The Consolidation Trend in the Luxury Watch Retail Industry
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The Consolidation Trend in the Luxury Watch Retail Industry Taking the Bucherer Group as an Example Florian A. Graf S14672489 Ruchwiesenstrasse 63, 8404 Winterthur [email protected] ZHAW Zurich University of Applied Sciences School of Management and Law MSc International Business Master’s Thesis Submitted to: Dr. Markus Braun, Mr. Patrick M. Graf Winterthur, 31st of August 2018 Signed Declaration of Authorship August 2018 i Management Summary 2018 saw several large acquisitions in the luxury watch retail industry. For example, the Swiss family-owned Bucherer group acquired the American watch retail chain Tourneau and the Richemont group acquired the UK-based player Watchfinder. The question thus arises as to what prompted these recent large acquisitions in the luxury watch retail industry and what the underlying factors and reasons for such big international expansions are. The main goal of this Master’s thesis was to provide an answer to the yet uninvestigated question of why luxury watch retailers have increasingly begun to consolidate and what the drivers for this recent trend are. A further objective of this study was to shed light on the dynamics of the luxury watch retail industry and to identify critical success factors for companies actively operating as retailers of luxury watches. The very recent case of Bucherer’s acquisition of Tourneau was taken as an example throughout this thesis. Various academic sources were reviewed to obtain the required information. Thanks to the application of two models, the Five Forces model of Porter and the Transformation and Change Management (TCM) model of Bergamin, Braun and Glaus, is became clear that the luxury watch retail industry is highly saturated with a wide variety of different retail models competing against each other. Watch brands in particular exert an immense pressure on third-party retailers and crave control, which increasingly puts smaller third party retailers at risk. Additionally, the application of the TCM model showed that luxury watch retailers such as Bucherer want to step up their digital integration by acquiring a company that is already strong in digital offerings such as e-commerce solutions and online business with pre-owned watches. This is mainly so that they can cater for the new buying habits of modern watch consumers and remain competitive in the face of new digital entrants. August 2018 ii Apart from a well-founded literature review, 11 semi-structured interviews were held with experts from the luxury watch retail industry to complement and substantiate the literature review. By combining the information from the literature review with the findings from interviews, four main drivers of consolidation emerged: 1) the complexity of the luxury watch retail industry, 2) the power and pressure of watchmaking brands, 3) a desire to acquire digital skills and capabilities, 4) growth strategy. With regards to the critical success factors for luxury watch retailers, this thesis presented seven main factors that are crucial for the success of a retailer of luxury watches: 1) reach or niche, 2) reputation and brand equity 3) bargaining power over brands, 4) digital skills, 5) delivering experiences, 6) correct personnel 7) consideration of a new approach to luxury. August 2018 iii I. Acknowledgements First of all, I would like to express my sincere gratitude to my supervisor, Dr. Markus Braun, for his professional guidance throughout the entire process of this Master’s Thesis. Many thanks also go to Mr. Patrick M. Graf, Chief Commercial Officer at Bucherer for his precious time as well as for letting me work together with the Bucherer Group on this highly interesting topic. Furthermore, I would like to thank the interview partners (in chronological order) Mr. Patrick Graf, Ms. Maria Bashutkina, Ms. Roberta Naas, Ms. Silke Koltrowitz, Mr. Marco Gallli, Ms. Tiia Mäkinen, Mr. René Weber, Mr. Valerij Stepanov, Mr. Federico Iossa, Mr. Beat Stierlin and Ms. Karine Szegedi for their precious time and willingness to share their knowledge and opinions with regards to the topic of industry consolidation in the field of luxury watch retailing. It would not have been possible to complete this thesis without their valuable contribution. Special thanks also go to my girlfriend Chloé for her love and patience. She motivated me to do my best and gave me strong mental support. Finally, I would like to express my greatest thanks to my parents for their immense support during the years of my academic education. August 2018 iv II. Table of Contents I. ACKNOWLEDGEMENTS .......................................................................................................... IV II. TABLE OF CONTENTS ................................................................................................................ V III. LIST OF TABLES ...................................................................................................................... VIII IV. LIST OF FIGURES ....................................................................................................................... IX 1. ABBREVIATIONS .......................................................................................................................... X 2. GLOSSARY OF INDUSTRY-SPECIFIC TERMS .................................................................... XI 3. INTRODUCTION ............................................................................................................................ 1 3.1. COMPANY BACKGROUNDS ......................................................................................................... 2 3.1.1. Bucherer Group .................................................................................................................... 2 3.1.2. Tourneau LLC ...................................................................................................................... 7 3.2. RELEVANCE OF RESEARCH ......................................................................................................... 9 3.3. RESEARCH OBJECTIVE AND RESEARCH QUESTIONS ................................................................. 10 3.4. DOMAIN AND SCOPE DEFINITION ............................................................................................. 11 3.4.1. Geographical Scope ........................................................................................................... 14 3.5. STRUCTURE OF THE THESIS ...................................................................................................... 15 4. LITERATURE REVIEW .............................................................................................................. 16 4.1. INDUSTRY ANALYSIS: PORTER’S FIVE FORCES ANALYSIS OF THE LUXURY WATCH RETAIL INDUSTRY ............................................................................................................................................... 17 4.1.1. Method and Significance of Porter’s Five Forces Analysis Model .................................... 17 4.1.2. Industry Rivalry / Competition ........................................................................................... 19 4.1.2.1. Distribution Models of Luxury Watches ................................................................................. 20 4.1.2.2. Wholesale Multi-Brand Stores (Official) ................................................................................ 21 4.1.2.3. Mono-Brand Stores (Official) ................................................................................................. 23 4.1.2.4. Online Sales (Official) ............................................................................................................ 24 4.1.2.5. Gray Market (Unauthorized) ................................................................................................... 27 4.1.3. Threat of New Entrants ....................................................................................................... 30 4.1.4. Bargaining Power of Buyers .............................................................................................. 32 4.1.5. Threat of Substitutes ........................................................................................................... 33 4.1.6. Bargaining Power of Suppliers .......................................................................................... 34 4.1.7. Key Findings Porter’s Five Forces .................................................................................... 36 4.2. TRANSFORMATION AND CHANGE MANAGEMENT MODEL........................................................ 37 4.2.1. Method and Significance of the TCM Model of Bergamin, Braun, & Glaus (2018) .......... 38 4.2.2. Digitalization and Globalization in the Luxury Watch Retail Industry .............................. 39 4.2.3. Mapping of Bucherer/Tourneau and Watchfinder/Richemont ............................................ 41 August 2018 v 4.3. RESEARCH GAPS ...................................................................................................................... 43 5. METHODOLOGY ......................................................................................................................... 44 5.1. PRIMARY RESEARCH DESIGN ................................................................................................... 44 5.2. DATA COLLECTION AND ANALYTICAL APPROACH .................................................................. 46 5.2.1. Method ...............................................................................................................................