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