Business Breakdowns
· John Reardon
[00:00:00] S1: I don't know the exact numbers, but when I was with Patek Philippe, we had 8 Tiffany locations that sold Patek Philippe watches, and now I think there's maybe 1 or 2 tops. There's obviously New York. I don't know how many other points of sale they have, but I know it's been cut significantly. The relationship between Tiffany and Patek Philippe goes back to the mid-19th century. And what people forget is, from a historical point of view, it was a love-hate relationship from day one. Decade by decade, you see how the brands. Sometimes, Tiffany needed Patek Philippe, sometimes Patek Philippe need Tiffany. And there are some great writings from the time that Mr. Patek was alive and how he just really did not like doing business with the Americans. He didn't always see eye to eye with his "friends" at Tiffany, and I say friends in quote. There were cultural differences. There was misunderstandings, and at the end of the day, it was about money. I think throughout the 20th century, the relationship ebbed and flowed, and everyone thinks of Tiffany as it is now. But you have to remember, Tiffany has this long storied past that people just so conveniently forget. Just for example, Tiffany was owned by Avon. Remember the Avon lady ringing the doorbell, trying to sell cosmetics. From 1980 to 1985, Tiffany was fully owned by Avon before it was sold off. This was a different era where the brand was dying more or less, and Patek Philippe stood by them. The Tiffany stamp dials, you could see some of the most important watches that we see at auction were sold by Tiffany New York in this era like Tiffany signed 2499s, and it's fun to think back from a historic perspective. I guess, in answer to your question is, wow, how is the relationship doing today? From an outsider's perspective, I'm shocked by it, but it seems to be working. The Tiffany salon in New York is absolutely extraordinary. The Tiffany Patek Philippe Salon is aesthetically beautiful. They have a wonderful, highly educated sales force. They could probably use a few more watches. There's not much availability. But I'm going to answer this question from a historian's perspective. I have no doubt there will always be a Patek Philippe, period. Drop the mic. I don't know what the future of LVMH is. 50 years from now will LVMH be LVMH? Everyone could draw their own opinion.
· John Reardon, Matt Reustle
50 years from now, will there be a Patek Philippe that's considered one of the finest watches in the world? Yes. [00:00:00] S0: On that point, I think the independence is a major thing here being an independent brand. Has that ever been at risk? Or do you think that's of any risk moving into the future? Obviously, when you reference some of those sales numbers. I don't know what the costs are that go into producing these watches. It does seem like there's a lot of labor involved. But is there a scenario where independence is at risk?
· Matt Reustle, John Reardon
[00:00:00] S0: On that point, I think the independence is a major thing here being an independent brand. Has that ever been at risk? Or do you think that's of any risk moving into the future? Obviously, when you reference some of those sales numbers. I don't know what the costs are that go into producing these watches. It does seem like there's a lot of labor involved. But is there a scenario where independence is at risk? [00:00:00] S1: I'll answer that from a historic perspective in the Great Depression, Patek Philippe was owned by the descendants of Patek and Philippe and actually became a publicly held company for a time period. Interestingly, one of the 6 shareholders in the early 20th century was an American, who was a former employee of Tiffany, so it's such a full-circle storyline. Fast forward to 1932, '33 in the Stern era. Now we're on 1, 2, 3, 4 generations of ownership of the Stern era. As long as there is someone with the last name of Stern that is obsessed and really believes in the cause, the Stern family is going to continue ownership of Patek Philippe, in my opinion. I think it's in their DNA. Dynasties don't last forever. That's one thing we see time and time again, but I highly, highly doubt that in our lifetimes, we're going to see the company Patek Philippe be sold to one of the conglomerates. I just can't imagine that happening. It's just something that I don't think is in the works. A lot of gossip about it, but I just don't imagine that actually happening.
· Matt Reustle
[00:00:00] S0: And privately held, I think, makes that a lot easier to remain that way versus being a public business. When I think about other risks that have come up over the years, obviously, the quartz revolution was something that was big. Now to some extent, you have electronic, whether it's Apple Watches or performance-based watches. How has the business typically dealt with that? When you go back to that quartz period, was there anything that they did uniquely or in a way that they handle that? And then do you look at what's going on, anything related to the Apple Watch or anything else that comes to mind when you think about evolving as a business?
· John Reardon
[00:00:00] S1: One of the things we could learn from Patek Philippe historically is how they dance between evolution and revolution, and it's very interesting to look at what happened with quartz revolution, where all of a sudden, all these mechanical timepieces were considered obsolete and Patek Philippe really doubled down with explaining the history of the craftsmanship and the tradition as being assets of value. The result of that equation is luxury in its finest form as quartz watches, they were expensive in the '70s, and they spend hundreds of dollars, but soon they were a matter of cents where you could buy a quartz watch for under $1, but Patek Philippe went the other direction and just went to the height of the market in making some of the finest handmade pieces imaginable. Now fast forward to the technological revolution Patek Philippe doubled down in the same way. Everyone was saying, "Oh, everyone's going to wear an Apple Watch. So who's going to be wearing a $0.5 million Patek Philippe minute repeater?" It's completely met obsolete. What's so surprising is now you see people have an Apple Watch on one wrist and their Patek Philippe on the other wrist, and it shows that the 2 can coincide. What people forget is by collecting watches. It's part of the community. It's the ultimate connection to like-minded individuals that want to own the best. And people might want to join a country club or a private jet ownership or you name whatever you connect to the world with. But when you own a Patek Philippe, you are connected to an international community of people that really are truly like-minded. I've just seen this so many times. Men and women just connecting in business and in life, based on the watch on their wrist. I mean the connections that people make, just based on what watch they wear is absolutely extraordinary. Why settle for the second best when you could buy the best?
· Matt Reustle, John Reardon
[00:00:00] S0: And I think I've heard you say before, once you go down the rabbit hole and buy one, usually, that is not the last that you end up owning in terms of addiction. [00:00:00] S1: It's a wonderful addiction. Yes, it's true. Very few people only own one. [00:00:00] S0: This has been an absolutely fabulous conversation, history lesson. We try to close these out with just general business lessons that we can take away from whatever company we're examining in the episode. What do you think are the standout lessons from Patek that you might be able to apply elsewhere in life or just thinking about your own business?