An Independent Revolution

News in the watch community that isn’t a new release are few and far between. Typically (and infrequently), sprinkled amongst the hyped-up, shiny new watch release, you’ll hear of a conglomerate or brand making some sort of operational move in the form of vertical integration or rather. Nothing crazy or overly-attention grabbing.

Last week, we had 2 major announcements from different ends of the market landscape; I’ll discuss my thoughts on the overarching effects I believe the entire watch industry will feel in the long-term due to the respective events.

1, Hodinkee has acquired retailer, Crown and Caliber, and 2, Bernard Arnault, CEO of LVMH, one of the largest publicly traded luxury conglomerates in the retail space, has announced his foray into SPAC’s (don’t worry, I’ll explain).

The benefits of Hodinkee’s acquisition of Crown and Caliber are relatively obvious in a general perspective – exposure to C&C’s distribution channel, a medium for releasing Hodinkee’s infamous limited-edition revamps, and ultimately, an alternative revenue source for the company through secondary markets. These are important changes in and of themselves, however, the greater effect this acquisition brings about is the blurring of lines between journalism and retail. Hodinkee has, over the years, diluted its journalistic objectivity by delving into retail endeavors (i.e. Insurance, partnered advertisements & limited edition releases). If journalism, within the watch industrial context, is to remain objective, meaning the journalist is to critique particular watches on their merits/imperfections without any pressure from the respective brand, then one may argue ANY sort of retail dynamic does not belong in a publisher’s repertoire.

While this may be no new thing to the global media landscape, this dynamic sets in motion a change that might be permanent and, more importantly, tempting for all journalistic outlets to aspire to. While I fully support a company’s growth into alternative legs of revenue, it’s hard to argue that Hodinkee’s objectivity doesn’t get hindered further in this context. Time will tell whether this strengthens Hodinkee’s empire or further deviates it from its original mission but one thing remains certain - this changes the landscape and sets a new precedent for all media outlets.

The second event is of monumental importance and should demand the attention of ALL market participants, whether it be collectors, big brands, small brands, retailers, etc. Allow me the following -

You’re the CEO of one of the largest luxury retail conglomerates in history; you see the shift occurring in the industry you have considerable control and exposure over and need to find a way to control the change. What do you do? Well, enter Bernard Arnault’s foray into SPAC’s.

Used typically in equity markets, SPAC’s are formed as non-operational shell companies to raise capital through an IPO and eventually acquire or merge with an existing operational company. Without getting too technical, the SPAC allows for a less-scrutinized and less-regulated process for taking the underlying company public; raising capital, providing resources, leadership, and exposure to private and retail investors. This all sounds great but what does this have to do with the watch industry? Hopefully, you’re still following me -

If you have even a remote interest in watches, you are aware the watch industry is divided between independent brands (F.P. Journe, Greubel Forsey, etc) and the group owned companies (i.e. Lange, Roger Dubuis, etc.) For those of more discerning interest, you know the industry has seen a significant shift in focus from the larger companies like Patek, Audemars Piguet that are concreted in design, tradition, to the more creative, innovative, and flexible brands. This isn’t a momentary abstraction; it’s a tectonic shift that will, in my opinion, change the luxury watch industry landscape forever.

Arnault’s move can be perceived in two fundamentally conflicting ways – beneficial and ominous. The benefits of a SPAC for, say independent watch companies, is it allows for much needed capital infusion when necessary, resources ad infinitum, and leadership guidance. It brings corporate benefits to mom-and-pop shops. It’s easy to point out the immediate benefits as most of the independent brands, while their watchmaking capabilities are at pinnacle level, often times lack in day-to-day operational tools like effective inventory management systems, CRM platforms, and overall

The ominous view on the other hand is… chilling. In essence, an independent watch company SPAC would extend Arnault’s reach and dominance into the very core of the watch industry. The fusion reactor of creativity, innovation, entrepreneurship, craftsmanship, and passion would be exposed to bottom-line prioritization and, in my eyes, the beginning of the end for independent watchmaking. If you feel I might be exaggerating, I’ll provide a hypothetical scenario -

Arnault designates a SPAC specifically for high-horology, ultra-exclusive production companies (think FP Journe, Greubel Forsey, DeBethune). They raise a few hundred million, acquire/merge with the respective companies, and investors/public markets dictate the valuation/market cap for these companies. That, in its very essence, is the antonym of independence. Consider the effects this would have on artisans and watchmakers – they’d go from a low quantity, high quality production mix to the opposite. If the old adage, “Rome wasn’t built in a day”, holds true, then its inverse may also be applied to the situation. While I am not an alarmist, this may be the beginning of a long-tail strategy by the heads of conglomerates to control the independent scene and it’s our duty, as independent collectors, creators, CEO’s, suppliers, and connoisseurs, to ensure that does not come to pass.

 As always, time will tell how far and wide these events will affect our independent niche.

Stay healthy and passionate, fellow collector. Talk again soon,
AJB

The Future of the Luxury Watch Industry: A case *for* TechnologIy

Note: I am NOT an expert on the mentioned technologies in this Journal. Rather, I aim to open a discussion around the technologies and learn from the community on their capabilities and uses within the luxury watch industry context.

On a rare, gloomy Los Angeles day in February 2016, I was sitting at my desk workingwhen a friend of mine messaged me asking if I’d heard about ‘this thing called Bitcoin’. I stated I’d heard rumblings about it but didn’t have a clue what it was. That night, I’d gone home and spent some time on my laptop researching what Bitcoin was. At the time, it went over my head (I’m not a techie whatsoever) and it seemed like it was just some gimmick. I was especially turned off by how hard it was to attempt to purchase a Bitcoin so, I left it alone. Back then, BTC was trading in the $300-$400 range. Today, in the high $30,000’s.

I am of the belief if we are to look forward and predict coming trends and normalcies, we must acquaint ourselves with the past. If there is one word characterizing the overarching theme consistent throughout the luxury watch industry’s history, it would be persistence. This can be exemplified by the Quartz Crisis and the subsequent boom in ultra-high-end mechanical watches; by Audemar Piguet’s octagonal steel rebellion against the looming death of mechanical. The watch industry persisted to brand and identify its offerings as mechanical works of art produced by men, not machines. The industry nestled itself in the comforting blanket of niche price categories and it worked. Without getting into data and statistics, our industry has never been stronger.

The crisis was averted. Technology lost, mechanical watches prospered and continue to. The industry demonizes technology and rightfully so – technology does not belong in mechanical watchmaking (save for innovative creations by certain brands). Fast forward from the late ’70’s and early ‘80’s to now, where the industry (and the world at large) is confronted by technology again. Only this time, it does not bring with it impending threat; rather, it promises efficiency and freedom.

Often, luxury brands will adopt new technologies and modalities of operating so as to present themselves in forward-thinking light. A cherry on top, so to speak. Equally as often, as consumers, we’ll view these implementations as niceties, as opposed to necessities. The level of adoption stems partly from cost – a completely new modality will surely be expensive, the conglomerate owned brands will adopt first given they can afford to, the market will acclimate, technology will become cheaper, independent brands might eventually implement the respective technologies. A once revered luxury will become the standard.

One can imagine how long it’ll take for independent watch companies to adopt the following systems considering, 1. An organization needs to build out a permission based blockchain specific to the company’s needs and, 2. The cost therein. Nonetheless, I feel this dynamic within our world will demand the attention from all, on a long enough timeline.

The luxury watch industry will be laggards in adopting these technologies because 1, the leadership in place for most of the bigger groups and 2, as alluded to earlier, luxury doesn’t REALLY need use of these technologies to be advertised. How ironic it is to tether a completely unnecessary industry to a technology that is itself completely unnecessary within this context!

Blockchain, the network

Ah, the buzz word of the century. We’ve all heard certain brands already utilizing blockchain’s technology to digitally certify respective collections, track lifecycles of watches, and store pertinent collector information (i.e transaction details). This is all good and well but this is not the fundamental use of the technology. Rather, it’s true potential lies within the back end flow of a transaction, or at scale, the entire operational system of a company.

One aspect of operational flow blockchain makes more efficient is transparency. I, personally, have spoken to a number of organizations utilizing blockchain to trace the entire lifecycle of high value products. This solves issues that have plagued our industry for some time – authenticity, sourcing, secondary exchanges (buy/sell side). Trust, or security, will not be an issue as Proof of Work/Stake will be made more efficient and applied to all digital systems. Collectors will be able to buy and sell their watches directly through one another while also transferring ownership, certifications, and applicable warranties all through the use of blockchain. This all sounds good and dandy but keep in mind, we’re in the beginning of developing barely the architecture of these technologies so who knows when user experiences/interfaces will be simple enough to be widely adopted.

Ethereum, the platform

Yet another buzz word. Most of us do not know what Ethereum is. Sure, it’s a blockchain technology but before getting into weeds I have no clue of navigating, the underlying application of Ethereum is a smart contract. An example of a smart contract is a vending machine – insert $2, the software authenticates all required proofs, communicates authentication with hardware, you get your water bottle. The same ideology can technically be applied to any sale. Process a transaction, the system authenticates all necessary attributes (amount paid, pertinent information entered by salesperson, etc), and issues required documents (warranty cards, certification of authenticity, invoices, etc). This significantly reduces the need for paperwork, consolidates/automates back end processes, etc. You might have heard there are system requirements for running a protocol on Ethereum called gas, or Ether, which needs to be purchased. This surely will be expensive and volatile in the short-term, but my bet is things get a lot simpler and cheaper as we progress in development.

Nonetheless, at scale, Etherum’s technology will streamline production, inventory, and sales flows, making them extremely efficient.

CRM and Internal Networks, the cornerstone

Again, some brands are already working on internal messaging systems or CRM platforms to communicate with respective clientele. However, in light of recent events, one may make the argument that decentralization has a place in ALL systems used by an organization. Why? Much like an independent brand whose mission is to reach vertical integration, reliance. All of these technologies – Bitcoin, blockchain, Ethereum, decentralization – they enable an organization to be completely self-reliant. Internet service providers, CRM programs, internal communication boards, security systems, insurance providers, etc. will all be tailor made to fit into the needs of a particular organization. No need for generalized protocols, the future looks to be very specific.

Decentralization, the shift in paradigm

Perhaps the most important aspect of this all, the very essence of these systems is decentralization. It’s a wonder why it has taken society this long to come to such a powerful change in structure. In any case, as mentioned earlier, it allows for companies to foster self-reliance. As someone who is building his own brand, that is reason enough. In fact, we’re seeing decentralization parse its way through government, community, and entire cities. I am of the opinion that the future of not only our industry but of the world lies in this paradigm. Consider the following –

Reference 1

Peter Thiel, billionaire entrepreneur and capitalist, brilliantly presents a system in which we can decidedly embark on ventures with a bit of calculation, which in turn presents the underlying sentiment about our respective futures (see Ref. 1). On the vertical axis you have optimism and pessimism. On the horizontal axis you have determinate and indeterminate. The determinate perspective is that things are knowable and you can control them. The indeterminate perspective is that things are unknowable and uncontrollable. There are just too many chance events. If we infer from the watch industry’s history, we can more or less point to where our collective has always been situated in the quadrant. I’m proud and honored to be part of such a brave, innovative, ever-forward-moving tribe.

While I’ve only scratched the surface and admittedly over-simplified the topic, I’d like to state – the luxury watch industry should not only NOT shun away from technology; it should sprint full speed to embrace it! Using these technologies allows our passionate world of unnecessities to hone in on what is the essence of luxury – the human-to-human relationship.

If you’re anything like me, after being utterly fascinated by technology and its ever-expanding place in our world, you might ask yourself “Where does it end? What does technology NOT touch?” Well, fellow collector, it is you and I. Rather, the human-to-human link. The relationships, experiences, and connections we make are untouchable as they are, similar to high-end mechanical watches, tied to our memories, ultimately tying them to our collective humanity. That is true luxury. As always, I welcome your discourse and general discussion.

Talk soon,

AJB

Why Havid Nagan?

The supernova leading to my entry into the world of watchmaking began when I was around 20 years old. Before then, I didn’t pay attention to the world of watches, nor did I know there even was a “world” of watchmaking. I was listening to one of my favorite artists while driving and heard him mention Franck Muller. When I hear a song I like, I often find myself listening to it 10 times back-to-back. In doing so, I kept hearing the name Franck Muller. So, in typical millennial fashion, I did a quick Google search to find out what a FM was and saw a listing for an $18,000 watch. My initial reaction was, “Who the hell would pay $18,000 for a damn watch?!” Keep in mind, I come from a business background where every penny is allocated purposefully and logically. So, enamored by the mere audacity of such a concept, I dove headfirst into this fascinating world!

Like many of you, I became obsessed learning anything I could about watches. How a mechanical watch works in the first place, what a balance wheel is, what types of finishing there are, what gear ratios work best for certain complications, who the respective watchmakers were behind the brands… I was deep in the rabbit hole, so to speak. The more I learned about mechanics, the more I learned which brands were using said mechanics. I learned the history of brands themselves, the discerning features between different models offered by different brands. Finally, with a certain haughtiness, I realized there wasn’t a watch I envisioned wearing that wouldn’t cost me in the high 5-6 figure range. There were plenty of offerings from some of my favorite brands but nothing captivated me. I was left yearning for something that didn’t exist. That typically leads to one pondering the beginning of something new. Fresh. Palpable. So, it was – Havid Nagan was born.

After my initial obsession with almost anything luxury watch related, I began to discern my taste a bit. I studied, who I believe is the greatest watchmaker to have ever lived, Abraham-Louis Breguet. The utter genius and resourcefulness the man possessed in a time of crude industry. I learned about George Daniels, FP Journe, Andreas Strehler, Vianney Halter. I was utterly fascinated in how they did what they did. The amount of genius, patience, willpower, and imagination it takes one to be a watchmaker, and a good one to foot! I was overwhelmed; and more so, in realizing I was not cut out to be a watchmaker myself. In studying the perspective of the aforementioned geniuses, I turned introspective and asked myself whether watchmaking was something I could try my hand at. After a few attempts in disassembling basic movements, I realized not. But I had so much passion to share with the world! I wanted to build a high-end mechanical watch that’d allow accessibility into this passionate world of mine for all. Ultimately, I wanted to share my passion for these tiny, mechanical works of art with the world.

Thus, began the designs for what would later be called HN-00, an automatic time-only sports watch with a beautiful radiant guilloche pattern. If you were to see the original drawings and what the watch will more or less resemble at launch, you’d have 2 completely different creations. Initial designs featured a date aperture but as time goes (no pun intended), one often traverses all forms of complexity only, ultimately, to arrive at simplicity. I found myself captivated by 18th/19th century watchmaking. The design aesthetic found in watches made during that period leads to a consolidated thought – they were built with logic, curated for efficiency, designed for purpose. There was a sense of togetherness in the presentation of their respective creations. What’s more – these enterprising engineers worked on very difficult complications – repeaters, astronomical architectures, tourbillons and carousels, built new innovations like the Breguet hairspring, different forms of escapements, the Sympathique clock! I ask myself, “How can someone NOT be fascinated by this industry!?”

Over time I learned, from within old dusty books most would neglect, this world, our small yet infinitely dense world, *deserves* to be shared with more. For us passionate few, it is our duty to grow the surface area for which watchmaking covers.

So, as the title queries, why? Why build a luxury watch brand when its founder isn’t a watchmaker? Why build a watch brand when there so many that already exist?

Consider the following thought - the independent watch niche has one, maybe two, handfuls of living watchmakers that build their own watches, that have reached at least some sort of scale. Their time with us is limited and that bears the question – do we have enough creativity, innovation, and production to, not only retain existing connoisseurs, but to captivate and draw interest from prospects? I am of the mindset we do not. Independent brands are the fusion reactor of creativity and innovation within this industry and we simply do not have enough. My goal with Havid Nagan is to, not only share my passion and vision with fellow collectors, but to push this ‘niche within a niche’ to expansion.

The reason for my starting a luxury watch company is simple - it is my air. It has given me opportunity not of my own hands. It has allowed me to meet some of the most beautiful, loyal, and endearing personalities. It has allowed me to care for my family. It has given my life a sense of purpose I no longer search to find in something else. If that is not reason enough, I don’t know what is.

Talk again soon,
AJB