U.S. Economy Alters Face of Luxury Brands
New York Times, March 17, 2010
MUNICH — In 2006, shortly after Hartmut Kraft took over as second-in-command at Chronoswiss, a well-regarded Swiss watch manufacturer based here, he initiated a meticulous three-year analysis of the brand’s performance in the United States.
His conclusion: It was time to fire the company’s independent distributor.
In addition to complaints about the distributor’s lack of advertising and poor retail network, which then numbered 60 stores, Mr. Kraft took issue with what he considered its exorbitant pricing. He recommended to the Chronoswiss chief executive, Gerd R. Lang, that the brand open its own subsidiary, and he offered to supervise its creation in 2008.
Instead, Mr. Lang gave Mr. Kraft the U.S. distributorship.
“That was September 2008, and we all know how much of a gift that was,” said Mr. Kraft, now the chief executive of Chronoswiss of North America, referring to his move to the United States, which coincided with the collapse of Lehman Brothers and the onset of a full-blown economic crisis. “It took me two weeks to figure out I had to close down the entire operation because of the mess I discovered.”
A year and a half later, Mr. Kraft is up to eight authorized retailers. He says he has plans to grow by no more than six new accounts this year — a prudence that reflects less the specific problems he identified at Chronoswiss than the systemic problems facing the entire U.S. watch market, historically Switzerland’s largest and most sophisticated.
In 2009, same-store retail watch sales in the United States dropped by an average of 14 percent compared with 2008, according to data collected by LGI Network, a market research firm specializing in the U.S. fine watch and jewelry industries. Exports from Switzerland to the United States over the same period recorded a much steeper decline of 38 percent. The discrepancy suggests that retailers were still dealing with excess inventories at the end of the year, one of the ongoing stories of the recession.
Although LGI’s January figures indicate that the watch business has stabilized, with same-store sales rising by 4 percent, the crisis has exposed fault lines that are critical to understanding why the United States has suffered such a heavy toll, both statistically and anecdotally.
Nowhere has that toll been more visible than at the executive level. It has become a cliché to describe the watch business in America as a game of musical chairs, yet no other metaphor seems quite as relevant.
In November, for example, the boutique brand Girard-Perregaux replaced its longtime U.S. president, Ron Jackson, with Marcia Mazzocchi, who had left A. Lange & Söhne in 2009 after nine years with the German manufacturer.
Meanwhile, Philippe Bonay, the former president of Panerai North America, briefly surfaced at Breitling in 2008 before taking Mazzocchi’s position at Lange last spring. Effective April 1, he will assume the U.S. presidency of Jaeger-LeCoultre, a sister brand within the Financière Richemont group of companies, following the departure of Gina Misrach.
Cartier North America recently welcomed Emmanuel Perrin from Van Cleef & Arpels as its new president, replacing Frederic de Narp, now at the helm of Harry Winston.
While dealing with the challenge of managing their managers, many brands are also taking an ax to their retailers. In one of the more drastic reactions to the crisis, Cartier is reportedly cutting its U.S. accounts by as much as half, to take effect April 1.
Other manufacturers have taken a similarly vigorous approach to their wholesale networks.
“We have 500 doors in the U.S., down from 800 two to three years ago,” said Stephen Urquhart, the president of Omega. “The number itself is not the issue. It all depends on market potential. But we will probably be streamlining rather than increasing.”
In a country the size of the United States, distribution has always been the biggest challenge for luxury goods companies. Ensuring that the right partners have the right amount of merchandise to keep the pipeline perpetually starved for goods requires a sixth sense for marketing. In the midst of the buying frenzy of the past decade, many brands seemed to forget that.
“When everything was good, nobody really analyzed the situation,” Ms. Mazzocchi said.