The Business of Watches [042] Formex CEO And Head Of Product Development At Dexel Raphael Granito

0:00Raphael Granito:Welcome to the Business of Watches, the Hodinkee podcast where we go behind the scenes and talk to the executives and the leaders in the watch industry who are making things tick. I'm your host, Andy Hoffman. Today we are in Biennville here in Switzerland. We are at both a watch brand and a watch manufacturer. Formex is the watch brand and Dexel is the manufacturer, the component maker that is also here in this new facility. And we are talking to Rafael Granito, who is the CEO of Formex. And I guess your title at Dexel is... Head of Product Development. Head of Product Development. Rafael, welcome to the Business of Watches.

0:50Thanks for having me, Andy, and thanks for your visit here today.

0:53Raphael Granito:Well, thank you for having me. It's been quite eye-opening and fascinating. This is a really distinct and interesting, unique kind of manufacturer and office facility here. So, you know, you are the CEO of Formex, the brand. Let's talk about first Formex, and then we'll talk about Dexal, which is a manufacturer and a component maker that's been around for more than four decades, I think. But Formex is a little bit newer and it's your baby. And let's talk about Formex. So tell me about the brand. I mean, it actually started over 20 years ago, over 25 years ago, but you really only took over in about 2016.

1:34That's correct. So Formex was founded by two brothers from the area here. They were also working in watch component manufacturer businesses. and they were huge car guys and motorcycle, everything that had an engine and wheels. And so they came up with this case suspension system for watch cases. They patented that in 1999 and founded the brand in the year 2000. So they built quite extreme designs and quite large watches, large diameter, but also pretty hefty in terms of height. You saw a couple of pieces earlier today. So the name came about from these extreme shapes and designs, and it's composed of the two French words, Forme Extreme, extreme shapes, or extreme shape.

2:27And so they were pretty successful, had a worldwide distribution on all continents, were participating in Basel World Fairs, and then built up a really nice business with subsidiaries in different countries and the U.S. as well. And then the global financial turndown came or crisis 2008. And a lot of their distribution network didn't make it through that crisis. And they never really made it back out from that. And the brand was kind of in a Cinderella nap, so a longer nap. They still kept it going, so they didn't close the doors. but it was a very reduced contingency for the brand. So there was one watchmaker just doing repairs.

3:14In that time when I met him, they outsourced the assembly and were down to a couple of hundred watches a year. And one of the co-founders, Hans-Peter Gretel, his name is, we were working together. He was based in Hong Kong. He's a Swiss guy, but he had moved to Hong Kong, was working there on different projects. And we were working together on the components manufacturing business side. So from Dexcel and he approached us to see if we would try and revive the brand and buy the brand rights and inventory from him, which I discussed with my dad. And actually after a few years, because I was actively working in Dexel in product development already, where we developed and manufactured components for a lot of the watch industry, cases, bracelets, and even dials with Kadrenor, our dial manufacturer.

4:09So I decided to give it a try in 2016. So we bought the rights and the inventory to the brand, set it up in a small office at the Dexel facilities back then. And yeah, it took about two years from 2016 to 2018 to get a clear picture of what I wanted to do or what, you know, in my opinion was the right thing to do with the brand. because I came from product development, manufacturing. I had no clue, no connections whatsoever in terms of distribution, the retailers, etc. So I sat down with a few retailers in Switzerland, which were not very impressed with what we had to offer. And so I took the time and said, okay, I'm not going to try that.

4:59I'm going to invest my time into developing the new version of Formex. And so we set out to design the Essence, which is still pretty much the same today with a few tweaks here and there, but it's still basically the same watch. And also knew that I couldn't do this on my own marketing wise. I was always a product guy, so I needed some help. So that's when I call my best friend, Marcus, Marcus Welkley, who studied with me. And we actually even lived together when we were studying in Zurich and he was working in the hotel industry so not in the hotel industry but I just knew that we well it would be fun to work together with your best friend obviously and also that we worked really well together during the study so we had our late nights pulling all-nighters because we started too late on projects so we knew we could pull ourselves together and work really hard.

6:01And so, yeah, he agreed with some doubts. He said, yeah, but we're friends and you're going to be my boss. And I said, well, we shouldn't look at it like that because our friendship is always going to come first and I think it will be fun. And yeah, it was a lot of fun. It was also very trying and hard at times because it was a brand that had kind of, you know, been almost knocked down when it was just about to break into the mainstream. So it didn't really have the notoriety that we could build upon.

6:36Raphael Granito:Did you consider changing the name or the design? I mean, you changed the design, but did you consider changing the name or anything else? We wanted to keep the name for the people who were still following the brand. There still were a few. And also, you know, a name's a name, and then you have to turn it into the brand. So, you know, a lot of people complained about the name in the beginning because they didn't know it came from Forme Extreme. They just thought it was some weird composition of something. And yeah, then once you hear it enough times, then you don't think about the name that much anymore.

7:14And it's what the name stands for that becomes important. And that's what we've been building for the past couple of years.

7:21Raphael Granito:Yeah, and let's talk about how you, at first, you didn't seem to have much response from retailers here in Switzerland. I believe you began mostly, if not completely, direct-to-consumer. Talk about that and talk about, you know, what kind of price point, price category that you played in, and then we'll talk about what, you know, your experience and proximity to Dexel has brought to the Formex brand. Yeah, so in the beginning, obviously that was a bit disencouraging or discouraging to get the feedback from the retailers. But I also understood that it was still the times where they had a lot of pressure when they wanted one brand that was belonging to a group.

8:09They also had to take three other brands and stock up an inventory. So nobody really wanted to commit to a brand that wasn't. One thing I heard is come back when I see an ad on TV was one of the things. So we failed. We still don't have an ad on TV nowadays, but I think we managed differently. But that's when I understood that, you know, we should focus on the product and then try to address watch collectors, you know, really watch nerds. Because we packed the product full of features, full of certification with the cost movements, etc. That we felt that we don't really have to explain the features to the watch nerds.

8:49it just boils down to whether they like the design or not and I think we managed to boil down the essence of what Formex was into a much more potable everyday watch with the essence and that's also why we called it the essence

9:04Raphael Granito:hence the name hence the name and also the plan for it to become the backbone of the company which also turned out to be the case so yeah that worked out and we decided to do a kickstart It was kind of on the downward slope of successful watch Kickstarters already in late 2018. But it allowed us, well, we did a little thing that was kind of gave us an idea of how many watches we're going to sell straight away. Because it was important on Kickstarter to get good traction to sell a lot straight in the first hours of going live. so we actually allowed people to pay a deposit to us directly to secure the early bird pricing.

9:48So we knew exactly when we launched that we already have 250 watches sold. That was around that. And then it went up to 600 pieces. And the goal with that campaign was to get as many watches out on wrists as possible because it really was at a very low price. I think it was not even a times two factor to get to the Kickstarter price. Yeah, so we didn't plan on, you know.

10:12Raphael Granito:What was the price for the Kickstarter? I think it was around$800 for the Essence. So, yeah, really, you know, most people say, oh, after the Kickstarter, it's going to be more expensive or whatever. And that was really the case for the Essence. And we didn't want to fill the coffers with the Kickstarter campaign. what we wanted to do is cover our costs, get a little bit of something to get us started, but mostly get watches out there. And because we had the effect of showing prototypes to experts and, you know, watch YouTubers and watch journalists, and the reaction we got from them for the price, even the MSRP, not the Kickstarter price, was just, you know, wide-eyed wonder about what kind of watch we were able to put out at the price.

11:01And so we kind of had a feeling it could work, but obviously you never know ahead of time. But that's what really launched FormX 2.0.

11:10Raphael Granito:Yeah, and that's quite interesting. Just a quick side note, I mean, yeah, we used to see a lot of watches. There was a real heyday for watches launching on Kickstarter. Why has that changed? And would you, you know, if you had to do all over again, would you still have gone the Kickstarter route? I'd probably start earlier, like straight away in 2016. that would have been good but the reason why it went down in my opinion is just too many people buying stock components on alibaba and offering it as the you know revolutionizing the watch industry blah blah blah cutting out the middleman you know the old spiel and uh also fraud a couple of guys were not actually making the watches they um they charge you for and yeah kickstarter wasn't really liable for that.

11:58So that was a risk and that turned off a lot of people. You know, a lot of real watch collectors who were dabbling in micro brands and Kickstarter. But then there are some really good examples such as, you know, Andrea from Forl and Mari or Studio Underdog. These guys started on Kickstarter and they're still here as are we. So they meant business and they didn't just want to do a Houdini after getting the money.

12:23Raphael Granito:Absolutely. And yeah, let's talk about, you know, we talked about, you know, the sort of quality of some of those Kickstarter projects. But let's talk about the quality and the value for money that you're offering with FormX. Talk about the kind of watches you're making, the kind of design elements, and, you know, that price point that you're existing in. I think, you know, you've just released, you just showed me your latest watch, which is in a price point which you haven't been in before. Talk about, you know, how the brand has tried to differentiate itself and give that value for money? So it's pure math.

13:02Because we went the direct-to-consumer route, we could have a different multiplier from when you have to work with distributor and agents, etc. So that is usually 5x, 6x, from 5x on. For us, it now is a 3x because we also noticed 2.52 is not enough to sustain a business and hire people. And we were always in for the manufacturing part as well, the assembly part. We build everything in-house. The watches are assembled and tested here. So you need staff for that. And you can't pay them with a two, a factor two. So we moved up to a three, and then it just was down to getting enough volume to sustain a business, getting the cash flow going.

13:50it was never our goal to you know just make as much cash as possible and everything we make goes back into the next products into machinery into streamlining and improving our quality assurance so our goal is to to build a sustainable brand in terms of you know a brand that's going to be around for a while and um so that's what we set out to do and the factor three works from a certain volume but not below that so cash was always a concern so we pretty quickly we didn't want to get outside investment uh so we invested everything from our private uh money which meant sometimes you know paying salaries from my private accounts when it you know just didn't work out for that end of the month.

14:40But it also means that we had to very quickly break even.

14:45Raphael Granito:Yes. I said, if in five years we're not breaking even, I'm just going to stop it and go back and do whatever I was doing before. And we managed in just shy of four years to break even. And then, yeah, I would lie if I was going to say that after those four years, cash was abundant. And we still had to pay very close attention on what we spent and how we spent it. So this kind of also forces you to run a lean ship in terms of marketing and really early on figure out the things that will bring a return on ad spend, a return on investment. And then allows you to grow your brand organically. Absolutely.

15:26Raphael Granito:And talk about, you know, what kind of growth you've experienced. I mean, you said you probably made a few hundred watches in your first year. I guess that's back in 2018. We're here in 2026. I think you were saying your staff, your number of people working for you has doubled to about 16 people now for FormX. What about production and how is that looking and how are you sort of keeping up and still managing to not grow too big too fast? I mean, we're trying to be able to deliver because nowadays we do work with retailers and they're really valued partners. And we don't want to upset them by not having stock, which, you know, a couple of months this year was definitely an issue.

16:10So we stopped actually onboarding new retailers so we could ramp up production. But this means training people, getting new equipment. And it's just, you can't just call up a guy and say, I need more watches in our case. And then a big topic is also ramping up production, but we managed to ramp it up and still improve quality. So we're still lowering our rate of failure or things that go wrong on a customer's wrist is down to about 3%, which is incredible, which has to be like that. If you want to run a lean ship and not hire 20 customer support agents that are constantly sending watches around to watchmakers and fixing issues.

16:58So we pay very close attention to that. And we'd rather stop onboarding new retailers and maybe slow down the launch pace a little bit just because we also don't want to burden the staff with too much stress because they actually enjoy working here and I want to keep it that way. So that is definitely the challenges. We call them champagne problems, but it's still a problem and it needs to be addressed in the correct manner.

17:26Raphael Granito:Absolutely. And so, you know, we talked about how the business has grown. I mean, how many watches are you making a year now? And then, you know, can you give us a sense of your average price and the area, that price point that you play in and how you compete? Yeah, so this year we're probably going to reach 6 ,000 units at an average price of$1 ,800. Wow. Yeah,$1 ,800. And with a pretty big price range or span, because one thing we figured out is as a small company, we're quite nimble in what we can do decision-making-wise, but also product development. And, you know, the Aria was a good example.

18:15our price range was you know from a thousand dollars to about three thousand and then we came out with the ceramic pieces which got a bit more expensive up to forty nine hundred something like that and that worked out well but it didn't make me want to go only towards that price range which is it's always something that customers who've been supporting the brand at our regular price point are scared of or worried about and even with the aria that came out at just shy of eight thousand dollars with our manufacturer caliber that was not the intent it's not the intention to go there it's the intention to keep the aria there uh to to keep many fat we're actually on the second batch now and to manufacture that movement with horage uh and to to work on new iterations of it, but it's not necessarily going to be the bread and butter.

19:11Raphael Granito:Just the butter. But it's, I mean, the Ari is, it's, let's talk about sort of, you know, what this watch consists of. It's an integrated bracelet watch, full titanium. It's got a, basically a movement designed by Formex and produced by Orage. It is, you know, uses a lot of very high-end sort of finishing components. It's an extremely thin watch. Yeah, I mean, why move to this kind of piece at this time for the brand? As you say, it's to show that you could, I guess. Yeah, I think the right answer is why not? So that's pretty much the philosophy. So I have to kind of specify there, the movement wasn't designed by us.

20:04We designed the decoration so that the way it looks, but the movement is completely developed by Horage based on their K2 caliber, which means it has a silicone hairspring, silicone escapement. It's a micro rotor that is only 2.9 millimeters thick as a movement, quite slim. and it has 72 hours of power reserve. And we, you know, traveled the world with our friend brands or people at those brands who became friends because we traveled to the same shows. We go promote our brands and then in the evening we have dinner together. And the same was the case for Horage. We're also neighbors. It's literally a 20-minute walk over to them.

20:49and I don't really remember if... Yeah, I think they already had plans to work for a small number of brands when we first started talking and making movements for them. Their intention is never to become an OEM movement manufacturer and so we got into talking and I was really impressed with their K2. The fact that they can cost it, that they can use that technology reliably and make a really good and high performance movement. So we got together and started talking and agreed. They agreed. We agreed. We settled on an amount of pieces we would start with. And then we started building the watch around the movement.

21:34And we could have said, okay, the movement is about eight, nine times more expensive than our regular movements we use. We work mostly with Solito, who provides amazing movements. considering the price we could have gone okay we're gonna try to save money on all the other components to still get a price point that is kind of familiar with our customer base but i think the movement deserved for us to throw everything at it right and also that's why i said the why nots we don't really have you know like a board or or uh you know like big distribution partners we have to answer to. And it doesn't necessarily have to make sense, our price range.

22:21We can do something like that. I mean, the worst that can happen is we fail and we lost money on that project. So I felt ready for that. It was two and a half years ago, so not quite where we are now with Formex. So it was a move that required some reflection and also for me to say, okay, let's do this. will do it and then we worked for a long time on the design because we wanted to do something that didn't look like just another integrated steel sports watch we decided to go with grade five titanium so we can really get you know show our our finishing skills and also the engineering skills so everything came together nicely and we wanted to we were inspired in inspiring ourselves by elements that are shaped by nature.

23:12So, you know, the rock formations in the Moab deserts, a rock that is shaped by the time and water, rounding everything off nicely. So we wanted to take that very angular, typical very angular design shape or design language of an integrated bracelet watch and kind of round it off a little bit, sprinkle it with some organic shapes. and that also comes together on the dial that is stamped and has all these 3D shapes. At a first glance, it looks like a very clean design because I've always been a fan of slim watches and also clean designs, not overloaded with too much information. But then again, I also am a fan of discovering details when you look closer.

23:59So it's kind of a balance between adding more features that people can sometimes discover after wearing the watch for three months and go, oh, I didn't notice that. That's nice. So that's kind of the goal. And that's, I would say, I honed that skill with the previous models and we kind of exaggerated it on the Aria. That's how the price came together. So it's not a commercial reflection. We need to be in that price range. Let's do that. It's let's see where we land. And then, yeah, Marcus needs to sell him.

24:32Raphael Granito:And Marcus, your business partner, who's also a shareholder in the company, you said, but he's based in the United States. And the United States is your biggest market now, I believe. Yes. Yeah, I mean, talk about how your watches are distributed now, what markets that you're big in, where you want to grow. And then it's interesting, the experience that's happening with your retailers. You were telling me they're growing sales of your watches at a faster rate than the company's actually growing. Yes, I think it's kind of a critical mass thing, but it's also us having been present for quite a while now, mostly online, selling direct to consumer, going to all the consumer shows, the wind-up fairs, the intersect fairs where we're involved in the organization.

25:25So it's a fair organized by brands for brands where we just do cost sharing and give a relatively cheap platform for brands to be able to present it all over the US. So it's in Charlotte. We're going to do one in Miami. It's in New York sometimes and Austin, all over the place. And it gives smaller brands like us or even smaller brands that are just starting out a platform. and we've been doing this for the past eight years, being present at all the windups, meeting literally tens of thousands of people on a single weekend. And that kind of, when you have these conversations and the brand creator or owner of the brand talks to the people, it kind of gives them a lasting impression of what the brand is.

26:16You know, it's not marketing speak kind of. It's really, you get to feel the energy behind the brand. And I think that work ultimately transmitted in the watch community. And there's still a lot of people that wouldn't spend that much on an online purchase before seeing the product. So opening new physical retail locations really captures the people that have been following the brand for a while, but want to get hands on before purchasing.