Would You Buy A High-End Watch Online?
Group managing director of The Hour Glass, Michael Tay, weighs in on the viability of an online business model for luxury watches.
Luxury e-tail is the latest buzzword on every watch retailer’s lips these days, thanks in no small part to the recent high-profile distributorship granted by IWC to the Yoox Net-a-Porter Group. IWC, however, isn’t the first brand to retail online; that honour goes to Zenith, who in 2015 began retailing officially on mrporter.com. But we digress. The more important issue at hand is this: Is there a wealth of potential lying in wait for watch retailers and manufactures in the digital sphere?
Understandably, there are no clear answers at this point, but that didn’t stop us from picking the brains of trade insiders like Michael Tay. Fiendishly clued in to the digital lifestyle—Tay professes that he spends “more time on Instagram than his entire team put together”—the group managing director of The Hour Glass shares some insight on where this whole digital business might be taking the industry.
What are your thoughts on the partnership between IWC and Net-a-Porter?
Michael Tay It’s a significant milestone for both companies. Is it going to revolutionise the way watches are sold? Is it the start of something? More importantly you have to understand the psyche of why people buy online against bricks-and-mortar. You have to look at the markets that are most successful with online dealing of watches and the type of category of watches that are being sold. I think there are some limits to this business model. Everything I’ve studied and seen points to this direction.
What sort of limits?
MT People buy online against offline firstly because of searchability [sic]. The second reason is price. If price is your number one consideration, and you’re looking to squeeze the last one per cent, then yes, perhaps you may end up being a client that’s more primed to purchasing online. But if you’re a collector who believes in service as the primary derivative of your whole process apart from owning a beautiful timepiece, this idea of a luxury experience, the personal touch… I think there are greater benefits to that. At The Hour Glass, we are very cognizant of the service promise.
Why do we not see more watches being sold online?
MT Brands are still feeling their way around the idea of selling online, and not all brands allow it. Some brands don’t even allow you to present their products on your website. For now, it’s extremely difficult for traditional retailers to do that. But who knows, things may change in time. The point I’m making is that we believe in the idea of using digital media to enhance the experience of our clients. We don’t see it as a competitive threat. It’s an important consideration and a medium in which we will harness to help improve the overall luxury experience because we believe in an omni-channel model for retail where digital is just another channel for us. It doesn’t necessarily mean we will transact online but we may have services that clients may access online.
Watch collecting doesn’t operate in soleus. It’s a community driven hobby and
most collectors are part of a greater community.
How have you used digital platforms to promote your products and services?
MT We are quite active on social media. We do present our products when they arrive, so we use our social media assets as another way of communicating with our audience. We’re not unique in that. A lot of people do that. What’s clear to me is that Instagram for our sector is probably the most important social media tool. At the same time, I think one can’t forget that we deal with a lot of very important clients, true collectors. Watch collecting doesn’t operate in soleus. It’s a community driven hobby and most collectors are part of a greater community.
Where does social media come in here and how does it drive your business?
MT You can foster this community online but what’s even more impressive is when the online community meets in the real world, at what we call GTGs (get togethers). At The Hour Glass, we foster such developments. It’s when these GTGs occur that the hobby becomes “real”. You could look at digital images on a screen but watches are 3D objects. The experience is not purely visually enriching; it’s a tactile hobby. It’s not just about looking at them but feeling the watch, trying it on… there are nuances in the case and dial that you can’t tell through an image. It’s only through physical interaction that you derive the greatest pleasure.
Would online retail for luxury watches become the norm?
MT It would only become the norm when there is global pricing parity. This is my view. The primary consideration of why people buy online is, number one, if you live somewhere that’s very expensive to market, like the UK, the US, or Australia, then perhaps the online model makes sense. But in dense urbanscapes like Singapore, it doesn’t. The other consideration is because it offers a distinct advantage whether it’s service or price. For this business model to grow, there has to be something unique, like a specific edition created just for online, or a price consideration that’s much more attractive.
The experience is not purely visually enriching; it’s a tactile hobby. It’s not just about looking at them but feeling the watch, trying it on… there are nuances in the case and dial that you can’t tell through an image.
Are there any other barriers to entry?
MT For fashion, it’s easier because goods can be returned. For watches and hard luxury, the idea of returns is much more difficult, especially the more expensive the product, the greater the challenge.
Going by the proliferation of fashion sites, it seems like people are more willing to buy luxury fashion online than watches. Why is that?
MT There’s a certain threshold especially for online. Whether that would change or not, I’m not too sure—it probably will. Up to US$5,000 it’s not so much of an issue. Anything above that, people want more consideration. But we are in the infancy of this whole business model and it will take time to unfold. Do I believe it’s going to supplant retail? I don’t think so. If that’s the case, why would Amazon be going out there and try to build retail stores for their books business? They came in 20 years ago with the intent of eliminating physical book stores, so why are they now going to big cities and opening up physical book stores?
Is this a cyclical trend then?
MT You can disrupt the model, you can disrupt the market, but there’s an inherent need for people to have social interaction. If you buy online, is that going to be enough for you as a collector? The answer is clearly no. Watch collecting is one of those hobbies where socialising is extremely important, part and parcel of the pleasure of owning a beautiful wristwatch. You can do it online as well but nothing beats physical offline interaction and this is what retailers like us bring to the equation. I’m not saying that there’s no room or cause for e-commerce platforms. I think it’s become just another channel. Will it become the dominant channel for watches in the future? I’m not sure. The bricks and mortar model for hard luxury is still the way forward.
But still, isn’t having an e-commerce platform going to boost sales, at least with the millennial segment?
MT I don’t know a single instance where a brand can sustain its business model purely from an online transaction model, unless it’s a commodity, then it’s possible. Even Warby Parker, the most successful brand of sunglasses today, has moved offline. It’s an incredible case study. They started online, now they’re offline, and now they’re several hundred million dollars’ worth of sunglasses. You have so many cases of online retailers moving into the physical realm because that migration is that much easier, and they realise that doing it reinforces their business. The physical bricks and mortar is still important. Today 90 per cent of all transactions are bricks and mortar. That’s the statistical evidence. E-commerce only accounts 10 per cent at best.
But what do trends show?
MT Growing but slow growth. Even among retailers whom I encounter who have e-commerce platforms, the total value of e-commerce transactions is still in the low single digits, very low single digits, and they’ve been at it for years.
You have so many cases of online retailers moving into the physical realm because that migration is that much easier, and they realise that doing it reinforces their business.
Would traditional retail evolve as online retail matures?
MT Traditional retail will not evolve on its own. It’s the individual companies that will evolve. This is how I view it. Whether one views it as a threat or an opportunity depends on the mind sets of the management of the company. I don’t know how our competitors are doing. I don’t know if they’re adapting to it, whether they choose to or not, who knows who’s right right now. We’re in such an early stage in terms of industry development nobody is able to say for certain what the outcome is going to be.
What is The Hour Glass’s mind set?
MT We articulated the idea of where we think this industry is going to traject in our chairman statement in 2016 and how we’re going to be utilising these channels to enhance our service delivery. We do believe in a digital future and in an omni-channel future. We believe in an omni-commerce world. That’s as much as I’m prepared to say for now. I think it’s up to each individual company to figure out for themselves where they want to go.