According to Ariel: Should Investors Be Interested In The Rise Of Modern Watchmaking Consortiums?
Over the last several years, I’ve noticed a new type of business agreement between two or more companies in the watchmaking space. These have become common enough that I feel it is time to discuss them, while also suggesting the possible implications for the larger luxury space in general. The modern watch industry is constantly experimenting both in terms of the products companies make and the business structures they adopt to help them launch and maintain operations. Many of these experiments are evolutionary dead ends, while only a few fresh concepts succeed. What seems to be more than a passing trend are what I refer to in this article as “watchmaking consortiums.” As I will explain below, these groups of companies and creatives take multiple forms and are necessarily diverse in how they operate as the market constantly presents new challenges and opportunities. With that said, I’ve now noticed at least a dozen watchmaking consortiums around the world and feel that the concept is worth discussing.
Many brands or groups that make up a watchmaking consortium don’t always even realize that they are part of this category. What may seem like a loose association among friendly companies is in fact part of a larger trend of creatives and component manufacturers working together to achieve results that cannot on their own. For the purpose of this article, let me further explain what I believe a watchmaking consortium is, and then I will proceed to explain why they exist as well as what value they can bring to the larger luxury watch industry. While I am not in the business of providing investment advice, I do feel it is worth pointing out that (in my opinion) watchmaking consortiums are a rare area in the luxury watch space for equity investors to provide value and possibly see future returns.
Watchmaking consortiums usually begin with a small handful of (often regionally connected) watch brand founders and factory or manufacturing facility owners and professionals. The basic premise is that a few watch brands agree to join forces (or at the least cooperate and not compete with each other behind the scenes) and rally around a central manufacturing source or expert. What they gain is the ability to produce at all, or in a much more efficient way, the parts or technology they need to manufacture or assemble their watches. At times, a watchmaking consortium can share other business resources such as retail distribution, back-end administrative help, sales efforts, and designers, though this is not always the case. What does seem to tie together a watchmaking consortium — no matter where its members are in the world — is a shared manufacturing partner. The brands provide more consistent business to the manufacturer, while the brands enjoy more consistency and value when it comes to getting their watches made. Some watchmaking consortiums involve a technical partner that entirely manufactures and assembles their products, and at other times the technical member of the consortium focuses on narrower engineering responsibilities such as offering only particular parts or materials while the brands need to go to more traditional suppliers or use in-house resources to complete the rest of the assembly of their products.
Some watchmaking consortiums currently have group names, and many do not. While the reader will naturally want examples, I am hesitant to do so for at least two reasons. One reason is that existence and membership of these groups changes frequently, and I don’t want to mention anything that is no longer relevant by the time people read this article. The second reason is that I don’t want to inadvertently appear to be engaging in favoritism. This article mentions “investors” and “investment” a few times, and I don’t want to be seen as trying to promote the work of one group to the exclusion of others. That said, anyone who wants to mention a specific watchmaking consortium they feel is a good example of this trend can do so in the comment section below.
Watchmaker consortiums exists for a few reasons, primarily because the companies who make up the collective need each other for things that cannot always get themselves. It isn’t that the group absolutely needs each other to accomplish their tasks, but rather that the group is able to provide better costs and more stability than if the brands “go it alone.” There is still a myth in the watchmaking entrepreneurial space that you can relatively easily form a profitable watchmaking company on your own. That’s actually never been more difficult than today because while you can certainly get watches made via a factory, getting the quality you need at a cost you can base a reasonable retail price on is the tricky part. Therefore, modern watchmaking consortiums are relationships of convenience, but also of shared trust, passion, and culture. The members of the group may in multiple ways compete with one another but remain part of the group because they believe the value in sharing safety and cost savings is worth the potential conflicts of interest. What further defines pretty much all watchmaking consortiums I know of is a shared optimistic enthusiasm that each of the companies involved can grow in the market without much risk of encroaching into the market share of others in the consortium. In other words, these are groups of excited entrepreneurs who believe each of the companies in the consortium can work together while also gaining market share.
In many ways, much of the Swiss watch industry is already set up like a consortium, or a group of them. So why are new and more modern watchmaking consortium groups necessary? The reason is primarily that the old groups aren’t welcoming to the new groups. That more or less translates into the fact that the Swiss pretty much only want to make watches with and for their neighbors or fellow citizens. For decades now, well-meaning foreigners have naively entered Switzerland’s tightly-knit watchmaking community and asked them to produce watches that they can sell via new brands. While the Swiss aren’t known for overtly saying “no” much of the time (though they are big fans of saying “this is impossible”), what ends up happening is that companies or people outside of the consortium are not given priority manufacturing status, and are often given the highest prices or strictest terms. The net effect is that outsiders trying to use the industrial and creative might of the Swiss watchmaking industry are perceived as threats (for better or worse) and they are unable to access manufacturing and engineering resources that would otherwise be available to them.
This has led, in large part, to the various “watchmaking renaissance” eras taking place in a number of regions ranging from England to America. Each of these countries has multiple watchmaking consortiums comprised of at least one manufacturing partner and a few brands. The business impetus comes from the brand founders and creatives who want to make watches that they believe will do well in the market. Their simple desire is to make watches and ideally grow a brand around them. What most of these companies tend to lack is any in-house manufacturing capability, sway with larger suppliers or distributors, and connections allowing for industrial redundancy should anything go wrong. By sacrificing the mostly egotistical desire to “do it all alone,” these companies are helping to distribute the risk of what they are doing among a few people, while also investing in a structure that allows them to produce watches they might not otherwise be able to afford or have access to manufacturing.
Why do I bring up investors? I don’t actually think to this point I’ve ever suggested that anything in the watch industry is worth investing in, aside from making yourself happy by investing in something for your wrist. Between auction houses and hard-to-get new retail watches, the last several years in the watch industry have been full of mostly impractical “investor” talk. I have never suggested that anyone invest in a watch to make money. Rather, we spend money we make elsewhere on watches. That’s more or less the way it is supposed to be with your hobby. But there are plenty of people in the watch industry space who own companies or brands that could easily do more with added money. That’s where I see investor potential. Most people would be extremely impressed (if not shocked) with how scrappy and resourceful some of these watchmaking consortiums are when it comes to getting components or products made at lower prices. The success of most of these groups often depends on how long and how cleverly they can hustle. At some point, hustling hard and good luck aren’t enough. I’ve noticed that many of these groups struggle to grow not because they aren’t performing, but because they lack enough cash flow to invest in activities related to watchmaking. My opinion is that many of these groups, with equity help, could get a lot more done.
What is missing in many of these consortiums is equity. There is plenty of “sweat” in these groups, but their understandable hesitancy to take on debt or sell investment shares holds many of them back from making enough products quickly enough to make an impact on the market. While I am not an investor by trade, I can’t help but feel that watchmaking consortiums are among the very very few areas in the watchmaking space where a casual or lower-stakes investor can both make a difference and possibly be part of profitable venture.
What makes me confident in this assertion is no direct mathematical experience with how investors can earn returns here, but rather some of the core wisdom of why investors choose to give money to some people and not others. That wisdom is the premise of investing in people versus ideas. People who want to make something new and cool happen if only they had the resources for it is what I’d be looking for as an investor. I’d steer clear of people with polished prospectus documents and heaps of assuring case studies. Rather, I look at people who dedicate their lives and efforts to something despite the promise of return. If they can be empowered to do more, faster, then you are investing in someone’s dream rather than asking them to make your dream come true. That just seems like a better avenue to getting successful watches made. What make investing in a consortium more interesting than simply investing in one company is probably clear to anyone with experience in this space. That’s because personalities and brands come and go. Groups that mutually invest in helping each other to build companies tend to have much more staying power. Again, this is not an article about investing, but I do think the ability of watchmaking consortiums to attract investors is an interesting part of the conversation and suggests possible ways that this slice of the larger watchmaking industry could develop.
Anywhere you can find a group of passionate entrepreneurs who love watches, you might also find a watchmaking consortium. That is especially true if that group of people is not part of an existing community to help them effectively produce watches and bring them to market. Many people are starting to suggest that there might (again) be too many watch brands on the market, an obvious prediction is that to survive, at least some of them will join forces to pool their resources and hedge their bets. What’s undeniably true is that, around the world, many groups of watchmakers, engineers, and creatives, are forming both casual and organized watchmaking consortiums. They are doing this because they can’t execute their business ideas elsewhere, and see a market that could allow for them to earn profits if only they can bring their products to market at the right price. The solution for an increasing number of brands is to create their own watchmaking consortiums. I don’t think that means the watchmaking world will be populated with lots of mini Swatch Groups, but it will mean that fewer companies are totally going it alone anymore. Some people will stand to gain by financially empowering them.
