dude or a woman or whomever in the world in 1980, you need a watch. Yeah, you don't need a watch anymore. You wear a watch as a. Now, as purely as a manner of expression, of self expression.
- [47:10]
B
Yeah.
- [47:10]
A
What you're interested in, who you are, what you stand for, what you like, all this kind of stuff. So they got to ask that question. Then they need to trim the brands accordingly, and then they need to activate what they have hiding in plain sight. You talked about how Richemont and other companies have widely, wisely brought in capabilities like their own supply chain into their holding company. Swatch already has that. Forget just eta. They own companies that do micro engineering. They own companies that do crazy things with Sapphire. They have a whole. They have just as many companies within their portfolio that are, you know, suppliers and parts makers and R and D have R and D capabilities as they do watch brands. If each brand owns a clear creative point of view, then all of a sudden you can activate all of this technology and all of this research and development capability that you have because you're not so worried about, oh, well, we can't do something interesting with Sapphire here because it wouldn't fit the price point of this brand. Then you start to say, oh, my gosh, this brand stands for X, Y or Z. This is our experimental brand. It's avant garde, whatever it is. Well, of course we'll do something with Sapphire Buyer. That makes total sense. So I think they're not making use of the assets they have because they're so defined and limited by positioning each of the brands relative to price that they're leaving creative opportunity on the table.
- [48:34]
B
Very fair. You want a board seat?
- [48:36]
A
No, I do not want a board seat. And by the way, I had an idea for an episode I think we should do in the future, which is it's very easy for us to sit here and make potshots at the Swatch Group and tell them how they should run their business and what they're doing wrong. We have no idea. They have stakeholders and constraints and considerations we could never fathom. So it's very easy for us to do this. And I'm sure if we had that board seat, we would immediately be humbled. More importantly, we're not perfect either. We've made mistakes. Speak for yourself. We've made plenty of mistakes.
- [49:09]
B
I can't even make that joke without feeling guilty. Go ahead.
- [49:12]
A
We've made plenty of mistakes in this business. I think it'd be interesting to do an episode on the mistakes we've made made and what we've learned from them, you know, as people in the watch industry, as business people in the watch industry, because I can tell you we've made plenty of mistakes. However, we've learned from those mistakes and all of them have actually made us stronger. So may maybe we, we eat some. We eat some crow. We could do an episode on our mistakes because we are not perfect. Far from it.
- [49:40]
B
Right on.
- [49:41]
A
All right. Well, good luck to the. Good luck to the holding companies. Seriously, we, we do wish you well. And that's not something we say sarcastically. Truly, you are the straw that stirs the drink in this industry. You are the whale in this ecosystem. We all depend on these companies doing well and succeeding to continue to enjoy watches, whether they're from these companies or from other players in this industry. So we will see and we'll continue to track how they navigate this period of change.
- [50:16]
B
Right on.
- [50:16]
A
Right on. Well, thank you for listening. Openwork is, of course, a production of collective horology. You can find us online@colliveherology.com and get in touch with your questions, your feedback, your comments tell us all the stupid mistakes we made and the things we should do differently. And to do that, you can email podcastollectiveherology.com.
- [50:51]
B
A day that will live in infamy.