ABTW: Morgan Stanley Report On The Watch Industry’s Biggest Problems In 2019 & Beyond

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https://www.ablogtowatch.com/ablogt...ch-industrys-biggest-problems-in-2019-beyond/ link to full article

aBlogtoWatch Perspective: Morgan Stanley Report On The Watch Industry’s Biggest Problems In 2019 & Beyond
DEC 23, 2018 — BY ARIEL ADAMS

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Investor services firm Morgan Stanley recently released a research report on what its analysts feel are the most pressing issues that will affect the profitability of the watch industry now in 2018 as well as in 2019 and beyond. Predictably diplomatic in vocabulary, the report nevertheless offers stern warnings to investors expecting profits to increase anytime soon from publicly traded-companies that rely on the revenue from wrist watch sales. I think Morgan Stanley does not get everything right in the 44-page report – especially in some of their analysis to explain the relatively sound data they use.

While the analysts do understand the larger structure of how the watch industry more or less produces and profits from watches, the report doesn’t take into consideration important details about the watch purchasing or marketing experience that is crucial to explaining certain aspects of buyer behavior. More so, I’ve come to understand that until recently, much of the watch industry and those who report about (such as other investor services or third-party management firms) it for investor purposes have mostly espoused optimistic news about the current state and near future of the watch industry. I’m now starting to see more sobering accounts of what the watch industry is actually going through. Especially reports that confirm and support the very same analysis and conclusions myself and the aBlogtoWatch team have already come to and written about at length. Yes this is positive for the ego, but more important it confirms the saliency of many reforms aBlogtoWatch routinely recommends to the watch industry that makes the products its community loves. Let’s now take a look at the Morgan Stanley report (which you can download here).

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Consumers for wrist watches are even loathe to purchase at full retail price unless they sense cause to believe the product is not only scarce, but prized by others. Most watches sold today cannot be sold at full retail price. This is a problem the watch industry allowed happen, and further fueled by consistently overproducing watches for many years in a row.

This is one of the “highly disruptive” situations Morgan Stanley alludes to but doesn’t outright confront in the report. The data analyzed supports my above conclusions as Morgan Stanley comes to their next point of the two difficult options the watch industry has in order to respond to overproduction woes.

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THE MOMENTUM OF PRODUCING TOO MANY WATCHES WILL ONLY SLOW, NOT STOP

I commend Morgan Stanley writers for their ability to exercise restraint when discussing the dilemma groups like Swatch and Richemont have when dealing with oversupply and the ensuing results of it (because they have some hard decisions to make). Morgan Stanley correctly argues that the biggest reason for the watch industry to reduce its production of watches is because the future for much of it is direct-to-consumer sales. At the least with a foundation of direct-to-consumer sales the watch industry will no longer be subject to the bullwhip effect. Morgan Stanley does however neglect the fact that overproduction is not likely to end very soon. Though they seen less and less reasons for the watch industry to put up with the negative results of it.

Direct to consumer (DTC) sales mean that watch brands no longer get to enjoy selling watches in bulk, but also don’t need to make as many guesses about how many watches to produce. Morgan Stanley still doesn’t quite understand that some watch brands produce too many watches to sell into the market via wholesale in order to meet short-term goals while neglecting the longer term problem of unsold watches in the market (inventory glut). This is a managerial problem in the watch industry related to the systemic problem of having too few educated, experienced and competent managers available to hire. On top of that, the Swiss watch industry has no educational programs at this time designed to produce effective watch industry managers. For those reasons I believe there is no short-term outlook to feel that overproduction will stop soon given that the watch industry has a Faustian bargain with their factories.

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​Some very interesting information indeed. Thanks Mike.
 
The Watch Dinosaur is very slow to move, and remember what happened !
 
Interesting article. Looks to me like the market is just making a correction as it usually does.
 
yeah...remember this first tyme around...second tyme trying to file the info away in the grey matter cabinet
 
I sympathize with watch companies but as a consumer we never had it so good


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