This article first appeared in the special edition of The State of Fashion: Watches and Jewellery, co-published by The Business of Fashion and McKinsey & Company. To learn more and download a copy of the report, click here.
Many Swiss watch brands were slow to adapt to the direct-to-consumer model, instead relying on traditional networks of third-party retailers to acquire customers. But in recent years they’ve been catching up, and an estimated 20 percent of all watches in the premium to ultra-luxury segments are now sold directly by brands to end consumers. The figure will only rise as watch companies adopt more aggressive omnichannel-powered e-commerce strategies and tease their customers with upscale digital communication platforms.
Georges Kern, who was appointed chief executive of Breitling four years ago after a long stint at Richemont, has transformed his company’s fortunes with a “loft-style” boutique rollout, a “see now, buy now” approach to product launches, and high-profile digital marketing campaigns, fronted by celebrity “squads.” He has also abandoned the annual Swiss watch fairs. But is Breitling’s flying-solo model really the future of the Swiss watch industry? According to Kern, who expects to double the size of his direct-to-consumer business over the next five years, ignoring it will cost some brands their future.
BoF: Do you think consumers want more direct interaction with brands?
Georges Kern: Absolutely. Society has changed. Brands have to be much more inclusive now. There’s still some exclusive luxury out there where the customer is supposed to feel honoured to get a watch from a company. Are you kidding me? We should be honoured that the customer has trusted us. Some brands are too arrogant in the way they deal with customers. I’m sure this will backfire one day.
How is this shift affecting Breitling?
It’s affecting us digitally, particularly. And when I say digitally, I don’t just mean e-commerce. I’m talking about the digital interaction we have with the customer across platforms. We’re now investing 70 percent of our media marketing budget in digital and our e-commerce business is growing rapidly. But don’t take this the wrong way, customers still want to come into store and put a watch on their arm. So our digital communications are all about driving the customer to us physically. We’re expecting that soon e-commerce will be worth 15 percent of our sales, but that would mean 85 percent are still buying in stores.
Are they buying more in Breitling boutiques or through your retail partners?
For the consumer, Breitling is Breitling. The consumer doesn’t know or doesn’t want to see the difference between a Watches of Switzerland [multi-brand] store and the Breitling boutique. We have one communication channel, so when we launch a product, I give all my assets to Watches of Switzerland too. Ultimately, I don’t care who sells the watch. Yes, direct e-commerce is great because the margin is much higher and it’s great for cash flow because you get the payments immediately and you also get the consumer data. But we are not at that stage yet. We can’t channel 100 percent of our custom through our own channels. We are not Amazon or Louis Vuitton. We want to give the same opportunities to all our retailers, even if it means we’re competing with them in search engine optimisation.
You didn’t always have your own channels. The needle must be shifting towards direct-to-consumer sales?
Yes, but look, the first objective is to give the client a much better experience. And there’s no escaping that a boutique is a different experience to an over-the-counter retailer. So the fundamental objective is quality and image. And if you talk to any Millennial, they want the boutique experience, the 360-degree physical brand experience. Boutiques deliver on all this.
So why aren’t you focusing solely on boutiques?
Because I have investors. And investing in boutiques means capex (capital expenditures), and capex means opex (operating expenses). And when you have lots of boutiques, you have lots of opex. The companies with lots of opex were totally screwed during the pandemic. So it’s beautiful to have boutiques because you have huge exponential growth when it works. But it’s a drama when it’s going down. So as a brand, you have to think: “what’s important, my image, or my margin?”
In five years’ time, what percentage of Breitling’s sales will be direct-to-consumer?
Probably 50 percent. Today, it’s around 30 percent.
A rapid shift, then?
Yes. We’re opening boutiques like crazy at the moment. Around 75 percent are external, operated by our [partners], and 25 percent are internal. We’ve opened nearly 20 boutiques this year, and we’ve got 40 more to come. That will take us up to almost 170 worldwide.
Does this mean the future is bleak for third-party retailers?
Not necessarily. All over the world, you have strong retailers that have been trusted for generations, like the family doctor. And in some cities, you will always have iconic retailers, often with a broader offering, like jewellery and so on. These guys will always be there. There’s more to it than that, though. For example, in the US, my e-commerce business is much bigger than in Switzerland because in the US customers have to travel much further to get to a Breitling retailer than they do here. That’s just geography. So we push e-commerce in the US and in China, too. It also depends on how mature the market is. The UK is a very mature market so when we open a boutique in Cardiff or Glasgow, we know we’re going to make turnover. Sometimes it’s much better and more efficient to invest in strong countries than in developing countries. But ultimately, where there’s no offer, there’s no demand. They’re the same thing.
You say Millennials love boutiques. So as the watch customer gets older, the direct-to-consumer shift will surely gather pace?
It could do, yes.
Which means there will be casualties?
Yes. The big independent retailers with Rolex and the big brands, they will be fine. But those with no e-commerce, no branded corners and no boutiques, these guys will disappear. That’s for sure.
Do you think mainstream luxury watch brands need to adopt direct-to-consumer strategies?
Absolutely. The industry’s big problem is that our products aren’t modern. The technology is basically 250 years old. How do you keep our products relevant when there are newer digital tools out there? How do you make the younger generation buy these products? Digital communication, storytelling, cool boutiques and so on. If you don’t have these, you die.
This interview has been edited and condensed.
The inaugural edition of The State of Fashion: Watches and Jewellery report co-published by The Business of Fashion and McKinsey & Company forecasts a shake-up in priorities for hard luxury as well as different recovery scenarios across geographies and consumer segments. To learn more and download a copy of the report, click here.
BoF Professionals are invited to join us on July 13, 2021 for a special live event in which we'll unpack findings from the report. Register now to reserve your spot. If you are not a member, you can take advantage of our 30-day trial to experience all of the benefits of a BoF Professional membership.
Explore the six seismic shifts from the report:
The Future of Watches:
- A High Stakes DTC Shake-Up
- The Mid-Market Squeeze
- The Pre-Owned Market Will Be Worth Up to $32 Billion
The Future of Jewellery:
- Brands Battle for Buyers of Unbranded Jewellery
- Creating Sparkle Online
- Demand for Sustainably Made Jewellery Will See Explosive Growth
Click here to explore more from this special edition report, including executive interviews.