Reason for the Price Increase/A Good Read

[thecoinopcollector]

This is from Philip on the VRF (hope he doesn't mind) but it's a darn good read, long but VERY worth it.

How price increase and distribution shortage are one of the main marketing tools for luxury brands to obtain a higher "product positioning" sell less in volumes but more in values.
Read the informations given by Roland Puton former Rolex CEO, then you wont ask yourself why?
It is long to read but it explains well imo why so many price increases and distribution cut down (51 retailers in France from 2006 to 2010).


.../...

The trend in distribution cutbacks began in 1991, when Cartier pared its distribution to 200 outlets from 600 in an attempt tomake Cartier watches more exclusive. The move was a dramatic success, with remaining retailers reporting 30% to 40%increases in Cartier business.

Since then, other companies have followed suit with similar success. For example, Baume & Mercier now has 200 fewer retail"doors" than it did in 1992. Raymond Weil closed about 190 doors, and TAG Heuer also cut back on stores.

"If a jeweler carries a line with limited distribution, itgives him the ability and confidence to stock more merchandisewithin that brand," said Larry Lich, vice president, marketing,for Raymond Weil, New York.

"It's a very good situation," Lich said. "The jeweler who wasdropped will say it's not fair. But distribution-wise, the mostimportant thing we [watch manufacturers] have is who we sell[to]."

"We find that the brands that have fewer doors are payingbetter attention to the remaining accounts," said Anthony J.D'Ambrosio, executive director of Tourneau, the New York-basedwatch retailer. "It allows them to spend more time in areassuch as training, product knowledge, and there's betteranalysis of stock on a store-by-store basis. In each case we'veseen significant improvement."

"What Cartier did was fabulous," said John D'Amore, owner ofCliffside Park, N.J.-based D'Amore Jewelers. "And it would bebeneficial to all jewelers if other watch companies went thatextra step by keeping unauthorized dealers in check and keepingthe discounting down."

But the move that got the biggest response recently, bothpositive and negative, came in February, when Rolex closednearly 200 outlets. Rolex not only cut distribution, itreportedly cut production as well, making the watches morescarce, retailers said.

"If you have Rolex and lose it, it's like losing yourfirst-born child," said Joseph S. Cerasa Jr., co-owner ofone-store independent Salvatore J. Cerasa, Red Bank, N.J."Rolex gave itself 10% more profit and squeezed the retailers.""Rolex punished a lot of people for doing what it condoned foryears," said another retailer, who requested anonymity. "Thenthey suddenly decided they didn't want [transshipping anddiscounting] anymore, and that was tough luck for jewelers wholost it."

Some jewelers said they understood these companies' moves andcalled it necessary, but they questioned the way it was done."Watch companies need a certain number of doors to survive, butthey have an obligation not to oversaturate the market to helpassure some profitability for their retailers," said AndrewJohnson, president, The Diamond Cellar, Columbus, Ohio, whichcarries nine luxury watch brands. "There's also theresponsibility of the retailer to carry a representative amountof product and support that line with that limited amount ofdistribution.

"Limiting the number of doors was inevitable. The profitabilityon name brands was getting too small until they becamenon-profitable. Long term, these companies have cut backbecause they realize their name and reputation is a larger partof what they have to sell."

But it isn't just the cutbacks that irks some watch retailers,it's also what they call "price policing," a watchdog practiceof monitoring price structures. Some retailers said theybelieve they were terminated because manufacturers believe theywere discounting their watches.

Reputations of big-name watch brands have taken a big hit inrecent years because much of their product has been discountedheavily and "footballed around" towns to unauthorized dealers.So are these cutbacks the way around the discounting andtransshipping problems?

At the Las Vegas show back in June 1993, retailers openlydiscussed their frustration about the heavy discountingcompetition for Rolex watch business on Hill Street in Los Angeles.

"You don't make a profit on it," said one jeweler. "You invest $700 on a Rolex watch and only make $50 on it. Everybody will sell it below cost."

But that was then, this is now. Rolex has made moves to curb that nemesis. But still, some think the brand went too far.Some retailers said Rolex has cut production so much that theynow can't get enough watches.

They also said some of Rolex's closed doors had little logic. Many retailers claim that Rolex kept some unscrupulous jewelersand dropped some profitable, legitimate jewelers.

"What Rolex has done is tremendous," said Larry Wilkes, managerof New York-based Kenjo. "Weeding out the bad apples was a verywise thing to do, but preventing the good apples from gettingthe line was not a good thing to do."

"Cutting back distribution is healthy to a point," said TheDiamond Cellars' Johnson. "But cutting back in product ingeneral, and making the product so scarce, that's dangerous. IfI've chosen to carry a line that doesn't ship enough goods,that forces me to pick up another line. And that switches theconsumer to another line and that previous watch company losesthat sale."

That's where the prestige and popularity of Rolex puts thecompany in a unique category. Retailers may have theirdifferences with Rolex, but most of them still want the No. 1traffic-builder in their watch stock.

"Our course of action has been generally well-received by ourOfficial Rolex Jewelers," Roland Puton, president and CEO ofRolex Watch USA, told NATIONAL JEWELER.

"Historically, there has always been a need for more Rolexmerchandise than we can supply," Puton said. "Nationwide, wefeel that the changes we've made are moving us toward a properbalance between availability and demand."

Many believe that doors closed by Rolex, Cartier, Baume &Mercier, Raymond Weil and others actually opened the door forother watch brands to gain entry into some retail outlets.These brands are following the leaders. They are also helpingto build retail partnerships with limited distribution. But notall retailers buy this philosophy.

" `Partnership' is the biggest joke in the industry," saidindependent Cerasa, who lost TAG-Heuer's line. "Yeah, it's apartnership until something else comes along and they dump you.And then they say they want `selective distribution.' Allthey're looking at is the bottom line. If they want to get ridof a small merchant, all they have to say is: We want a $20,000minimum order."

Another independent retailer who lost TAG-Heuer was JerryRosenwasser, owner of New York Jewelers, Chicago. "Here we weredancing with them and suddenly we're not anymore," Rosenwassersaid. "The sales representative at TAG-Heuer alluded that itwas because we're cutting prices, but we have no documentationof that. A couple of other jewelers complained that we wereundercutting them."

TAG-Heuer's executive vice president, Fred Reffsin, replied:"That's a dangerous thing to say, and it's simply not true.These aren't arbitrary decisions. We thought long and hardabout it. It comes down to our long-term goal: to be a moreupscale sports watch. And we need to focus on people who willget us there. It's a combination of retail commitment to thebrand, return on investment, opportunity in each market andimage. There comes a time when you have to make a toughdecision, and it's not as easy as who's selling the mostproduct."

The discounting issue is where the fine watch line is thinnest.Some retailers blame others for selling watches on price ratherthan prestige.

Because of restraint of trade laws, watch companies must bevery careful about the reasons they state for dropping aretailer. Discounting cannot be one of those reasons, sourcessaid. Some retailers said watch companies tolerate heavydiscounting and transshipping. Others said manufacturers aresecretly policing retail stores.

As for discounting, a watch company's hands may be tied.Legally, they can't dictate retail prices.But retailers say they're forced into discounting by consumersand competition.

The advent of various technologies, such as the facsimilemachine, overnight delivery companies and instant long-distanceservice, has contributed to consumers' global shopping pattern.Now consumers can shop around the country and around the worldwithout leaving home. They can call long distance from New Yorkto Oregon, get prices faxed to them, wire-transfer money to aretailer and get a watch delivered to them by overnightdelivery the next day.

They basically can comparison shop everywhere and get the watchthey want, at the price they want, and they can get itdelivered overnight. Many retailers succumb to this pressure."Everybody discounts and nobody wants to tell on each other,"said Don de Clercq, owner of Southfield, Mich.-based De ClercqWatches, and an admitted discounter. "It's the day of theeducated consumer. People today aren't loyal to the jeweleranymore. Maybe they were four or five years ago, but notanymore.

"Consumers are all looking for deals. People are calling out ofstate to find a good deal. Do you know how many people call mefrom New York City just to save on sales tax alone?

"What do you do when you go to a store and it says half off?You get it. It still goes on. There are still unscrupulousdealers out there who are willing to give away the product," deClercq said.

Some watch retailers claim that some watch companies arecrossing the "restraint of trade" line--and drawing their ownnew lines.

"A couple of watch companies I know of are actually puttingwhole crews of mystery shoppers in towns to see which storesdiscount," de Clercq said. "They may want to discontinue thesestores, but they're forgetting one thing: the fair tradepolicy. If you purchase a $1,000 watch, you can sell it for $1if you want."

Some retailers have decided to take watch companies onhead-to-head by filing lawsuits.

Three West Coast retailers are at the epicenter of the latestlawsuit, which was filed against Stamford, Conn.-basedBreitling USA for a violation of the California UnfairPractices Act. Robert Penner, owner of Costa Mesa, Calif.-basedThe Watch Connection, said he filed suit against Breitling forwhat he termed "illegally" terminating his store from itsdistribution.

"I never even got a letter," Penner said. "Merchandise juststopped arriving, and I just got ignored. In addition, one ofBreitling's representatives went around slandering us.Unsolicited, the Breitling rep callously told other watchcompanies not to sell [The Watch Connection] their product.

"Customers were mad at me because their orders wereoutstanding," Penner said. "I wasn't getting product, and itcost me a great deal. And Breitling was damaging my reputationin the industry.

"What they did was illegal. I have no idea why they had suchvengeance against me. I told the representative to stopslandering me or I'll have to put a stop to it. I'm not alitigious person, but I was finally forced to," Penner said.Penner said he put in at least 50 phone calls to Breitling,which were useless.

"The case is being handled by our attorney," Breitling USAPresident Marie Bodman told NATIONAL JEWELER. "We expect to befully vindicated by the court."

Penner and two other California watch retailers have retainedthe services of Joseph Alioto, of San Francisco-based JosephAlioto Law Office, the former mayor of San Francisco who isconsidered the one of top antitrust lawyers in the nation.Alioto was the lawyer for some of the highest profile antitrustcases in the United States, including the Al Davis Los AngelesRaiders antitrust suit against the National Football League."We have taken the depositions of sales representatives ofBreitling and from the American manager of Breitling," Aliotosaid. "And [the depositions] established beyond question thatBreitling was involved policing the resale prices of itsdealers and cutting off those who discounted too heavily asthey perceived it.

"This of course is price fixing under the antitrust laws and isillegal per se. Therefore three of the dealers, Robert Pennerof Costa Mesa, Shapur Mozaffarian of San Francisco and LeoHamel of San Diego, were three of the dealers victimized bythis price fixing conspiracy.

"The trial has been set for March, and it will go a long waytoward reducing prices of Breitling watches, which in the lasttwo or three years has been one of the hottest watches," Aliotosaid.

Alioto said this case will open the eyes of the watch industryto this issue. "I think this is the tip of iceberg," he said."Too much of this is being done, and watch manufacturers andjewelry manufacturers in general are [expected] to accept thefree enterprise system without injecting price fixing,monopolistic conspiracies in the industry."

So who's to blame for this mess--retailers who discountcompetitively and transship, watch manufacturers whoover-saturated a market which created an unhealthy competitiveatmosphere, or educated consumers?

"I don't for a minute think it's all the manufacturers' fault,"said Johnson of The Diamond Cellar. "The retailer has to take acertain amount of blame. Retailers are the ones who blow it outthe back door. Sometimes jewelers aren't as patient as theyshould be and use bad judgment."

Retailers said watch manufacturers should not sell to storesthat don't have a genuine interest in selling watches. Theysaid these companies should check more closely the store'sselling policy, the in-store help and the in-store servicedepartment to ensure that it's the proper venue for a finewatch.

Many watch retailers said a proper venue for a fine watch is astore that doesn't transship merchandise to other stores. Watch companies are monitoring retail transshipping practicesvia coding of watches, mystery shopping, and by including, ineach policy, transshipping as a violation.

"We have a policy that says the jeweler is to sell to theconsumer, not another jeweler," said Raymond Weil's Lich.

"We've closed three or four stores this week for transshipping.If they are transshipping, they are in competition with us.They're taking business away from the ones who have invested init."

The business problems are as complicated as the watches, someof these retailers feel. And the solutions may be even morecomplicated.

The early verdict on limited distribution is that, for someretailers, it's been a dream; for others, a nightmare.

.../...

[chicagowatchman]

Great Information Thanks!

[Ursa Major]

I may have missed this, but how does the reduction in the number of retailers increase average market pricing if there is constant or increasing production? Rolex seems to increase its production every year (it doesn't release production figures, but the COSC people in Switzerland do quantify how many certificates are issued to each maker). I'm assuming that the same number of watches are allocated to the US market, but they're now being sold through a smaller number of retailers. If Rolex shifted from making 800,000 watches per year down to 30,000 like Patek, then I would agree that's a move toward exclusivity, but I'm not sure how shutting down retailers and increasing allocation to those remaining is going to really achieve that goal.

Ah well, we'll see how the price increase takes. Maybe Rolexes really are fairly price-inelastic. On the other hand, a second 10+% price increase in 6 months when the dollar's actually much stronger against the Euro - and the Swissie, I think, though I haven't looked lately - may be a bridge too far. It'll be interesting to watch.

[Chozn1]

Originally Posted by Ursa Major

I may have missed this, but how does the reduction in the number of retailers increase average market pricing if there is constant or increasing production?

Because there's not as much competition amongst AD's. Take my city for example as one with only one AD and if you don't jive with them you're relatively screwed on hard to get pieces. They can get you to buy the stuff people are usually lukewarm on in order to be first in line on Daytona's and GV's. They aren't having to deal with Yahoo's Jewelry accross the street who might be willing to deal just to make a sale. Those fewer AD's move just as much inventory and don't have competition on the price while at the same time giving their best customers that warm fuzzy feeling of being more special than the "littles" who can't get their hands on a Daytona. AD's get their price, and Rolex gets their reputation for exclusivity.

[Art161]

How old is this story? Joseph Alioto, the former mayor of San Francisco, died in 1998.

[Yume-sama]

Yeah... evidently it may be a bit out-dated, huh...

[WatchTimes]

This was from

Watch Distribution Cuts Have Some Retailers Angry
By KEITH FLAMER
Publication: National Jeweler
Date: Tuesday, September 6 1994

Don De Clercq hasn't been around for sometime either, he use to be a big advertiser in the back of the Robb Report. He lived right next door to me, I moved a while ago but if I recall I hear he quit a while back.

Old or new it was still interesting and I think still applies in many ways/

[Art161]

The more things change, the more things stay the same.

[chevycorvette]

recently my janitor told me the same story while he was brushing my dirty toilet after i took a big one

[Z-Sub]

I think the logic stays the same

[C. Davidson]

Originally Posted by Z-Sub

I think the logic stays the same

X2.

Dated article, but high end luxury companies have been employing this philosophy for many years now.

[Jimbits76]

"If you have Rolex and you lose it, it's like losing your first born child"????????????

What a load of crap...who in their right mind would make such a statement?

It's rubbish like this and the rest of the Rolex zealots that make me wish I was into a different brand.

This exclusivity thing is pathetic...who gives a toss what other people have?

I'm seriously considering shifting my LV to get a JLC master compressor dive.

[shoppy]

Thank you for an interesting perspective and read.

[buz-lh]

My friendly AD carries Rolex as their only brand. He told me that the Rolex name brings people in the door and creates a customer base for their jewelry, a lot of which is custom made. So, maybe losing Rolex to him would be like losing a first born child. Their is no other watch brand that has the name recognition of Rolex in the so called upscale luxury watch market. Although this article is somewhat dated it is obvious that this is the strategy being used. Rolex's production has increased percentage points but they have a new strong and vibrant market in Asia that is more than offsetting any losses they may have incurred by cutting back on dealers in the USA and western Europe. Just my 2 cents.
BTW thank you for printing this.

[Erix]

Originally Posted by Jimbits76

"If you have Rolex and you lose it, it's like losing your first born child"????????????

What a load of crap...who in their right mind would make such a statement?

It's rubbish like this and the rest of the Rolex zealots that make me wish I was into a different brand.

This exclusivity thing is pathetic...who gives a toss what other people have?

I'm seriously considering shifting my LV to get a JLC master compressor dive.

x2

[Erix]

Nice article by the way. Thanks for sharing.

[mfer]

Originally Posted by Jimbits76

I'm seriously considering shifting my LV to get a JLC master compressor dive.

That thing looks hot in pics. I'm wanting to see on in the flesh. Particularly the master compressor gmt diver. So nice looking.

Article makes sense. Price fixing occurs everywhere it seems.

[toph]

interesting read.
Thanks for posting

[thecoinopcollector]

Originally Posted by Art161

How old is this story? Joseph Alioto, the former mayor of San Francisco, died in 1998.

I don't know, like I said I pinched it from another forum.

Marc

[RsqVet]

Yeah and the really funny thing is quality swiss watches USED to be sold at military PX's. Guy I work with has a nice "moon watch" he got during his gov sponsored tour of SE Asia.

Yet now it's luxury this and exclusive that... I'm with those that say this is a load of bunk. I personally HATE the games of marketing and that is what this goes to. Sorry rolex as much as I respect your product it's not exclusive and never will be. What it IS is the best made mass produced watch out there. Largely due to rolex's research and advancements in the art.

So go back to making good watches that cost what they cost rather than what you THINK they should cost and let the people from mont blanc or whatever do the luxury price dance thing.