The Business of Watches [030] Q&A Episode - Your Business Questions Answered By The Hodinkee Team

0:00Welcome to the Business of Watches. This week we have a special episode for our 30th episode. It is a Q &A episode and that means we are going to take your questions that you've submitted to us on various channels. And I am fortunate enough to be joined by my esteemed colleagues, James Stacey, the editor-in-chief of Hodinkee. Welcome, James. Hey, how's it going? Happy to be here. And congrats on 30. Yeah, we've come a long way. We sure have. Tan Tan Wang, editor at Hodinkee, joining us as well. Thank you, sir. Hey, Andy. Good to see you. Good to see you, sir. And Mark Koslerich, senior editor at Hodinkee, who spent the weekend following the watch auctions.

0:46Welcome, Mark. Yeah, thanks so much. Wish I was selling and it would have been an extra great weekend. Do you have any immediate sort of takeaways from that? You wrote a nice piece on that record, Jorn. Where do you think we are in the auction market, Mark? I think it's a really interesting time, especially considering that everybody that is selling knows everybody that's buying and they're doing it publicly instead of amongst themselves, as some of them used to do more often. And I think they're just kind of feeding into each other's predilections a little bit, buying and selling the things that they know that they want, but doing so publicly drives the market for other things.

1:26And I'm just kind of curious to see where it goes, because I think you're starting to run out of the historically significant, quote unquote, things from FP Journe. And so maybe things shift to brands like Kari Voodleinen or even Debathun did quite well at Philips over the weekend and surprised a lot of people. So we'll have to see where the market shifts, because I don't think that Jorn can continue quite at the rate that it's been going. Yeah, the Vuteleinen results were quite unprecedented. Yeah, I mean, what do you think there? Yeah, I mean, all the watches that had Kari's name on it or had something to do with them went for over a million dollars.

2:02My understanding, I might be wrong, so maybe I shouldn't say this, but I think that most of those watches came from a collector who is sort of prominent in the space who passed away and his family was taking care of deacquisitioning some of his watches is my understanding at least maybe for the Masterpiece Chronograph 2 is what it seemed to be online but yeah good timing and I also know that I have a friend that put in an order for Akari and it's somewhere around a seven-year wait now so there are going to be a number of people that have a lot of funds that don't want to wait and want to skip the line and maybe get something very significant the other thing i'll call out too is the marto auction that's going on right now and close soon they have another unique carrie vuda line and then last i checked the price was well over a million dollars for this repeater that he did so it's a good time to be a carrie seller and good time to be carrie and and i guess same for roger smith people are quite excited about his watches too makes sense right yeah yeah it's that it's a very specific genre of watchmaking Absolutely.

3:02There's independence beyond François Pajon. That's for sure. Okay, let's take our first question. It comes from Ninja Hamster. And Ninja Hamster asks, as 3D printing and modeling software improves, will we ever get to the point where movement manufacture is inexpensive enough to be democratized? So I guess this is a question of, you know, where are we in sort of 3D printing technology? And, you know, at what point will it become easier for one and all to make a watch movement? And will 3D printing have a role in that? When I think of 3D printing, I think of James Stacy, who is an enthusiast, certainly, in the 3D printing world.

3:53What do you think, James? You know, I think there's a few different layers to this question. One, I would say we aren't at the tech scope of 3D printing, certainly not household 3D printing where you could print a movement. You know, with Barrelhand's most recent watch, you have the ability to print that watch. But it's like a blank that you could put a strap on and have an idea of its size and that sort of thing. And the idea is that it's part of a collection of CAD possibilities that could help them evolve the watch through the community of people who need or love the watch or possibly both, depending on your ability to go to space in the future.

4:29I think more specifically, like the idea of movement manufacturer being democratized, you know, you're talking about printing in metal, and you're still talking about the need to have a hairspring. You're still talking about the need to have a mainspring, things that at least right now are not really within the scope of printing. granted we are still in the first generation of household printing maybe one and a half generations if you will so I do think that this is something where in the future a movement could be printed conceivably it could be printed in place and have one or two pieces added to it we aren't there in anything other than theoretical sort of 3D printing and then in terms of democratized I don't know how cheap the movement would need to be considered for it to be democratized because a modern, inexpensive, you know, even entry level, whether it's a Miota 8215 or something from Salida, these are not movements that by bulk numbers cost much money.

5:28So I don't know where that number would need to be, where you went, this is so cheap, I could buy a machine and print a movement at home. And then lastly, and I don't want to be unfair to Ninja Hamster because this is a fun question from a guy with a fun name. I don't know that anybody wants to print a movement at home. watch brands would want to print a movement. And I would argue having seen, you know, the processes at like EMP in Switzerland, they kind of are printing a movement or milling a movement in various stages, but even a movement, very, very little of that comes from one place, right?

5:59The rubies have to come from somewhere, even if you're getting to that point. And then the last thing I would say, and Mark and Tantan, you should step all over me if you think I'm, I'm getting wrong on this, but like, even if you could print the various elements, the main plates, a rotor, gearing, things like that, even if you could print those to the exceptional tolerances that even a standardized mechanical movement would require, I don't know that the bulk of the work is actually creating the part as much as it is putting everything together in a way that can keep time. Is that unfair, loosely fair, partway there?

6:32No, I think that's pretty spot on. Um, yeah, like I think the, from the sort of democratization standpoint, I am sort of interpreting this question more of like, oh, can, can any micro, are we just going to basically see a lot of micro brands with their own in-house calibers, you know, 15 years down the line. Um, and I think for, I think I'm on the same page here where I agree where I think the, by the nature of what defines the appeal of these brands, I think it's not necessarily necessary or there isn't that current appeal. You know, I just came back from visiting Casio in Japan where you're seeing minuscule gears being injection molded to a scale where I actually didn't realize you could injection mold at.

7:14But, you know, that is a way of making extremely inexpensive parts. But the thing is, the cost is all in creating that injection mold, right? Which could, you know, could be a quarter of a million dollars each, you know, as speculation. So long story short, I agree here where, you know, additive manufacturing right now, at least in the watch space, is so much around exploring what can't be done. I think from, you know, mostly right now from an aesthetic point of view, you obviously have exceptions where, you know, Ming's polymesh bracelet is something that is not only an aesthetic. Overwatch Ultra.

7:49Yeah, it's super, super interesting and just there's nothing like it. But right now, I think it is exploring things where you can't, you know, creating things that you can't just CNC or injection mold, especially structurally. So long story short, maybe we'll see this change in many years. But, you know, to me, injection molding and, you know, metal injection molding is getting to be a process that more and more brands are using to create parts. I think we're going to see more of that and not necessarily sort of 3D printing as a technique. Mark, any thoughts? Yeah, I think, you know, one of the things you have to keep in mind is as much as we'd like to see massive leaps and bounds and improvement and the underlying part of the democratization thing, I think it has something to do with the fact that people just would like watches to be more affordable in general.

8:35And I think there are affordable options, but yeah, it would be great if everything, if Patex were more affordable because they had, you know, solved some sort of the process. But I hate to say it. I know there's things that will be improved in the next 10, 20 years, but I think there's a big part of this that's like a lot of watchmaking is a sort of a solved thing already. You know, the ideal gear ratios for things for a three-hand watch and chronographs are really hard to design because the best chronograph designs have largely been done already. And so where do you shave off a little bit of a margin to get people a more democratically accessible watch?

9:15I don't know that it's 3D printing and I don't know that's where the bulk of the cost, like James said, comes from. I think it's other parts of the process. Because I guess in some ways, the closest we as a species have come to this would be the System 51. Yeah, Swatch. You know, in that it's not additively produced, but it is built with no human interaction. Yeah. Which I guess at least puts it in the same genre as something that's kind of, in a way, it's printed in place. It's not, of course, but like it comes together in that sort of without a human assembly. But yeah, I don't know. I don't know how many generations away we could be.

9:51and nobody really has a scope on what real qualified next generation AI could do to 3D printing and the understandings of these things. So I would say it's possible. It's not here yet. And I don't know necessarily what the market would be for hobbyists. Amazing, right? When they eventually get to the point where you could download a file to print, and they are to a certain extent here, but like massively print a metal part for, say, a vehicle that you were servicing, that will be a big sort of leap forward in the consumer side of this you could go to your auto parts store and they would print the piece that you wanted rather than having it shipped around and all that kind of thing who knows um but yeah maybe there is a world in which that's that's something that outcomes my guess is that we'll see more and more brands go down the same route as um gerard perigo and tag heuer and and consistently develop structures within movements that use specific materials for their purpose.

10:47And the more materials you put into a tiny thing, the less likely it will 3D print really well, right? As you'd be switching mediums throughout. But there's a world in which base plates, sure, why not? Right? Rotors, yep. Maybe even gears. Yeah. Don't see why not. If you've held the Ming bracelet, wouldn't surprise me if you could 3D center titanium gearing. So. For sure. For sure. But it is important to note that, especially when we're talking about the micro brands, indeed, that access to the movement at wholesale costs is really not your biggest cost center there. And if there's an issue for the micro brands, it's having access to those things at the smaller scale.

11:28Yeah, where the minimum orders might be too big. Exactly. And then just for those who are bored, go on Perrin, go on Esslinger and see what a movement costs if you buy one. Yeah. Just some of them aren't that much. You know, the movement in And that DWC Terra I spoke about and I've written about, I think if you had to replace just one of them, it was like eight bucks. Yeah, exactly. If you're making$5 ,000 of those, it's not going to be$8 in movement, right? Indeed. Cool question. All right. Let's move on to our next question. This is from Kyle Sin DC. And they ask, are brands trying to keep up with the breakneck pace of new releases demanded by enthusiasts in social media?

12:07or are they still keeping to their own release schedule and hoping things level off? How much weight do brands give enthusiasts when making design and release choices? I can jump in. I think one of the things that I try to keep in mind too, and I encourage people when they're reading about watches online or thinking about watches or thinking about the things that they wish that were being launched, is like, yeah, some brands have and even will admit that they sort of overdid it in terms of release schedules and things. I think Grand Sago has really tried to pare back their releases just generally in terms of number, but also the pace that they're doing it at.

12:50But then you compare it to something like Citizen. I mean, there's a lot of stuff that Citizen makes that we just don't cover. There's things that are more for a broader commercial audience. I mean, there's been collaborations with cartoon characters and stuff that like we all love Peanuts and we've seen them on a variety of, you know, Snoopy watches and stuff like that. But, you know, an anime watch or something like that, that is not going to be something that we cover. And so what we're seeing is two things. One, we're only seeing a portion of the world of what releases are. And two, we're also only a fraction of the market.

13:30And so it's hard for me sometimes when I look at release schedules or what's being released or the decisions of exactly how they're making and what they're making. Like this, we're not necessarily always the people that are being spoken to. So how they choose to release things and what timeline, how frequent, how close to watches and wonders are after. It's hard to say if they're doing it right or wrong. Sometimes it's overwhelming for us, but it's hard to say that they're doing it wrong. it might work perfectly for them. Yeah. I think sometimes people forget the sheer scale that many of these brands demand.

14:08You know, when we talk about a lot of the brands that, you know, have releases that debut at Watches and Wonders, we're talking production, you know, for the horology, it's like, you know, 60 ,000 pieces a year or something like that. But for, you know, the mass market brands, we're talking like Citizen, Timex. I think, yes, we as enthusiasts love to talk about this stuff. but sometimes I think we also forget that, you know, these brands have such a huge customer base in, for example, department stores, right? So their release cycles are often actually around a fashion calendar, right? That was something when I was a buyer, like something that we had to actually deal with and it was a challenge because we think about shaping launches around moments, right?

14:51Okay, like this is going to be a big thing. Let's tell a story about that. But, you know, Timex at the scale that they need to produce things just have spring, summer, and they launch everything at once, right? So I think we forget sometimes how big this customer base is. And, you know, again, the thing I always like to remind people is, you know, while a lot of enthusiast brands that we talk about, yes, you have to think about enthusiasts when making design and release choices. But my favorite example is, you know, what we actually kind of struggled with selling is actually watches without a date window.

15:24I think that's like the biggest thing in my mind that, you know, shows sort of this kind of cognitive dissonance where anytime you would ask people why they were not buying new releases, it's they were like, there's no date window. You know, it's something that, you know, I just need a date window on my watch. And so and, you know, oftentimes you would hear, oh, this is actually too small. You know, so I think, again, it's realizing that, like, you know, I speak on behalf of the watch nerds where oftentimes there's a very, you know, homogenous point of view. But again, we are, you know, we are not one hive mind and there's so many points of view to consider.

16:01And, you know, I think at the end of the day, the point of view that wins, it's the one that sells the most watches. Right. And that's not always the enthusiasts. And if I can just jump back in real quick on the date window thing, because this is one of my favorite examples to pull out. And it shows that like what enthusiasts want, whether it's in the product or the product release schedule or whatever. I went to a couple of years ago, the relaunch of the Breguet Type 20. And we saw what was coming. And I knew that it was going to be two watches with the date window. And they previously had one with and one without.

16:33And all I could think is, you know, why do they do it this way again? And I talked to somebody who is a retailer who sells a lot of Breguet. And then I also talked to the team at Breguet. But the retailer said nobody at that price point is walking in off the street and going to buy a watch without a date window, never having considered this watch before. But there are people with$25 ,000 to spend that will walk in off the street, fall in love with a watch that they didn't expect to look at and just snap by a watch. And the date window is a make or break thing. And people are just not going to buy that watch without a date window.

17:09And I think it's like, okay, an enthusiast would say, no, you're completely wrong. But how many of the people that are buying are actually enthusiasts? So, yeah. Yeah. James, any thoughts? Yeah. Just on the first part, I would just say, you know, with the breakneck pace, I think we're seeing a little bit of whiplash from a scenario of spending that just disappeared in the last couple of years. What came up in the 2021, 22 range? We saw it in cars. You saw it in art. You saw it in collectibles of all sorts. And a lot of those markets remain elevated to some extent, especially in the consumer mind or in the enthusiast mind.

17:43But like a lot of these brands, I think they suddenly saw a windfall and, you know, it does take some time to spin up another watch. Even if you're a small brand, it might take months. And if you're a big brand and you have a lot more checks and balances and a longer product cycle, I think we might still be seeing a speed that references a market that's kind of dried in some respects or reshaped itself, um, back to reality over the last few years. Again, speaking more into the enthusiast space, um, the generalist space, I think there's, you just make it, if you're a big brand, you make a lot of SKUs and that's why, you know, you'll see enthusiasts go, Oh, why would they make this watch at 45 millimeters?

18:20It should be 40. And you go, well, they're making them at 45 cause they're selling them. Yep. Right. And, uh, and even, even a really big brand, you might, you might have a stinker or like something that doesn't sell that well, but you wouldn't keep doing it, right? The goal of the brand would be to make money. So that's the only thing that would kind of hit me is I think that the pace has been largely high because there was this big spike in attention and spending a few years ago. And I think we're still seeing the kind of knock-on effect from that from a product standpoint where we people with credit cards and time to read about watches and that sort of thing can react quite quickly in and out of a buying mood.

18:59the product can take some time to reflect that. Andy, I'm curious to hear kind of your thoughts on this because from my perspective, I see a lot of this sort of continuing of the sort of rate that James is mentioning as also a result that a lot of the brands that we're thinking of are, you know, part of conglomerates that are publicly traded. And, you know, when things come to be publicly traded, you can't go down, right? It only goes up, right? That's how we think. So I'm curious. You have to show some growth. Exactly. So, you know, the quest of infinite growth from anything that's publicly traded at this point.

19:34Andy, I'm curious if you agree or disagree that that's something that we're seeing or, you know, at least somewhat a cause. Yeah, I mean, I think it kind of fits into some of the questions we've already had in that there is this difference between the true enthusiast market and the mass market. And the mass market is sometimes looking for something new. Like we said, if you put the right cartoon character on a watch, for some people, they need to buy that watch. And it's because of their affinity for that character or that idea as opposed to the watch itself. And I think the watch industry, as it is structured at the moment, can't exist solely on the enthusiast community.

20:24And it can't cater simply to the enthusiast community. Although there is no doubt that the enthusiast community, the education and the understanding of watches has certainly improved, gotten larger, all those things. But indeed, you know, it is difficult for a publicly traded company to say, look, you know, we decided to cut production and just, you know, cut the number of SKUs we're doing here. And we're just in order to sort of, you know, meet where we are in the market. And remember, yeah, these are industrial processes. They take time, et cetera. But at the same time, you know, what the move has been has been to, you know, slowly reduce production and increase prices.

21:13And obviously, you know, inflation in terms of input costs here in Switzerland is a real thing. Labor is among the most expensive in the world. Obviously, we've seen the Swiss franc continue to appreciate against the U.S. dollar and other currencies. So that, you know, makes watches more expensive. And indeed, you know, that gets us to this concern that many have that watches have sort of priced themselves out of the market for a certain segment of the market. But indeed, it's very difficult for these established, larger size, you know, what we'd call volume brands to pare things back when at the end of the day, they have to answer to shareholders.

22:04And that means, you know, increasing sales. And there's only a few ways to do that. It's also the scenario that if you combine the internet and digital photography and the growth of hobbyist and enthusiast press is what created the micro brands in the indies. right is this sort of disconnection between mass market brands and their most ardent collectors or the most ardent interested parties collectors or otherwise you know and the niche became for some people an 800 dive watch that was the right size with the right movement and bought from a guy whose first name you knew and you could probably see him in a local city all the way up to kind of the same idea but a jorn akari you know take it taking us back to to what mark was talking about earlier everything's kind of a response to something else like every genre of music feeds off of the one that was popular before it and it kind of works that way and in watches as well so good question though fun one the last thing i'll say about this too is there's two analogies you could think of as first like you're moving an oil tanker in the sea it's going to take a long time to to change course with some of these brands and so the nice thing about an indie or a genre who until this year i think made one new movement design for every year for the last 20 plus years, you can just adapt.

23:21If something's not working or your clients want something, you can adapt more quickly. And the other analogy too is what you're looking at is it's kind of like trying to pull a tractor trailer using a rubber band is if you lay on the brakes real hard because you see that the market is shifting, well, the trailer behind you is not going to stop because it's going to rebound and it's going to take a while to catch up to whatever your plan is. And so if you feel like things aren't right, whether it's release schedules or prices or whatever, I think you're going to see some changes have to occur. It's just that they might be slower the larger the brand is.

23:56Yeah. I mean, I can remember Cyril Vigneron when he was the CEO of Cartier espousing the brand's ability to be able to adjust production for models that were more popular than others, saying that this is a unique or new attribute that they developed in their production process and that, you know, this was a good thing. Cartier, part of Richemont, the biggest selling watch brand at Richemont, a publicly traded company. So our next question, we'll move on, is from Bobby G. And they ask, where do you see the trend going in monobrand boutiques versus multibrand boutiques? Do we think it will be a K-shaped approach?

24:42So K-shaped meeting, one end going up, the other end going down, high end wanting to control the narrative, and the lower end needing to be in as many spaces as possible to generate sales. sales, you know, it is this, you know, continuous, interesting sort of element of the watch industry as opposed to many others in that, you know, in boutiques, in-person experiences are still pretty critical for selling watches. What do we think? This seems to go hand in hand with the previous question in a way is certain brands are going to want more control over these things so they can adapt more quickly.

25:20And you see, I won't say who because it was more on background, but I spoke to a brand that's, you know, adjusted the number of boutiques that they've had in the United States overall and had some shifts in leadership. And one of the things that they were very cognizant of is saying to their boutiques, no, we're not going to give you more of certain watches until you sell through what you've been sitting on. And it allows them to sort of motivate their own sales staff to make sure that watches aren't sitting around a long time to the advantage of other models. So I think like, yeah, at a very high end, that makes sense.

26:04Now, of course, then that ends up being frustrating to the buyers at the high end because they walk into a boutique and say, I want X model and it's the hot model and then they can't get it. And I mean, there's a lot of factors at play in that. But I think you're seeing it more on the high end. And I don't think we're going to we're going to lose that because it is such a beneficial tool for them. And at the same time, unfortunately, a frustrating thing for the clients. Yeah, I mean, even at a point where we're seeing sort of reactionary sort of decrease in spending across the board, when we're talking about a lot of these ultra high end monobrand boutiques, they are still very much weathering the storm, so to speak.

26:45And, you know, a lot of these brands just don't produce enough, right? They don't produce enough out of, you know, necessity, but also, you know, just, you know, for example, Langa is a great example where they made a huge move to kind of move to corporate-only boutiques. And of course, there are exceptions these days, right? There are still some partner boutiques with retailers across the board and around the world. But, you know, when you make 5 ,500 watches, you didn't have enough to begin with, at least from what we're seeing. And so, you know, when you actually can control the sort of customer base in this way, I think a lot of times it is also good for, it's actually kind of hard to say, right?

27:31Like on one hand, it's great. I think it's better for clients because if you do actually establish a relationship with a brand, I think it rewards you down the line. But at the same time, that also means that a lot of people, you know, have single-handedly complained, oh, when things move from multi-brand boutiques to mono, you just lose everything. You lose all your history. You lose everything that you did, especially when brands weren't as popular, right? So in effect, you're losing the early adopters and brands are actually pushing them out of the way in sort of replacement for new blood. But again, when you go to a mono brand boutique, I don't know, it's kind of hard to imagine you ever going back, right?