← Openwork: Inside the Watch Industry
Openwork: Inside the Watch Industry
V-shaped Recovery? – The Watch Industry Shows Early Signs of a Turn-around – Episode 67
01:08:15
Loading summary
Transcript216 lines
- [00:01]
A
You know, the Higheks really are part and parcel with the Swatch group. So it'll be interesting to see if this is a moment in time where these pressures fundamentally reshape their influence over the company. This is openwork, a look inside the watch industry, a podcast from Collective Horology. I'm Gabe Riley, co founder of Kollective.
- [00:21]
B
And I'm Asher Rapkin, co founder of Kollective. Collective Horology is an independent watch retailer based in Southern California. We carry a wide range of independent brands including Holtonrix, Gaga, Laboratorio, Ming and more. If you want to learn more about us, if you want to check out our available inventory, visit collectprology.com well, not
- [00:39]
A
on the topic of available inventory, but on the topic of Ming is the Starfield. This is a watch that releases today. Now Ming Thien himself and Praneeth Raj Singh, CEO of Ming, were on Hodinkee Radio the business of watches a few weeks ago and they caused a stir by telling the world, but not showing the world about Starfield, which is Ming's long awaited answer to the integrated bracelet sports watch. A really cool watch down. When I say is this sports watch, it's an integrated bracelet watch. I mean it ticks a lot of the boxes you'd expect of a sports watch. But fine, it's their integrated bracelet watch. A really cool watch. If you're curious about it, we just did a video posted on YouTube, a hands on video. So we are fortunate to have the watch here at Collective. So we did a full hands on video with, with the, with the. So if you want to know what it looks like, what it wears, like you want to know about the materials, the very cool case back on this watch, all that stuff, we've got it covered. You can check that out on our YouTube channel. But enough about Ming. Let's boogie. We got a lot of news to talk about today. And it's funny, all these things are kind of interrelated, but we're starting to get a more clear picture of where the watch industry is. Starting with a Q4 or sort of a holiday report from Watches of Switzerland. A lot going on with Watches of Switzerland in particular. This is a really becoming, this company is becoming a really interesting bellwether of the industry because now it's spread across multiple markets, the us, uk, Europe. It's a company that I didn't even realize. This is on track to do $1.8 billion of revenue.
- [02:25]
B
Gross.
- [02:26]
A
Gross revenue. That's right. This year, which is pretty remarkable. That's a significant stake of the overall industry and making aggressive moves in the United States in particular and have been for some time.
- [02:41]
B
I mean this is not a recent move from them. They, I mean as far as I can tell for at least the last six, seven years they've been making strategic acquisitions of smaller dealers in various important territories. I'm thinking of like Timeless Luxury Watches for example was one of the first that I saw sell to them and that would have been pre Covid. That was, that was like 2018, 2019 shout out to them. By the way they made some really cool limited editions.
- [03:09]
A
Yes they did. Hodinkee analog shift and they built out their own retail presence Watches of Switzerland branded retail presence.
- [03:18]
B
And they have a lot of owned and operated boutiques that people don't necessarily realize are WOs. Like for example here in Los Angeles you would think there is no Watches of Switzerland presence but you would be wrong.
- [03:28]
A
You'd be wrong.
- [03:29]
B
You would be wrong. In LA county they own two back to back boutiques that share a space in everyone's favorite place, the Topanga Mall.
- [03:38]
A
Speaking of the bellwether of the industry, just go to the Topanga Mall.
- [03:42]
B
Well, I mean here in California like luxury malls are a bellwether in some way. So yes. And they own a Grand Seiko and a Tag Heuer boutique.
- [03:50]
A
Oh, the Tag Heuer Boutique. Interesting.
- [03:52]
B
There's a pass through between them but, but the reason I bring that up
- [03:54]
A
is there is that the world's only pass through between Taco Bell, Pizza Hut. Exactly.
- [04:02]
B
Yeah. But no, it's in all seriousness it's, they do have a foothold in the, in this territory and that is, is, that is an important thing. So when you do look at their business and their growth it's you know, through acquisition, through new developments, through, through brand for or specific brand boutiques, there's quite a significant placement and, and, and, and set of market share here in the United States for watches of Switzerland.
- [04:25]
A
There is and so they, they recently reported, I think gosh, just this past week they gave an update on their, their financial year Q3 but really the end of, end of the year kind of the holiday season and how things were going. And look we about all of the challenges the industry has had last year in the second half of last year as well with those 39% tariffs in the US in particular and they were able to, to grow revenue really on the back of strong performance particularly in the UK and the United States. So they saw that their overall revenue for financial year 26. So their past year they're guiding that up 6 to 10% which is pretty remarkable. So they're targeting a 1.83 billion DOL in revenue this year up or sorry, 1.83 billion pounds in revenue. So that's over $2 billion of, of business. They said that their holiday season in particular was really strong. This was, this was interesting and surprising to me. We're going to talk about swatches earnings as well, which were particularly strong in the end of last year as, as well. But of course what they're saying at the same time is although they're selling more watches in terms of revenue and the business is growing on the top line, their mar getting squeezed. So they said that their margin was basically down 79, 70 to 90 bips or basis points last year, year on year due to pressures from brand margins. So even if they directly aren't importing the watches and facing tariff pressures, you know, they're getting the watches from brands with a business entity in the United States. Their margins are getting squeezed and their investments in the United States are also squeezing their, their margin. So they're investing, they're spending money in the really around E commerce marketing. They're continuing to put money into Hodinkee which it's not clear if that's Hodinkee itself as its own business in a vacuum is revenue generating for them. That's a cost center for them. You know they talk about their belief in that and how it's helping them from a marketing standpoint. But that's an, that's an area where they're, they're allocating cost. And then they just announced, speaking of dealers in Texas, they bought another dealer in Texas, Deutsch and Deutsch.
- [06:40]
B
Before we go there though, I do want to just make one aside which I think is important to note what Watches of Switzerland is doing, which is not a US based company. What Watches of Switzerland is doing is arguably what the United States government wants to see which is investment in the United States not in manufacture but certainly in capital investment in the United States. And they're still being punished through the second and third order consequences of those tariffs through margins being squeezed, the cost of import increasing, et cetera. So I do think it's important to also note as we, because it's obviously a recurring topic that we bring up, but this is further evidence that these are ineffective in our market in order if we believe the good faith argument behind those tariffs.
- [07:18]
A
Yeah, I think the, the only challenge I would have to that is they're buying a lot of their growth so they're buying businesses that already exist in the United States. So you could argue the opposite, which is to say this is a foreign company, it's a British company that is, you know, buying American businesses and taking them over. So the, the growth and the, and the, the margin there, the profit flows to the British, not to American business entities. So in the case of this dealer in, in Texas, Deutsch and De, they have a number of retail locations. El Paso, one of my favorite cities. Go El paso, Chihuahuas, Laredo, McAllen and Victoria. So this is a dealer, unlike Timeless Luxury, which I believe is in the Dallas area, this is a dealer that focuses on was. Was in the Dallas area. This is a dealer in this case that focuses on more secondary markets within Texas, probably El Paso being the largest of them. I'm not as familiar with Texas as some other places, so forgive me if I've got that wrong, but this is a dealer, family owned dealer with four showrooms really anchored by Rolex. And Rolex is a key part of watches of Switzerland's business. And you have to wonder, with Rolex acquiring Bucherer and investing and expanding in the Bucherer business, you have to wonder if this is much, this is as much defense as it is offense. In other words, the more they can become inextricably linked to Rolex at a retail level, the more leverage they have. Yeah.
- [08:45]
B
And if we're to believe Monsieur Dufour and take him at his word from what he said at his interview at Dubai Watch Week, they aren't trying to completely edge out dealers from the market. But if I do read between the lines a little bit, I would imagine this is about hedging. Let's. I don't know what tier of Rolex dealer Deutsch and Deutsch is. Looks like their total revenue. And this is what was advertised was. What'd you say in the mid-60s?
- [09:10]
A
Yeah, it looks like it's about 67 million.
- [09:12]
B
Okay, so if you, if you were to break that evenly, showroom to showroom, it's about 15 million, 16 million per showroom. I don't know that it's broken out that way. But just for easy matter, which means that they actually aren't selling a ton of Rolex relative to what larger boutiques would sell, which generally benchmark at a higher rate. And by the way, it's not a swipe at Deutsch. And Deutsch, it's more to prove why I think watches of Switzerland saw value there. Because I wonder if watches of Switzerland coming in if they rebrand it or if it's considered under the Watches of Switzerland account, if that will also allow them to drive more volume, more inventory through, through those doors by virtue of coming with the negotiating clout of Watches of Switzerland. You see what I'm saying?
- [09:51]
A
Yeah, yeah, yeah.
- [09:52]
B
So this now sort of creates.
- [09:55]
A
Oh yeah. So the watches aren't distributed to a small chain with four doors. They're now distributed to watches in Switzerland and presumably the mix within those doors.
- [10:03]
B
Yeah. And then of course Watches Switzerland consumes whatever the allocation would have been for those, those four doors initially I just
- [10:08]
A
double checked, it was 67 million in rent.
- [10:10]
B
There you go.
- [10:11]
A
Good for four. Four doors for sure. Yeah.
- [10:13]
B
So if you look at that also you now, now we're starting to see where the corporate watch authorized dealer landscape is like where the, where the chips are falling in the United States. And it's pretty clear that it's the 1916 company, it's Bucherer and it's Watches of Switzerland and that that tier of, of corporate dealers, those are the ones that are going to duke it out here in the United States.
- [10:36]
A
So speaking of defensive moves, I mean,
- [10:39]
B
which by the way, before we even go there, those three companies in those configurations did not exist in the United States and in some cases did not exist at all 10 years ago.
- [10:49]
A
Yeah, yeah. Wind back the clock. We're talking about Tourno.
- [10:54]
B
Yeah. There was no Bucher in the United States really up until the acquisition of Tornoto. The 1916 company is a new quote.
- [11:00]
A
You know, sure, Gobberg has been around forever.
- [11:03]
B
Right. But, but the, the reorganization of 1916, consuming some of the, the retailers that they acquired is a new, relatively new entity on the scene.
- [11:12]
A
They're doing exactly the same thing Watches of Switzerland is doing in buying these, these dealers.
- [11:16]
B
And Watches of Switzerland is also, I mean in my own collecting career went from being a regional retailer in the way that I thought about them in Europe to being a global power. So let's see how that all plays out. But kind of an interesting scenario to watch those three end up changing hands and what pressure that's going to put on Major, the major remaining independent authorized dealers that do great revenue, I'm sure, but are not owned by those massive conglomerates.
- [11:46]
A
Yeah, so this is my question, which is put yourself in the shoes now forget Watches of Switzerland and all these other guys, but put yourselves, put yourself in the shoes of these smaller independent dealers.
- [11:56]
B
When we say smaller by the way, we mean just in terms of not multi door, multinational, you know, could be
- [12:01]
A
multi door Like Deutsche and Deutsch is a good example. It's a multi door retailer. Put yourselves.
- [12:06]
B
But they're still regional. I guess maybe that's.
- [12:08]
A
Yeah, put yourselves in, in the shoes of one of these, these businesses. Deutsche and Deutsch is a great example. This is owned and operated business. And it seems that more of these smaller family owned, regional, single or multi door, few of them, Rolex retailers in particular, are selling their businesses at a rate we haven't seen before. At least I haven't seen before in my time following the industry. Are they doing it under duress? I mean, and the reason I ask that is like think about our own business. Like you and I own this business fully. We take great pride in it. It's not just a company and a job for us, but this is our life and our life's work here. It's tied up with our identities. Not only do we do this all the time, but we've made great sacrifices to be in this business. We have great connection to our clients and to our employees and our physical spaces and all this kind of stuff. It's not something I think you and I would really want to sell. But here you're seeing family business after family business after family business. In some cases these businesses have been in these families for generations. These really, really are these families not just livelihoods but identities. And they're selling to watches of Switzerland. They're selling to in some cases bucherer or the 1916 company. I can't imagine that's an easy decision. But the rate of these sales has picked up. You think they're doing it under duress? Do you think they see the writing on the wall which is, look at exactly what you've just laid out right now. You've got these juggernauts, these three companies which are dominating and growing aggressively in the United States. You also have Rolex taking over one of them and consolidating. You have doors. You know, there are doors that Rolex we've talked about. Patek as well has just ap. All these companies for various reasons have decided to consolidate their number of retailers or consolidate ownership in company owned and operated retailers. Do you think these guys are seeing the writing on the wall or is there another reason they're selling these businesses?
- [14:15]
B
I mean, who knows? I suppose you could look at it and be really pragmatic about it and say, yeah, sure, maybe if I sell my business today, it's worth X million. If I sell my business under heavier pressure, in five years it's worth 0.8x million. And then it goes down from there. And nobody wants to be in a scenario where they hear, look, if you don't, if you were part of this group, you would have gotten that, but you're not. So your allocation is reduced. That's the thing. It's like a, if you're a Rolex dealer.
- [14:47]
A
Do you think Rolex is getting involved in any of this?
- [14:49]
B
Well, I think absolutely. For approval, for sure. Like you can't.
- [14:53]
A
Oh, they have to approve. Yeah. Okay, so this is a good point. We've, we've learned through some of our own experience, not with any brand that we carry, but we've seen some contracts from these, these bigger watch, mainstream watch brands and holding company brands. They will require dealers to get their approval before selling their business. So I will make this up. It's not necessarily, I don't, I've never seen a Rolex contract, but I have seen contracts from other holding companies for franchises with dealers. And they say, like, you cannot sell your business without our permission.
- [15:21]
B
Imagine getting so, by the way. Well, I mean, it's A, we, we don't and we won't, but B, I understand also to a degree why a Rolex will do that. They don't want, you know, they work really, really hard to make sure that their brand is represented in a very, very particular way. And if it's handed off to somebody who is, doesn't have that level of commitment, there would be a period of time where the Rolex brand was not being treated in that way and that would be deeply problematic to them. So I get that.
- [15:48]
A
But.
- [15:48]
B
So, yeah, of course Rolex knows what's happening here. Rolex is read into whatever that strategy is going to be. The thing is, when you're a brand that relies very heavily on one particular.
- [15:58]
A
If a.
- [15:58]
B
Pardon me. If you're a retailer who relies very heavily on one particular brand, you're always going to have that massive liability. Right. It's like if, if you and I were running our business and we only, and we had like one client that represented 30% of our business or something, that liability would be gigantic. You know, so it's the same on both sides. So, you know, do I think they did this under duress? I highly doubt it.
- [16:20]
A
But I do think calculus could also be, hey, we were approached, someone wants to buy us, we have the leverage. If there's ever a time to buy it or sell, this is now versus going out and shopping your business. Yeah.
- [16:32]
B
I mean, who knows what's going on? You know, maybe the kids aren't as interested. Maybe they want to do other things with their life.
- [16:36]
A
Like, sure, there's, there's a lot of explanations for those things around the edges and on a case by case basis, I think my point here, I also
- [16:43]
B
would tell you like there is a, like if someone came to us with a certain like an astronomical comical amount of money and said, I'd like to buy a collective, I think you and I would be foolish not to consider that.
- [16:52]
A
Sure.
- [16:53]
B
So, you know, but you know, obviously there, there is a, there is a for I think every entrepreneur, there are those limits of like, well, I wouldn't do this because then I didn't make any money. Well, I wouldn't do this because, you know, I think I can make more money. And then I wouldn't do this because I care about it and I love it. It's worth more to me. And then it sort of eclipses past. That's like, I'd be a moron not to do that.
- [17:13]
A
Yeah, you know, yeah, fair enough.
- [17:14]
B
But in order to get to like God tier there, someone has to really want your business and your business has to be like firing on all cylinders or give that person something that they simply cannot get in any other way.
- [17:27]
A
Yeah. One thing that Watches the Switzerland said, which I think is really interesting in this, this earnings release that they did, was they view the US not just as a growth engine. I mean clearly they're investing here. And this is something we hear from from so many, so many folks we've talked about how the numbers bear this out. But just the other week George Kern was saying, you know, the, the US is the market he's the most bullish on. So regardless, one thing that Watches of Switzerland said was they view the US as still a relatively unsaturated and untapped opportunity. So think about it. When you go to Europe, when you go to London, when you travel around Western Europe, you know, think about how many watch stores you see everywhere and authorized retailers you see everywhere in the US is not not only a bigger country than those by population, it's much more geographically spread out. And they see that the US overall as big of a watch market as it is on a per capita basis, they were saying is a less saturated market than the UK and Europe, which I find.
- [18:29]
B
Yeah. I mean think of it like this. Texas has a population of 31 million people. Switzerland has a population of about 9 million people.
- [18:37]
A
Yeah.
- [18:37]
B
So Texas is almost three times the size of Switzerland. California is four times the size of Switzerland. But. And this is the big but as we discussed on a few podcasts ago when we were talking about that wealth report, population is not necessarily an indicator of addressable audience.
- [18:53]
A
Sure.
- [18:54]
B
So there must have been some calculus in there to say, like the average high net worth individual in these markets shows significant potential. And if we become the dominant Texan Texas Timex retailer, you know what I mean, Then we, then we see significant growth opportunity in there. And it's not just them in the indie space. You know, Material Good has also opened a door in Texas. There's been a lot of focus on Texas. I suspect that Texas kind of like California. I don't know a ton about Texas. Frankly, I haven't spent a ton of time there. But I do know that it is a very idiosyncratic and very regional place. So I think kind of like California. It's like you can't just open a door in California without understanding the nuance of the community there. I think that's probably very true about Texas too. So you're not just buying, and this is, I think, is a lot of what they're probably getting from, from, from Deutsche and Deutsch. You're not just buying those doors and the potential for increased revenue. You're also buying generational knowledge and credibility in places that might not be as excited or interested to shop with watches of Switzerland than they would Deutsche and Deutsch buy watches of Switzerland. Yeah, you know, where that family is established. People know them. They're connected to the Texan community. They know how to Texans. Because as we all know, the United States is gigantic with lots of microcosms and the way people talk and interact and do commercial activity with one another in Minnesota, in New York, in California, in Maine. It could not be more different.
- [20:29]
A
The other thing they said which is interesting about their focus on the US is they're really focused on a younger audience than their competitors. They believe that there's significant opportunity among millennial in particular. This would explain a lot of their investment. Not just in Hodinkee, but an analog shift and an E Commerce.
- [20:45]
B
I love how for the watch industry, millennials are considered young.
- [20:48]
A
Well, well, this is their point. I know it's. It's almost laughable. It's kind of. It's kind of funny. But this is, this is where they believe their strategy is differentiated from some of their competitors, which is to focus on a more digitally savvy audience and a younger audience and a millennial audience versus kind of the legacy model of watch retail, which I'll give them credit. I think that's smart if they believe that there's an opportunity there in general, go for it. Final question on this thing. So you're a customer of Deutsche and Deutsch or whomever watches of Switzerland has just bought. Is this a good thing or a bad thing?
- [21:23]
B
I mean, I think in general it's probably a good thing if. Well, okay, let me rephrase that. It depends how you're looking at. Probably does mean in aggregate better, you know, options or access to certain pieces. But the flip side of that is, and this may not matter as much, but there will probably be less regional control over things. You know, like allocations may have to go to a corporate location, potentially this. I don't know. This, I'm just guessing. So we don't know. But as soon as you are acquired, then the person who acquired you has control over you.
- [22:03]
A
Yeah, we've heard that with like Patek Philippe allocations, like a lot of of Patek dealers who are part of a larger network. The like for instance with Tiffany, this was famous. Like you may be a customer of Tiffany in San Francisco, but the decision about allocation is actually made in New York. So watches are spread out nationally. They're not necessarily, you know, divided up and shipped out to the, to the stores.
- [22:26]
B
Yeah, I mean, like, I don't know that it would make a whole lot of difference for, you know, in demand but like relatively accessible. And I don't mean to make light of this but like relative to the line, like, you know, a Submariner is probably going to be just as easy or just as hard as it was before. Where I think things may get a little tricky is when you start moving into like the pieces that dealers are extremely persnickety about allocating like you know, steel Daytonas or off catalog Rolexes, things like that.
- [22:55]
A
All right, well, let's chat a little bit about Swiss exports and the Swatch group in particular. So this is not surprising. This was something you predicted. We finally got the Swiss export data for December of 2020.
- [23:05]
B
Let me guess.
- [23:06]
A
Yeah, so Swiss watch exports overall were up 3.3% year over year. So looking at December of 2005 versus December 2004. But to the US in particular, this is by value. They, they surged up nearly 20%. I find this pretty fascinating given two one, it's not surprising. No 39 tariff came, came down to 15. But to be up 20% is pretty remarkable considering one, that didn't really happen until we were about a third of the through the month nearly halfway through December and then B about halfway through December, everyone shuts down for the holidays. I mean try getting a watch out of Switzerland after December 20th. And then of course what doesn't really matter when exactly it ships for customs purposes, it's when it enters the, the the United States in this case which and those dates are obviously different. So the fact that that surged as much as it did, there was really only maybe a 1 1/2, 2 week window for those watches to get out if that. And the month was up 20% which shows you how much pent up demand and how much brands, you know, the factories had essentially been sitting on waiting for or hoping for tariffs to come down. I would suspect when we get the numbers in for January, everyone's reopened, we're still at this 15%. There seems to be a little bit more stability. The whole Greenland thing not notwithstanding. I suspect we'll see another strong month in January. So we're going to need to wait for things to nor normal lives here.
- [24:39]
B
Yeah, I mean the other thing I think we should, we should address in this one is it appears that Patek Philippe did lower their prices, which I'm still absolutely baffled by, I have to say.
- [24:50]
A
Yeah.
- [24:51]
B
And on the one hand I'm like, well, I'm baffled by it one because of all the brands in the world to roll back pricing, the idea that
- [25:00]
A
Patty, it's kind of shocking.
- [25:01]
B
It is kind of shocking.
- [25:02]
A
Wouldn't they take the, the opportunity to leave it there? And even if you're not being cynical to your point, there's still so much economic.
- [25:08]
B
No, I'm not being cy. And that's my point. I'm like so what are they going to do if, if someone grouchy in the US government sneezes and has a bad day and decides that there's a 50% tariff on, you know, something that impacts their supply chain, are they going to up the prices again? So really is opening the door to a more market pricing structure and what that market pricing really will be, and this is kind of interesting from an economic standpoint is pegged to the Swiss franc.
- [25:35]
A
Yeah, well let, let's jump from Swatch. We'll come back to Swatch in a second. But this goes to, to the next thing we were going to talk about which pressures on watch pricing in the US they're actually not going away. They're just taking a new, a new form. So you know, there's of course tariffs which we've talked about. I think we've did we've mentioned tariffs.
- [25:53]
B
Have we ever talked about tariffs?
- [25:54]
A
I'll have to go back and check. But let's put tariffs aside for a second. There's a couple of other things going on here. Let's just talk about currency exchange pressures. The US dollar relative to the Swiss franc right now is incredibly weak. Let's see what it is today. So today, right now, it's one Swiss franc is equivalent to $1.29, which by
- [26:23]
B
the way, I can't like the volatility here is wild. It was 1.3 a couple days ago. 1.27 two days ago. Now we're at 1.29. It's.
- [26:33]
A
Yeah, it was up to I think 1.32 at one point. So just for context here in September, December of 2022. Okay. Not even four years ago, just over three years ago, it was one to one.
- [26:45]
B
Well, look at what it was 14 months ago. Before, before January 19th, 2025, one year
- [26:50]
A
ago on February 5th. So we're recording this on February 5th, 2025, one year ago was 1.11.
- [26:56]
B
There you go.
- [26:57]
A
So in that last year it has, I'm bad at math, but it's risen about 10%. About 10%. Yeah. I mean we're up from 1.11 to 1.29, so nearly 2020 points.
- [27:13]
B
So when you combine that with all the other economic hedging, like moving into commodities like gold, for example, which has brought gold to sky high rates and yes, I know they've just recently come
- [27:25]
A
down, but as of yesterday when I was putting our research together for the this year over year, gold prices are up over 80%. Just in 2025 alone, the price of gold went up 65%. And they may have come down a little bit in recent days, but as of late January, they were up another 10%. Just. Just in January alone. So if we compare where gold was a year ago today. Yeah, yeah. To Today, it's up 80%. Gold has nearly doubled in price, which is pretty remarkable. Now I know not every watch is made of gold and certainly silver. Platinum is actually cheaper than gold by a lot now, which I find really interesting.
- [28:14]
B
But before anybody starts asking for discounts on platinum watches, by the way, there are reasons why platinum is more expensive, but go ahead.
- [28:21]
A
Yeah, so look, it's. The pressures are just continue to mount and the dollar weakening is probably the most insidious thing. And there are tons of different reasons why the dollar is weakening relative to other global currencies. However, it is weakening very aggressively relative to the Swiss franc. So if you look at the dollar relative to the euro, the euros increased just about 10% year on year relative to the dollar. The Swiss franc is actually more like 15 or higher. So, and look, the Swiss franc has long been, you know, viewed as a stable currency and a good reserve currency. So there are reasons why the, you know, when the dollar or other global currencies are down, the Swiss franc can, can be relatively strong. But it's the, the hits keep coming. So when things like the Greenland kerfuffle happen and you have people not wanting to forget, people selling bonds, you know, you talked about the $100 million in US T bills that a Danish pension fund sold off. That's a drop in the bucket. The real challenge is not people selling, it's them not wanting to buy our debt or our treasury bills. And that makes our debt and our treasury bills more expensive and it drives down the value of our currency. So the geopolitical situation isn't helping the dollar and it's really not helping the dollar for people who are interested in buying any kind of good from a, abroad. So the, the hits, the hits keep coming. So we, we may have some stability around tariffs, but foreign exchange, commodities prices, all of these things are very much in play. And all of these things obviously very much affect, affect the, the watch market. So to your point around Patek Philippe, it's interesting they'd be lowering prices in an environment where, sure, the tariffs are better, but every other signal is pointing toward higher prices.
- [30:20]
B
Yeah. You know what else I found interesting about that before we move on to the Swatch group, because this is sort of related to that topic. When we look at how different companies have handled tariffs, and I'm talking about big companies, right. Because smaller brands, especially the ones that we carry, don't generally have U.S. operations. When we look at, like Rolex, when we look at Swatch Group, when we look at Patek, the prices, the, the way that they do their price increase prices also demonstrates, I think, how exposed they are in their method of import to tariffs and also some of these other forces that we've discussed. Right. I mean, Rolex did a price increase, but it's much more modest, you know, than what you would expect. Which tells us, I think, that Rolex
- [31:06]
A
has an import 7%.
- [31:07]
B
Yeah. So they probably have an import structure on lockdown that allows them to be a little bit more insulated from some of these, some of these challenges. Whereas Swatch Groups prices have gone up significantly in some cases and they've tied and they've been clever about it in some ways like they've tied that to some novelties like you know, the, the lacquer dialed Speedmaster. I don't think the cost of that Speedmaster in incremental parts is equivalent to the delta between that and a sapphire sandwich.
- [31:36]
A
No, but, but, but positioned it as a different, fundamentally different product.
- [31:40]
B
My point is you can introduce that watch at that price point and say like it's for all of these reasons and sor in what you need to build in as a buffer. So that's clever, that's very smart on their part. So hat tip, Patac clearly has bigger exposure here. These are big price differences that they're, that they're lopping off the top. So if, if that's the case, that's an interesting insight into their business and that the transfer prices. And again, like I'm, I'm inferring this looking from the outside in, but their transfer prices might be a lot higher than we think they are and therefore their exposure on, on, on imported goods might be bigger. So. Which also begs the question, why roll it back then?
- [32:21]
A
Hey, it's Gabe. Openwork is proudly ad free and requires no paid subscription. If you'd like to support the show, please take a moment to subscribe, rate and review on your podcast platform of choice. Please also check out and subscribe to collective horology on YouTube where you'll find hundreds of videos we've made on independent watchmaking. You can find our channel at Collective Horology. And of course, you can always support the podcast by picking up a watch from over a dozen independent brands along with our latest merch@collective horology.com thanks for listening and for your support. Now back to the show. Yeah, it does seem, and again, I don't know a ton about the internal business operations of Rolex or Patek Philippe or Swadgu.
- [33:04]
B
No conjecture.
- [33:06]
A
Rolex seems to have more business operations in the United States. One, I mean, I mean it's a, they sell more watches than any than anyone else by volume, of course, but they, you know, they have multiple service centers, they have multiple offices, they have a large number of staff in the United States. So they're probably able to, to bring things in at a lower cost because their US Business entity is, you know, creates more value here relative to other, relative to these other companies, however they figure that out. But yeah, it's, but it's really fascinating. I mean, do you think this has any impact on anyone's interest in buying a Patek Philippe? Whether the prices are coming up or coming down? I mean, yes, you do.
- [33:45]
B
Oh, absolutely. I mean, well, for two reasons. One, if you think that something is unusually high, you may now say, well, maybe I should just wait for these, you know, maybe these tariffs, maybe the Supreme Court's gonna rule and the tariffs are just gonna go away and then the price is gonna come down again. Right?
- [34:00]
A
Yeah.
- [34:01]
B
Now I think that impacts a certain, certain, a certain client, but I think there's really two areas of exposure for paddock. Right. One is around hot grand comp clients where the price difference here could be six figures.
- [34:14]
A
Yeah. Oh, good point.
- [34:15]
B
You know. Right. And, and if the margin, if the, if, if the rumors are true and some of the margin points went back to the dealers, for example, they're also incentivized to want to sell this now and not wait for another change where they lose points on a million dollar plus grand comp. You know, I know it's like, oh, cry a tear for the Patek dealer selling a million dollar watch. But grand comps are at a lower margin than production watches. So I know it sounds crazy, but like it is a lot of work. And that is a crunched margin, just like watches of Switzerland told us. The other place where I think it impacts them is at the super high end, I think at the entry level too. And I'm not talking about in demand watches. Right. I mean, let's be real. If you're buying a steel aquanaut and it went up five times grand, you're still, the watch is still worth more than you paid for it, maybe incrementally less, but still worth more. So to a certain degree, like, who cares? But the, the watches that are not in demand, and those are the watches
- [35:08]
A
they want people to focus on.
- [35:09]
B
Yes. Like 6119s, you know, 24s, you know, sort of like anything in the base Calatrava line, anything quartz, really, for women.
- [35:18]
A
Oh, yeah. It'll be interesting to look at how these price changes from Patek impact the secondary market. It'll take a little while for that to trickle through. But would we see an 8 drop in prices on the secondary?
- [35:29]
B
No, I don't think so, but I do. My point is, if you knew that a lot, and I hate having this conversation, I hate talking about watch values in this way, but like just practically speaking, if you're considering a 6119, so entry level Calatrava, which, you know, which depreciates like something like 15, 20% after you buy it, and now that cost basis goes up by, you know, know 10 points now it's just going to depreciate by several, several additional base points.
- [35:58]
A
Yeah, but in this case, the prices went down.
- [36:00]
B
Yeah, but now if you bought it three months ago.
- [36:02]
A
Yeah, okay. I, I think more than anything, what it does is it just introduces more volatility. And volatility isn't good, you know, to some extent. Like even if the prices, you know, go up because of tariffs and then there's some relief, but they reset and they stay at that higher level, at least there isn't volatility in the pricing. You're not one. It's like the price. I might not like it, but the price is what, to your point, you're not wondering, well, could it come down next week, is it going to change again, what's going to happen? And that at least creates an environment where you can buy something knowing, fundamentally kind of what it costs.
- [36:34]
B
Yeah, I mean, I think, to be clear, I think it's not going to be business moving for the people who are like holding, you know, keeping their powder dry on this. Because I'm thinking this is a bell curve and like the folks are at the far end and are thinking about Grandmaster chimes at like 1.8 or 2 million, whatever that watch costs, you know, and then the other side.
- [36:49]
A
Rounding error for them.
- [36:50]
B
Well, no, my point is it's not a rounding error because if you're considering. I mean.
- [36:54]
A
Yeah.
- [36:55]
B
Just because you have the money doesn't.
- [36:56]
A
Sure, yeah.
- [36:56]
B
It doesn't mean you just want to cook $100,000. Yeah. You know, I mean, God, on a Grandmaster time, that's like you're going to pay 100 grand in sales tax to begin with. So there's, there's that end of the, of the spectrum. And just because you have billions of dollars or millions of dollars, doesn't mean that you got there by throwing it all out the window. And then the other side of the bell curve, I do think you have folks that are saying, I really was like working my butt off to trade and sell and whatever to get to the base price of a 6119 that got pushed to out. Maybe I will wait and just see what the Supreme Court says, because if it's zero, maybe this comes back down to earth again. I don't know.
- [37:32]
A
So one of the things we've, we haven't really talked much about with all the tariff stuff and all these price pressures, you know, we focused a lot on the pressures that it puts on consumers. Right. If you're a collector, you're a buyer, what it does to watch prices. But as with the Watches of Switzerland, earnings, one thing is really clear is this also puts pressure on dealers and dealer margins have come down. So the Patek story story, dealer margins got crunched. Watches of Switzerland is telling us their margins are getting crunched by brands. We know our margins have gotten crunched. We buy many watches now from many brands at a lower margin than we did in the past because of tariffs, because of currency issues. All of these things we've talked about, we talked about the challenge of prices resetting for consumers because you know, in luxury in particular, once a price gets to a certain point, it tends to stay there and go higher, not come back. In some cases, maybe withstanding. Do you think dealer margins are now permanently squeezed? Do you think the industry and the factory is going to use this time to lock in lower margins for dealers? Do you think there's any going back and does that contribute to the pressures on independent and smaller dealers to get with the program and sell to a larger organization like Watches of Switzerland who has more economy, economies of scale and can better metabolize a lower margin because their volume is higher?
- [39:00]
B
No. And the reason why is if your business is anchored to Rolex or Patek, that is your business, you may have more exposure on the get with the program vibe that you're mentioning. If you're an independent retailer, you may not have the cash bazooka of those brands brands, but what you have is flexibility and credibility. And what I mean by that is in order for dealers to buy watches, they need to sell them too. Right? We don't just buy them and then, and then like roll around on them on, on the couch. Like the goal is that that watch comes in and that we, we, we place it as quickly as we can with somebody that's going to love it. And that's how our business functions. The more our volume, the more volume that we do with that, the more power that we as a, as an independent retailer has in our negotiation with a manufacturer. Unless they feel they can move more pieces at a lower margin faster, or rather I should say a greater margin for themselves faster through somebody else. So I think it's not necessarily a binary thing. I think it's additional pressure on smaller dealers. Smaller dealers can be more nimble and smaller dealers don't necessarily have to be defined by one brand. You know, sometimes when you go into a multi brand store that's largely driven by Rolex revenue, it's the Rolex show with all these other brands that are
- [40:29]
A
there to support and they're they're over
- [40:30]
B
there if you want to look at them. But we're here to talk about Rolex, you know, and if Rolex goes away, it's like it's all done.
- [40:36]
A
Yeah.
- [40:37]
B
For, for independent retailers. If, you know, obviously there's always going to be some brand that, you know, outperforms other brands, of course, and those
- [40:47]
A
can change over time.
- [40:48]
B
Sure. But if you pull that, those, you know, those, those Jenga bricks out, the whole tower doesn't necessarily fall the same way that you would see as if, you know, I, as if I, you know, Geary's lost Rolex or, you know, I don't know, some other major regional retailer lost Paddock. So my point is, I don't think it's quite that simple. But what it does mean is the game's like, the game's a little tighter. Everyone's a little bit more focused. The pressures aren't just coming from the companies. The companies are also reacting to geopolitical realities and all of that is being shoved into the meat grinder that is ultimately leading to, like, what's getting served to the client. And it's all of this pressure leading to these, you know, to these, these increase increases. It's, you know, it's never been less true that, you know, quote Watch, you know, watch guys are greedy.
- [41:42]
A
Yeah. I mean, you know, the, the pressures on, on retailers from all of these sources is, is real. You know, it's not, we're not greedy. And these are, these are challenging times. And we've all taken haircuts, the brands have taken haircuts. I mean, we've heard that in, we'll talk about Swatch Groups earnings in a second. They've taken a real haircut on their kind of their net earnings. You know, we heard this from Watches of Switzerland. They've taken a haircut. You know, they're selling more watches, they're doing more business, but they're relatively less profitable. Their margins are getting squeezed. We had a tough year last year where, you know, we were profitable, but our margins were squeezed significantly as well. So no one, no one is making more money with these, with these higher prices in this environment. I guess. Look, we've heard Patek is giving, they've confirmed they're giving margin points back to their dealers. We know Watches of Switzerland is getting squeezed on margin. Do you think in their next earnings report they're going to start telling us that the brands are giving them margin back?
- [42:39]
B
No.
- [42:40]
A
So this is, this is my question. It's like one, even if they Do.
- [42:44]
B
I don't think they're going to broadcast that.
- [42:46]
A
Well, it's a publicly held company and they're going to be asked where they're, you know, if their margins, their profitability goes up where that came from. And you know, they're pretty transparent. I don't think they name Rolex for instance, by name, but they were really transparent. I mean, they mentioned that a number of brands had withheld inventory from the US Basically from August through December. So this is why I say, like, it's an interesting report or it's really a bellwether report because they share a lot of details. They have to, they're a publicly owned company and in fact some of the standards around public reporting are even higher in, in the UK than they are in the US. I mean, the amount of information that private companies have to share publicly about their finances is much higher in the uk. So we'll see. I, I'm, I'm suspicious. You know, we got a letter the other day from a brand we carry basically, you know, and the topic of like margin pressure telling us there's no longer any co op marketing funding. And in the case of that brand, I actually think that makes sense. They're going to spend, spend more money themselves on brand marketing. But I think a lot of brands are taking this time to kind of put the screws on margins. And just like we look under, under the couch, I don't think that's a
- [43:54]
B
fair way to phrase it. I think they're taking this time to restructure their business to survive like a very significant.
- [44:01]
A
That's what I'm saying. Like we're, and we do the same thing. Sure. Right. Like we picked up the phone and we called our shipping provider and we renegotiated our shipping rates. Yep. Right. And because that's the reality of the business, like our, our profitability is under pressure, our margins are under pressure. So we have to look at how we restructure things, how we can save money. We're still spending plenty of money on shipping. They'll, they'll be, they'll be just fine. But you know, this is, the brands are taking this opportunity. There's nothing like a good crisis to get, you know, cleaned up, to get fitter, to get stronger. Speaking of which, let's move on to Swatch. Swatch announced their, their latest earnings. They talked about their performance last year and I found this really fascinating. They had net sales down, so the, the business was down 1.3%. So this is their business revenue overall, their operating Profit. They still did make a profit. Not much, but they're, they're net profit. So for all the business that Swatch does, and this is a company that does a lot of business, $6.3 billion of business in revenue. They only made a profit of $25 million. Now, $25 million is a lot of money, but if you're doing $6.3 billion in business and you're making $25 million after all of that, those margins are pretty thin.
- [45:26]
B
And that's after expenses.
- [45:28]
A
That's after their, their expenses. So that's a net profit margin. Now, speaking of the perception that the luxury industry is really greedy and we're just printing money and we're using, for
- [45:38]
B
all intents and purposes, relative to that break even.
- [45:40]
A
It's break even. The net. The net margin is 0.4%. Less than a percent. 40, you know, 4, 10 tenths of a percent.
- [45:52]
B
No. No raise at the Swatch boutique.
- [45:55]
A
No. So like I said, no one's benefiting from this. Two things I found interesting is they said that the year really turned around for them in the second half, which I find to be the most remarkable, because the second half was, if you think about the environment for running a watch business, the second half was. That was the toughest. The tariffs got ratcheted up to 39%. They didn't come down till December, finally till 15%. But including in the US the Swatch group is saying they turned around, turned around their, their business. Their H2 sales in 2025 were up 4.7%. So when you take that into the context of a business that was only up 1.3% on the year, but just in the second half alone, they're up 4.7, that's a pretty remarkable shift in the business environment for them. And the other thing that's going on at Swatch Group with all of this is there's been a ton of active activist pressure, activist investor pressure, you can imagine. So one thing to know about the way the Swatch Group is structured, it's a publicly traded company, but. And they don't own the majority of the shares, but the Hayek family effectively controls the voting rights for the company. This is a classic example of how shares can be structured differently. Different classes of shares, certain classes have voting rights or more voting rights than others. In this case, the shares of the Hayek family owns, owns. They control 40% of the voting rights, even though they don't own 40% of the company. So they have not control, but they have the Most influence over the direction of the company and the most voting rights. There is an activist investor. I can't remember the name, but they only own about half a percent of the company overall. But it's a $6 billion revenue company. It's a significant stake. They're putting considerable pressure on the Swatch Group to reflect form the way the company is structured and the way these voting rights work. They actually want it to work more similar to the Richemont Group, which has kind of more equitable distribution of voting rights across cross shareholders. And as a concession, the Hayeks are saying they'll add a board member, a former Swiss government official to the board. To me, that doesn't quite feel like giving their shareholders the extent of control that they're asking for. But, but the pressures that the Swatch Group has been under aren't just, you know, affecting the profitability of the business and the way the business, you know, itself runs, but it's affecting the overall ownership structure, the board composition. And if these activists are able to wrestle some control or essentially, basically wrestle control of the company from the Hyex, it'll be really interesting. And I don't know if that's a good or a bad thing. You know, there's all, all things, sorts of good things to say about corporate transparency and giving the shareholders of the company a say in how the company operates, of course, but there is something to be said in the watch industry in particular and in a luxury industry in particular to having the company be run by a small group of people who have a long term stake in the business, clear idea and a point of view on the business. Now you could argue, well, maybe their clear idea and clear ideas in their point of view aren't really working and they need some outside, they need some outside pressure to change. But you know, the Hyex really are part and parcel with the Swatch Group. So it'll be interesting to see if this is a moment in time where these pressures fundamentally reshape their influence over the company.
- [49:27]
B
I mean, I can't help but think about this in the context of our conversation of Richemont split from Baumann Mercier and makes me wonder, you know, are there certain brands that are a serious drag on the revenue of this watch group and are, you know, you know, are brands like Omega carrying, you know, the water for the rest of the growth group? You know, I don't know. Or, you know, maybe Omega is the drag. I have no, to be clear, it's complete. I'm just saying who knows?
- [49:49]
A
We have no idea.
- [49:50]
B
Yeah, exactly. So I don't know. It's kind of interesting because I can theorize all I want without data, but that's just honestly me making stuff up. So who knows? Yeah, I have to imagine that if you get to the end of the year and you're looking at your books like this, it's gotta be, it's gotta be pretty, pretty, pretty rough. And in the grand scheme of things, I mean, stuff like this does have an impact all the way to down the line managers, to rank and file people. I was being facetious, but if I'm being completely honest with you, if you're a sales rep, you know, the Austin Omega Boutique, you're not getting a raise this year. Like how, how could the business do that? And that has a direct impact on people's lives. You know, when businesses are breaking even, then nobody inside that business is.
- [50:39]
A
Nothing is safe.
- [50:40]
B
No. Except apparently shareholders, you still get their dividends.
- [50:43]
A
Yeah. So I'm just, I'm just doing a little bit of research here about around profitability of like the Swatch Group versus Richemont. And the reason I'm doing this is I would imagine the average investor in Swatch Group isn't a watch enthusiast or a watch industry executive.
- [51:00]
B
Yeah. So it's just part of their portfolio.
- [51:01]
A
It's just something they hold as part of a portfolio. And if there's, you know, any intention around holding it, they're likely, you know, comparing the Swatch Group to Richemont and lvmh. You know, I own luxury watch company. I have an investment stake in this company that makes luxury goods. And if you look at the profitability of Richemont, So in their financial year that ended in 2025, in March of 2025, their group offer operating profit was about 2.4 billion euros. So we talked about what the profit was for Swatch Group. It was in the millions. Right. And it was 22% percent. So compare that to 0.4%. So now imagine it's not even a
- [51:45]
B
question of like corporate investment. I mean, that's a massive delta.
- [51:48]
A
It's a massive delta. And I haven't looked at what LVMH's margins are, but let's assume that they're, you know, either just as good, better, maybe somewhere between where Richemont and Swatch sit, I would guess better, but I don't know for sure. You're an investor, you're looking at that and you're like, I've got money in this company that makes Watches. I've got money in this company that makes watch watches. Want. Now Richemont has some very different business dynamics with Cartier and with, you know, jewelry and other lines of business. You know, watches is the focus of Swatch. That's it. But you're looking at Richemont, you're like, they're making 22% profit. You know, that looks like a good luxury industry investment there. Like, that's what I would expect. These are luxury goods. You guys are barely breaking even. What's going on? So the, the difference here is pretty stark. It's really stark. And you have to, you have to wonder. I don't, I doubt that if you're an activist investor or really any investor, you're going to be satisfied with a, you know, an additional board seat given what we're talking about here. I mean, these numbers are, the difference is, is pretty, pretty stark. Speaking of things that are stark, one last thing I want to cover today because this, I opened up my, I opened up my feed on Instagram on whatever morning, Monday, Tuesday morning, and the first thing I saw and it, it hit me like a ton of bricks was this new AP jump hour watch. I think they call it the Neo Frame. I think that, that's, that's the, I mean it, it stopped me dead in my tracks for, for many, many reasons. And let's forget the watchmaking here for a second, but from a business standpoint, I find this move extremely, extremely fascinating. And, and for, for context, like, AP has released some watches that are very different from their court core portfolio of Royal Oaks, Royal Oak, offshores, and code 1159 in the last few years. But they've always been under this remaster heading. You know, they did that crazy 70s like TV watch. They've done some vintage chronographs, very cool stuff. This is not a limited edition. This is a new family of watches that is regular production that joins the permanent collection. It's a jump hour watch in a rectangular case. It's 70,000, just over US$70,000. Beautiful watch. It's a callback to a rectangular jump hour watch that AP created about 100 years ago. And you know, we associate AP with the Royal Oak and maybe even code 1159 right now. But for most of the their life lifespan of the company, they were essentially making bespoke watches and very small production run watches. They didn't have regular production watches at AP until I think it was like the 1950s or, or 60s. So there's legitimacy in this design. I mean, they made Jump hours. They made watches that looked like this in this shape. You know, people are saying, oh, they're ripping off Cartier. Well, no, this is. These kinds of shaped watches were something that AP and everyone else was doing 100 years ago. But this is a big, big departure. And I. I'm sort of from just the business and the strategy, the product positioning standpoint, I'm kind of of two minds about this. I just. I. I don't know what to think.
- [55:10]
B
I mean, look, I. I think ap well, two things. Anytime AP decides to step outside of the Royal Oak, I think is a good thing, because prior to the 1950s, basically everything, you know, AP made was a bespoke wall and their catalog of creativity and especially some of the stuff that they've done. In the 1970s, I remember that all hobnail watch. I had beautiful stuff.
- [55:35]
A
I mean, the AP dress watches are just elegant and.
- [55:39]
B
Yeah. I mean, the Royal Oak really is just this giant wheezing beast of a creature that has to be constantly fed to keep the company alive. And I would be hard pressed to do anything but applaud them for stepping outside of that so dramatically. Even with. Even. Like, code 1159 is still, you know, in the outer orbit of the Royal Oak.
- [56:06]
A
Oh, yeah. It's got an octagonal case.
- [56:08]
B
So my point is, like, you know, even when they experiment there, like, when they. To me, when they, like, put the star wheel in that watch, I was like, ugh. Because they're really. They're like, oh, you guys like star wheels? Cool. We'll use that to sell you an 1159 versus letting the star wheel really stand out.
- [56:24]
A
Yeah, but the 1159, I mean, aside from that octagonal mid case, if you look at the case of that watch and the complications of that watch, it is impressive, and it's a pretty original design.
- [56:35]
B
I like the 1159. My point is, though, it's still in the orbit of that watch, and they could have just as well issued a jump hour in an 1159 case, and it would.
- [56:47]
A
Or a Royal Oak case.
- [56:49]
B
I have a harder time imagining that, but sure. I mean, hypothetically. But regardless, they could have done that because they do a lot more experimentation aesthetically, I would argue, not. Not necessarily technically.
- [57:02]
A
It's a lot of experimental line within the Offshore, though.
- [57:05]
B
It's within the Royal Oak, the Royal Oak concept. It's not Royal Oak, but my point is, like, they do certain types of experimentation in the Royal Oak line. They do certain types of experimentation in the 1159 line, and you would have imagined that, that's kind of what they would have done, but they didn't. They didn't. They, they, they kind of are backfilling what the Jules Audemars line used to do. Oh, you remember call.
- [57:26]
A
Yes.
- [57:26]
B
Yeah.
- [57:26]
A
100%.
- [57:27]
B
Yeah. And it's like there's this other part of the business that's doing really cool stuff, stuff that can be a little bit more gonzo, can be a little bit, you know, more out there and you're correct. Like the Cartier Tanko. I'm trying to remember the name of it. I think it's the Tank Tanko Giche, I think, or something, you know, that, that, that has a similar, you know, half moon aperture for the minutes, similar centered aperture for. For the hour. There's lots of companies out there that made watches like that. It's not just Cartier and ap. So it was definitely like, of a, you know, it's like ragging on someone for making a dive watch with a, with a rotating belt bezel. Like, that's just a trope. Anyway, all of this to say I think it's cool. I think it's very expensive. Yeah, I think it's great to see AP step outside of that space. Let's see how people respond to it. I think, you know, it could go one of two ways. What they really probably want here is for this to attract new collectors to them that aren't interested in their primary line minds, strategically, that that's where for
- [58:31]
A
years they've been saying, and their new CEO has underscored this. They want to go after women. They want women to become a larger share of their customer base. I don't know if this is a watch that appeals to women or not, but it's certainly very different than an offshore.
- [58:45]
B
Yeah, I mean, I don't know one way or the other in that regard, but whether, whether it's. Whether it's diversification from gender diversification in terms of just profile the client or however you do it. I think they're hoping that this will. Will do what Rem Master wasn't 100% capable of doing, but sure made a valiant effort at doing, which is bringing in other clients. The question for me now is, are they going to treat those clients like gum on the bottom of their shoe, the way they treat everyone else, or are they going to look at them as a, as an opportunity? Like the reality is.
- [59:18]
A
Well, they say they want new clients, which I, you know, I find that hard to believe because out of one
- [59:23]
B
side of their mouth, I don't at
- [59:24]
A
all, out of one side of their mouth, you know, they'll say, like, oh, we just simply don't have enough watch. There are more people who want our watches than we have watches for. I'm so sorry, you're going to have to buy these five 1159s in order for us to discuss a Royal Oak with you. But then they also go out and say, like, we want more women, we want new kinds of collectors, we want a younger audience collecting our watches, because,
- [59:45]
B
you know, what number we don't know. And I think this might be the secret is what the churn on an AP client is.
- [59:52]
A
Oh, interesting.
- [59:53]
B
Like, you're right. I think there's probably a line out the door at AP boutiques and AP
- [59:59]
A
houses, but once they have their three Royal Oaks, they're good, they've moved on. Yeah, interesting.
- [60:04]
B
And it's not like the. And it's not like the. And I'm sure. And I mean, look, you can't paint with a broad brush. You know, we've heard everything along the lines of, you know, really awful experiences with ap. Some people have had better experiences with ap. But. But the truth of the matter is, no matter how you cut it, gatekeeping is a huge component of their, of their business. Business that, you know, I don't know how that's going to sit if they want to bring new clients in. But again, taking any personal feelings out of it and just looking at it from a purely business standpoint, what this does do and what the remaster did, and to a certain degree, what things like the Star Wheel do is that they open up additional road and path in front of a client at AP who probably comes at like the majority of clients, right? Because like the majority of clients come in, they probably say like, I want a 15, 500 or I want a 15, 4 50, or I want, want, you know, a jumbo or whatever. And then it's like the same song and dance of like, well, if I, you know, I'm gonna have to do xy, you have to do XYZ in order to qualify for that, you know, or to get that, that QP or like, whatever. And like that is just like the hamster wheel of how AP makes money. But the thing is, at a certain point, for some, for like a top tier of that client, they have all that stuff. Where do they go next?
- [61:18]
A
The guy who has six Royal Oaks.
- [61:20]
B
Oh, forget six. I'm talking about like top tier clients that have like 15, 20, 30 APs. Where do they go next? And you kind of need a pathway for them. So that's number one. Two, this might bring in a secondary business for them, I think in their wildest dreams would be people who only want to buy stuff like this, who think the Royal Oak is lovely but not their jam. And maybe someday they'll buy one if it's offered to them, but it's not 100% what they want. That'd be incredible for them to have that kind of a secondary experience, people
- [61:47]
A
asking for something other than a Royal Oak. You're right. When AP talks about having more customers than they know what to do with it, they have more Royal Oak customers than they know what to do with right now. This allows them to find some other. Other folks.
- [61:59]
B
Yeah, exactly. You know, he's done a really awesome job of this lately. In that tier is Rolex, frankly, because, you know.
- [62:06]
A
Oh, yeah, you're right.
- [62:07]
B
The Land Dweller. Right. Like these, the new. The. What are they? 19. 1908. You know, like those on the brace. Like, you saw that on the bracelet. Objectively badass watch relative to, you know, within, like the world of Rolex. And I could see. See how somebody who's a rainbow Daytona customer, you know, like a top. Top 50 customer in the United States. It's like, where do I go from here? Rolex isn't going to make me piece unique. It's not going to happen.
- [62:32]
A
Yeah, yeah.
- [62:33]
B
And Artis, you know, Artisans Geneva are like, is like my best option at this point. Until you start seeing novelty around the edge. It's like, ooh, that platinum date, you know, that platinum Land dweller is really cool. That 1908 is a platform that I could see. I could become a collector of that line. Well, if we start here, when they start introducing calendar watches, you know, we
- [62:53]
A
have CL for whom those new product lines have opened up more business. For sure. Totally.
- [62:58]
B
So I guess my point is I see the strategy and I think it's right.
- [63:02]
A
Well, here's. It's the complete opposite of what Patek has done. So Patek had a similar challenge or a growing challenge, which is if AP is the Royal Oak company, Patek was concerned they were becoming the Nautilus company.
- [63:18]
B
Yes, but. But Paddock's. But Paddock is also way more diversified in terms of what tends to attract people to. Yes, I know the Nautilus and the Aquanaut are a beast, but there are a lot of people.
- [63:30]
A
Yeah.
- [63:31]
B
Who are. Who are attracted to Patek because of things like the perpetual calendar and things,
- [63:35]
A
and they're not interested at all in that stuff.
- [63:37]
B
I mean, maybe they are, but it's not, it's not like they don't have to have it in that sort of rabid way.
- [63:42]
A
Here's the difference, though. Same risk. Right. Like, let's go. You know, there's the famous, like, key person risk in a, in a business. There's like a kind of a key watch risk for AP and, and there was a growing one for Patek where, like, AP is the Royal O, Patek is the, the Nautilus. Patek's response was, all right, well, then we're going to take away the Nautilus. AP strategy is a little different. They're like, we're still going to make the, the Royal Oak. The same time they announced this novelty, they probably announce. I know they announced nearly a dozen, maybe more like Royal Oaks. Right. So, like, they're still going to make the Royal Oaks.
- [64:18]
B
Yeah, Well, I mean, that is the company, of course.
- [64:20]
A
Right. But what this allows them to do, which I think is smart, is say, like, like, all right, we're going to try a little experiment over here. We're going to do this, and if this works and does exactly what you're describing, great. If it doesn't, they can roll it back and try something else. So I think what they're, they're doing is like, we're not going to become the not Royal Oak company by taking Royal Oaks away. We're going to become a more diversified company or try to become a more diverse company.
- [64:46]
B
But they literally can't, though.
- [64:47]
A
I mean, that's introducing different.
- [64:49]
B
This is the difference. Steal watches from Patek represented less than 5% of their annual production. So even if you did just quote, unquote, take it away. And they did. With the 5811. Yeah, with the 5811. Insofar as it's white gold, the company is still humming along.
- [65:09]
A
Yeah. If you took away steel Royal Oaks,
- [65:13]
B
there is no ap.
- [65:15]
A
So I think, yeah, you're right. It's a, it's a different, different problem. But I like, I like the solution of saying, hey, we're. Look, we know we have a, we have a key watch risk. We're still going to make the key watch. People want it, but we're going to try new things and in a sense, like, we're also going to commit to them. This isn't a remaster. Like, this is a new product line. I guess my question about this product line.
- [65:36]
B
So will gatekeeping and gaslighting be the, like, you know, the two, the two tenants of marketing this Watch or if someone calls in, this is my question. Yeah.
- [65:48]
A
Is like, is this a watch that becomes bundled to, you know, for someone who, who wants a Royal Oak? And in a lot of ways that's like what the code 1150. There are people who collect the code 1159 and love the code 1159. We know them. There are also a lot of people we know who have bought a code 1159 as part of their journey with AP.
- [66:09]
B
Sure.
- [66:09]
A
To get something. To get something else. You know, this was. Oh, these things aren't available. But this is, this is a great way to start your relationship. Chip. Does this watch become one of those. My hope would be that they produce it in limited enough quantities that it remains desirable available to the people who really want it. And it doesn't become yet another bargaining chip to get something else from ap. That would suck.
- [66:33]
B
Yeah. I don't know. I mean, I'll be curious to see. But look, I, I am happy to see AP doing this.
- [66:41]
A
Yeah.
- [66:41]
B
I think it is a beautiful watch.
- [66:43]
A
It is.
- [66:43]
B
I can argue about the fact it is beautiful.
- [66:45]
A
Yeah. And the way the, the, the Cryst integrated into the case is really cool.
- [66:50]
B
It's very cool. I can argue about whether I think it's too expensive or whatever, but like, that's subjective. I mean, I think aps in general are too expensive for what they are. But let me rephrase that. I think APs in general are too expensive at the entry level. There is some incredible watch on the high end. And it all is really going to boil down to if they want a different kind of customer, do they expect that customer to then confront, conform to them or will they conform to that customer? Let's find out.
- [67:20]
A
Yeah, let's see, let's see where this goes. Apparently they're going to make it an additional case materials. This is not limited, it's regular production. The production, I would imagine is constrained. So it's really interesting. You'd think they would do this as a limited edition, but no, they planted a flag here. So we will see. All right, well, how about we leave it there? All right, well, thank you so much for listening. Openwork is of course a production of Collective Horology. You can find us online@colliveherology.com and please get in touch with your questions, your feedback, your comments, your suggestions. We want suggestions. And to do that, just email podcastollectivephorology.com.
- [68:14]
B
Gaga.