Business Breakdowns
· Matt Reustle
[00:00:00] S0: Yes, it speaks to the power of the brand, that 2 people working inside the organization split out, but remain very much attached to the organization and everything they've done. I think that tells you a little bit about the culture. On the distribution point, you've mentioned how it can be a bit of a painful process for any new prospective buyer trying to purchase a Patek. Can you just share what is the distribution strategies of working with authorized dealers? Are they doing any of this direct? Anything that you can share there in terms of the sales process?
· John Reardon
[00:00:00] S1: A lot has changed during my time at Patek Philippe, so I'll do my best. When I was there, we had 126 points of sale in the United States. Now they're under 40 points of sale in the United States. So it's a complete change in consolidation and strategy. Back when I was there, so I went back 20 years ago, you could buy a Nautilus 5711, which retailed at the time, for $18,000, $19,000. I remember retailers had a tough time even selling it for $15,000, and it's a watch today that's worth 6 figures-plus. So it was a different era. It was truly sales-driven during that period of time. The sales were driven through education. No coincidence that my company now is just obsessed with the education of all things, Patek Philippe because that's what I grew up with is when you learn and study and compare, all roads do come back to Patek Philippe, the vintage and modern. So in answer to your question of how does it work today? I think it's different. It's not as much about education as it is about allocation. It's about what have you bought from a particular retailer? And are you entitled to buying the piece that you want to own next. It's a different storyline. It's not one that really captures my heart. It's more about money than knowledge, and that, I think, is one of the brand's biggest struggles today. Now I'm speaking as an outsider because I know I can't go walk into a retailer and buy the watch that I want, but I also know that people that have $1 billion in the bank can't go walk in and buy the watch that they want from a retailer. It's very democratic in that way. You just can't have the watch that you want. What you do need to do is build trust over time and almost build your reputation with the company in order to be allocated the pieces of your dreams, and I don't think they do it on purpose, but it's almost like a gamification. It's fascinating to see how end consumers bite into this or engage in this game that can go through decades in order to buy the watches that they want. And indeed, I speak to collectors all the time. They'll buy pieces they actually don't want in order to preserve relationships to get the watches that they do want, and they'll spend hundreds of thousands of dollars to preserve this relationship, and they'll never sell any of their pieces because they don't want to get in trouble in the meantime.
· John Reardon, Matt Reustle
So it is really an interesting thing, and it probably exists in the car collecting world. I've heard Ferrari collectors jump through hoops, all day long, and that certainly does also happen with Patek Philippe collectors. [00:00:00] S0: It's quite interesting, whether it's thrilled of the chase, or you want what you cannot have, but the ability to stroke on emotion and what that can do in terms of consumer behavior. With the points of sale, are these actual Patek-branded dealers? Or are they individual existing watches of Switzerland and authorized dealer types that are selling on behalf of Patek? [00:00:00] S1: There are authorized dealers. In the United States, there's no Patek Philippe-owned boutiques. For example, here in the New York, New Jersey area, Wempe, Tiffany, London Jewelers, these are powerhouses that go back generations. Those are the retailers that represent the area, but it's just so shocking for me to see less and less retailers out there. The good news is, in theory, they should have more watches at each point of sale. That hasn't proven to be true yet, but I think over time, we'll start to actually see watches in cases again.
· John Reardon, Matt Reustle
[00:00:00] S1: There are authorized dealers. In the United States, there's no Patek Philippe-owned boutiques. For example, here in the New York, New Jersey area, Wempe, Tiffany, London Jewelers, these are powerhouses that go back generations. Those are the retailers that represent the area, but it's just so shocking for me to see less and less retailers out there. The good news is, in theory, they should have more watches at each point of sale. That hasn't proven to be true yet, but I think over time, we'll start to actually see watches in cases again. [00:00:00] S0: Yes. I have to imagine that there is the person purchasing the watch who asked to maintain this relationship with their dealer, but then those dealers also have to maintain the relationship with Patek Philippe. When you talk about that consolidation of dealers, is that happening out of bad acting on behalf of the dealers where they're doing things that Patek isn't liking? What was the mindset behind consolidating all those dealers beyond making it, I guess, more exclusive as a result?
· John Reardon
[00:00:00] S1: My answer is based on speculation, but I could compare it to my experience. One retailer used to cover I mean, it wasn't that long ago, so this is 20 years ago, I would go to Abilene, Texas twice a year in West Texas, and I'd meet with this amazing family and multigenerational store. My goal, my job was to make sure they kept 15 Patek Philippe watches in stock at all times, so I'd go twice a year, and it's not easy to get to Abilene. There are no direct flights. And absolutely had a great time, having some barbecue, and you sit and spend time with the family, and you talk watches, my job was to explain to them why that 15 watch minimum was so important, so you can properly show the breadth of production of Patek Philippe. Now fast forward to today, there are no retailers out there that are required to have a 15 watch minimum. Their buy-in is much, much bigger. I'm guessing it's 100 watches or more. And it's just ironic that they might even only have 15 watches in stock to this day because everything is sold out. So what Patek Philippe has done is rather than focus on smaller markets globally. They were focusing on bigger markets and going in deeper with more prominent displays, more highly trained sales staff, and frankly, the goal is to have more watches available through last point of sale. This is just me as an observer, seeing what they're trying to do.
· Matt Reustle
[00:00:00] S0: And when you have a situation like the Tiffany partnership, which seems to date back many years with Patek, but then Tiffany comes under the ownership of LVMH. Did that change anything? It brought us the new Nautilus with the Tiffany dial, which was something new that came to the market, but was there any change just in terms of that partnership and shift in dynamics? I'm just curious about LVMH as they gobble up more and more, how that impacts an independent watchmaker, like Patek?