I don’t know if you’ve heard, but there’s a pandemic going on. The effect on the retail sector is something akin to a plague of locusts o’er the land: exports down 80 percent-plus. Companies primed to go out of business. Oh, and U.S. watch stores were looted and now shuttered. Of course, that makes it the perfect time for the cheerleader to proclaim THIS IS GOOD FOR THE INDUSTRY!
Rob Corder’s latest column sounds a hopeful note that his worst fears of the effects of Coronageddon haven’t come to pass. His argument: the shutdown in production has prevented new inventory from reaching dealers, keeping grey market supplies tight, supporting prices.
Exactly why more inventory would end up on Chrono24 as “New / Unworn” – when dealers are expressly prohibited from selling to resellers – is sadly unexplored. But I digress.
Rob posits that manufacturers dumping inventory on dealers would have led to more inventory on the grey market which – and WatchPro yadda yaddas over this part – hurts everyone.
So let me see if I got this straight:
– Lack of demand = bad
– Lack of supply = bad , with a little bit of good
– Lack of supply and demand = good.
Adding to the pain: Corder’s implication there won’t be revenge buying. Because if there were, it wouldn’t matter if there was a temporary oversupply of watches. People will be snapping the things up as soon as lockdown ends. But he implicitly disavows that narrative.
[If you read TTAW, you know we were skeptical of the revenge buying narrative from the git-go. But here’s an insider getting up and admitting that the industry agrees with us.]
If the industry were anticipating a sudden spurt in consumer demand, manufacturers would be pumping out watches to get ahead of it. Otherwise they would be caught out.
They can’t ramp manufacturing quickly, and most of these guys don’t run a ton of spare capacity (if we are to believe that the steel sportswatch shortage is due to capacity and not false scarcity).
If the industry were anticipating a revenge shopping bonanza, dealers would be making noises to the press about getting in front of it. They would be making damn sure investors know that the second half of the year will make up for the first half. And they would be communicating to customers that stock was coming so sit tight.
None of these are happening. Everyone in the watch biz is resigned to a long drought – slowing production, holding off on new inventory, cutting costs, hunkering down.
Everyone except Rob:
Coronavirus has paralysed the industry, but with a concerted effort to get things moving in the second half of the year, I am optimistic there will be little long term damage because there is growing evidence we will not face a dangerous oversupply of watches.
Rob. Buddy. A “dangerous oversupply of watches” is the least of the industry’s problems. The bigger problem: the massive demand shock we’re experiencing.
Having 10 or 15 percent more inventory to work through will put some pressure on the dealers, yes. But that’s a temporary blip. Not selling anything at all for months and then having demand only come back weakly, if at all? Deadly.
Deadly to manufacturers, who have high fixed costs and a strongly unionized workforce. Deadly to dealers, who are getting hit with whammy after whammy: the smartwatch crisis, Coronageddon, social unrest, a cratered economy and unemployment. To name the ones that are already here.
You can see it in the data. You can see it in the pricing. And very soon, you will see it as watch brands never reopen. But at least the secondary market hasn’t seen prices fall off a cliff. Yet.