A couple of years ago I wrote a review of a book called 'Deluxe: How Luxury Lost its Lustre' by Dana Thomas. Admittedly it wasn't a great book review, but the book itself is very interesting and as a matter of fact I'm reading it again right now. As much as I would like you all to go out and buy it, I know that's not going to happen, but I wish you could all just read the introduction which explains, rather neatly and concisely how the luxury industry has evolved from it's beginnings as a genuine 'quality/handmade' industry for the genuinely rich into what a large part of it represents today, which is 'luxury for everyone'.
Granted, there are exceptions, Hermes for example is clearly not for everyone and holds tight to its principles of quality and craftsmanship (as far as I know there are no Hermes outlet stores anywhere), but if you can afford Hermes prices then clearly you deserve not to have some spotty teenage girl rocking your bag next to you on the tube ride home.
1 of 50 Hermes Birkin, yours for just £165,000!
For the vast majority of the luxury industry though, the reality is that luxury is more about branding than craftsmanship. The book focuses quite a lot on Louis Vuitton and the LVMH empire (with only a passing nod to TAG Heuer) and Mr Bernard Arnault himself seems to be quite open with the author about how they have moved from handmade to production line manufacturing for the vast majority of their products.
The reason I bring this is up because it frustrates me somewhat that some people (and one YouTube watch guru in particular) seem to find it difficult to differentiate between the past and the present and the reality that in the 21st century 'luxury brands' are for the most part vast business empires with a single over-riding purpose - to make money. Not that there is anything wrong with that, but some people seem unable to disentangle the 'emotional' from the 'financial' reality and they seem to view the watch companies they admire through a distorted lens.
And so they complain when a brand (like Seiko) decides that they can charge more for their product while at the same time acknowledging that one of the great draws of that brand in the past was that they represented great 'bang for buck'... indeed that particular 'YouTube watch guru*' has already taken it upon himself to anoint Orient as the new Seiko.
*It's the guy with the beard who really hates TAG Heuer by the way
Admittedly Seiko have pissed people off because they have downgraded their product while at the same time upping the price, but surely the market will decide whether that is acceptable or not. One of the main complaints is that Seiko now have 'dive-style' watches with poorer water resistance ratings, which if you dive yourself is a reasonable complaint, but I'm willing to bet that for every 100 'dive' watches Seiko sell less than 1 ever goes deeper than a swimming pool.
The same company also faced much moaning about it's blue Alpinist limited edition which was launched in collaboration with Hodinkee, leading them to accusations of being involved in a 'cash grab'. Again, do these people not understand that the principle reason for the existence of the Seiko Corporation (the clue is in the name is it not) is to generate cash?
And it's not just Seiko, most watch brands are in the business of selling limited editions at inflated prices, with Omega a prime example. A few years ago they launched a white dial 'Snoopy' Anniversary model which retailed for £6,000... and ultimately now trades at roughly double that. So when the next anniversary rolled around Omega pumped up the price to £8000 (with some improvements to the watch admittedly, but at the same time removed the 'limited edition' element of the deal) and why not? If you had a product that you perceived was under-priced wouldn't you put the price up when the chance presented itself?
One of the few watch companies who don't make limited editions is Rolex, but they put their prices up regularly because they know that their business model of under-supplying the market and regulating a constant over-demand for their product enables them to do so without affecting sales. Unfortunately, this in turn drives up the prices of the whole Swiss watch industry since it allows more headroom for the brands lower down the line to increase their prices and still keep their place in the hierarchy.
As a Swiss watch customer myself, obviously this is just as bad news for me as it is for everyone else, albeit it could be argued that it drives up the second-hand value of pieces that I already own. But I'm not moaning about it (much), because it is my choice whether I want to spend £5300 to buy a Heuer 02 Monaco or not. Indeed if you are already in the position to contemplate spending £5000 on a watch then it could be argued that you don't have too much to moan about full stop.
But criticizing watch brands for wanting to increase their profits seems like a curious notion. After all, likely the company you work for must have done a good job of maximising their profits if it pays you enough to enable you to buy a luxury timepiece, no?
But because watches are an 'emotional' (and unnecessary) purchase, and perhaps because the brands go out of the way to highlight their 'history' and (often unmerited) 'provenance' some people feel unusually engaged with the brand to the point that they feel somehow 'slighted' if the brand they align themselves with pushes themselves up a notch in price.
I find it interesting that brands like Porsche can strip half the insides of a car out, call it a 'lightweight' limited edition and charge £30,000 more for it and no one cries foul. Or a brand like Ferrari can slap a stripe on the bonnet, raise the BHP from an unusable 470, to an even more unusable 499 and call it a limited edition and slap a huge premium on the sticker price and no one says a word. Or Apple could launch an iPhone with a funky 'limited edition' coloured case for an extra £100 and people would queue to buy it... but if a watch brand wants to make money it's somehow 'out of character' or even 'obscene'.
Which rather ignores the fact that the whole Swiss watch industry is somewhat 'obscene' when it comes to profits. Bernard Arnault (head of the LVMH group) is one of the richest men in the world (like, top three), not because he prices his products to make his customers happy, but because he charges the maximum he can get away with. There's nothing obscene about it, if you want a Louis Vuitton trunk, a Hublot watch or a Fendi handbag, this is the price. You are free to go and buy elsewhere, but this is what this brand costs.
So while I agree that it does seem like the price of TAG Heuer watches has increased over the last few years against a backdrop of stagnant wages and a multitude of financial uncertainties... the reality is that it represents what the brand believes it's products are 'worth' relative to other similar brands and where it stands in the marketplace.
And of course, one peculiarity of the 'luxury' industry is that putting prices 'up' actually increases desirability because it conveys the message that the product is 'worth' more, regardless of whether it has changed or not. I recall reading once (perhaps even later in this book that I'm currently re-reading) about a handbag brand who increased the price of one of their handbags from £500 to nigh on £800 and found that sales increased because the bag was suddenly perceived as more desirable because of its inflated price. And even if it doesn't work out that way, if your sales don't drop too dramatically you can still find yourself in the position of generating more income from selling less pieces at a higher price!
Richard Mille's watch brand didn't take off until he decided to hike his prices waaaaay up out of the reach of normal people. Everyone thought he was completely insane and on a one way ticket to bankruptcy, but instead his watches became the hot ticket and sales (and more importantly, profits) went through the roof. Now Richard Mille sponsors not one, but three Formula 1 teams!
Going back to Rolex for a moment, you have to wonder if they did decide to make a limited edition watch, maybe a Submariner with a coloured second hand let's say... and, I don't know, 2000 pieces, how would they price it? If a regular Sub is £8,000 but they know these watches would be changing hands for £15-20,000 or more (which they would in a heartbeat) why would they sell them for £8,000? Yeah sure, painting the second hand a different colour would cost them nothing, but that's not the point is it?
So if Rolex decided to charge £12,000 is that morally reprehensible? Even though we all know those watches would be sold in a day? Ultimately they would have created something of increased value to the customer, whether it costs them any more to produce it is irrelevant isn't it? So why is it a 'cash grab' if Seiko or Omega do something similar?
Plus, there's no obligation for you to purchase anything they make. If TAG Heuer finally decided to make the perfect 39mm Carrera panda dial with a glassbox and all the rest of it that everybody seemingly wants, but they decide to limit it to 500 pieces and charge £8,000 a pop, well, that's up to them - ultimately the market will decide. Either they'll sell, in which case they've done their job and pitched it right, or they won't and they haven't.
Sure people will moan about the brand pumping up profits to obscene levels, but the profits are already obscene in the luxury sector. Bernard Arnault famously said himself that 'luxury goods is the only place that you can make luxury margins'. What kind of margins are we talking about? Well, if you are paying £3000 for a wristwatch it probably cost less than £300 to manufacture, but of course there are many other costs besides the actual 'making' of the goods which all need to be factored in.
They have employees, rents, leases, sponsorship deals, suppliers etc to pay, because at the end of the day they are a business making a (non-essential) product which they are trying to sell for as much as possible, just like every other business.
So ultimately, yes... of course that watch brand you have an 'emotional' attachment to is trying to extract more money out of you, but it's not a personal affront, it's business.
It may be hard to stomach, but it shouldn't be difficult to understand.
No comments:
Post a Comment