2016 Year in Review

As has been published and spoken about ad nauseum elsewhere, 2016 was a difficult year for the watch industry as a whole. However, as the year draws to a close, I thought I would provide my own experience and analysis which may surprise some.


What's happening?

Greed, incompetence, stubbornness, nepotism, shortsightedness...shall I go on? The problem with the market is a supply problem, not a demand problem. No one along the chain is innocent, but no one is more guilty than the brands themselves. For over a decade, they have increased production to levels that cannot possibly be sustained and raised prices to the point where barely any watch makes any sense at its full retail price. All the while, they have failed to invest in infrastructure such as after sales service and a functioning distribution chain. They have destroyed markets, alienated collectors, and stopped innovating in business practices or products almost completely. Incompetent executives who are smart enough to grow quarterly profits but have no actual skin in the game have made centuries old houses of craft and savoir-faire look like high end fast food restaurants. They should be ashamed of themselves.

The good news is that actual demand for and interest in good watches has never been greater. In some cases it has been suppressed and betrayed to such an extent that it must be rehabilitated, but it is present. As evidence I suggest looking at auction prices for “the good stuff”, readership of popular magazines and blogs, thriving communities on social media, and my own following personal anecdotes.


What I do:

For those of you less familiar with me, and even some who know me well, you may not fully understand what I do. Although it seems I have been selling watches for quite a while because I have been in and around this industry for over a decade, I truly only decided to do this as a business a little more than a year ago, in August 2015. It took a few months to hone in on exactly what I can provide, but by now it is clear. I have mainly spent the year focusing on what I believe to be the best watches that have been made in the modern era. I seek them out constantly all over the world. In many cases, I then need to educate people as to why I believe they are great based on all of my knowledge and experience. Finally, I try to sell them at prices I think are very fair to the buyers while still being supportive of the brands themselves. The key is curation and education.


My 2016 Year End Report:

Following this strategy I had an extremely successful 2016. While other dealers were buried under inventory and stuck with a million examples of the same watches that every other dealer also had millions of examples of, I turned my inventory several times and continued to be one of the go-to buyers and sellers of “the really cool stuff”. I have bought watches that other dealers wouldn't touch, and sold them quickly to happy buyers at fair prices for all. There is a strong market for good watches, but the days of people being able to sell crappy products, give crappy service, and have little more knowledge than a first year retail sales person are over. People want to buy great watches from an expert who treats them with respect and earns their trust. So now I want to share with you just a few of the watches I've sold this year along with my YouTube review videos of them so you can learn a bit more about what makes them special.

I sold three Harry Winston Opus V. I joked with Max Büsser that he and I are probably the only two people to have sold 3 Opus V's in a year. This is going to be an historic piece. I also sold an URWERK 102 (their original piece) and have two variations of URWERK 103's in stock. All of these would have to be included in a museum exhibit of “Contemporary Horology” if there ever were one.

 

I also sold three Kari Voutilainen Observatoire. Kari is one of the greatest living watchmakers of our generation.

 

This is a perfect example of a forgotten watch. The Girard Perregaux Minute Repeater is incredibly proportioned, has a gorgeous fired enameled dial, and chimes with clarity, tone and volume that could give some of the most celebrated minute repeaters ever a run for their money. Since GP as a brand can't get out of its own way, the watch was never celebrated as it should have been. It is a great watch, though

 

The Greubel Forsey Double Tourbillon 30 degrees Technique in titanium DLC is so good that I almost couldn't sell it. When I took it out of the shipping box, I lost my breath and resolved to keep it in my personal collection. Alas, a friend wanted it badly and I am happy to see him enjoying it.

 

The Vianny Halter Antiqua is possibly the one that started the entire Contemporary Horology movement.

 

And of course I have to include at least one Journe Tourbillon. These are my bread and butter and perhaps my favorite overall watch. I sold four this year including a Black Label, and have a gorgeous original PT/YG dial in stock.

This is just a very small selection, but I think it illustrates the point that great watches have been made over the last 20 years that are truly worth buying and that there are plenty of collectors out there buying them. Separating the good from the bad is the hard part. So if someone tries to tell you the watch industry or watches in general are in trouble, tell them the brands are in trouble and they deserve it. Watches have never been hotter. Just make sure you buy good watches from someone who knows what they're talking about

Journalistic Integrity Within the Watch Industry: How to Publish an Objective Watch Review

Recently I was asked to write a post for a watch blog about a watch I had purchased. It was a "Why I Bought It" type of article that explained the merits, and potential drawbacks of the piece. I wrote it, they edited it, and just after we had created a draft ready for posting they told me that they discovered that I sell watches and therefore they would not publish it. This got my mind racing on the idea of journalistic integrity and hypocrisy. I do not have good answers, but at least I thought it might be fun to think out loud (or in print as this may be).

Let's start with what I know and move outward. I will sell anything I own for the right price. I buy only what I truly like, but if you also like it enough to pay me an amount that makes it worthwhile for me, I am happy to move on to something else. I happen to be quite up front about this fact. My watches are listed for sale. For the most part, these are the pieces that I actually wear, until I strike a deal and then move on. Personally, I believe this makes my opinions on watches even more valuable. I have owned and worn more watches than nearly anyone I can think of. I have experienced them all in daily life. Yet I am also not so attached to any given piece that I have undue attention stuck on it. That all being said, I can certainly understand the discomfort of an editor running a piece on a watch that is for sale. However, let's look at the alternatives.

We all know that the experience of owning a watch is much different than that of playing with it for a short while. Most of the exposure journalists have to high end pieces is viewing them at a press appointment with the brand. This certainly cannot be used as fodder for a good review. Sometimes brands will lend a watch to a journalist to write a review. While probably better, this is quite flawed as well. First, the brands are only going to lend pieces to journalists they know are predisposed to write nice things, and the journalists themselves are incentivized to be much more biased than a collector who owns the piece. After all, their entire career rests on their rapport with brands. Aside from bias, the variety of pieces available for this sort of review is extremely limited and the amount of time they get with the watch does not allow them to truly live with it.

So that leaves us needing real owners. Here things get murky in a different way. With a few notable exceptions, most watch collectors I know sell watches. Whether it is for liquidity, extra income, or just to pay for an incoming piece, it is not uncommon to see a watch collector selling what was hailed previously as a beloved staple of their collection. That a piece is not currently "for sale" does not necessarily have any impact on one's natural proclivity to talk up their own collection. Perhaps I am crazy, but there is a period of time with almost every watch I own when I decide, "this one is a keeper!" only to default back to my fickle nature soon after.

As promised, it seems I have not made any further ground on this topic, but I hope this gives food for thought. Luxury watches is a world with a lot of money flowing around. Journalistically, there are very low stakes -- no one is going to live or die by a watch post. That's a recipe for bias. My own approach is a willingness to share my thoughts and opinions with full disclosure that anything I own is for sale for the right price. How one shapes the other is anyone's guess. In the end, it is best is to take anything you read with a grain of salt and appreciate fun content for its own sake.

Thoughts? Hit me in the comments or on social media.

Inventory Update and State of the Market

Major apologies for not updating the website for a while. The end of the year saw a lot of buying activity and I could not keep up with everything. If you are not yet following me on Instagram, please do so. It's the best way to keep track of what I have in close to real-time. I'm @stevehallock

There has been a lot of talk recently about the watch market slowing down. While this is inevitable after many years of expansion and price increases, to paraphrase Mark Twain:

Reports of the market's death have been greatly exaggerated

In the last few months I have sold Journes, Pateks, Langes, MB&F's, URWERKs, Richard Milles, AP's, Rolexes, etc. The fact is that a great watch at a good price sells. 

This FP Journe Tourbillon sold to a very lucky collector recently

This FP Journe Tourbillon sold to a very lucky collector recently

 

So based on that, I've added a few great watches for sale. I'm continuing to find top-notch, rare pieces to offer here -- pieces that I personally love and seek out. I have also lowered prices on a few pieces, most notably the MB&F HM1 in Titanium which is now like buying a Pagani Zonda for Mercedes money. Check it all out on the Watches page, and be sure to watch the video reviews at the bottom of almost every listing. It's the best way to get a feel for the pieces short of holding them "in the metal".

Someone is going to get a seriously smokin' deal on this MB&F HM1 Titanium

Someone is going to get a seriously smokin' deal on this MB&F HM1 Titanium

MB&F HM1 and URWERK 102. The original pieces from my two favorite brands. Both super rare and each one available right now

MB&F HM1 and URWERK 102. The original pieces from my two favorite brands. Both super rare and each one available right now


If I Were Running A Lange & Söhne North America

Several years ago I wrote a fun post of how I would run Audemars Piguet North America. At the time, AP was going through a transition, I was fresh off running MB&F North America, and it was a fun thought experiment. I reread this recently and thought it would be interesting to revisit the concept now in 2015 with another of my favorite brands, A Lange & Söhne as they just so happen to be looking to fill this post (although in New York, bummer). If I woke up tomorrow as the President of Lange NA, what would I do?

First, the focal point: I truly believe that Lange makes the best watches in the world of any big brand. Across the full product range, if one compares Lange to Patek "in hand", Lange gives a higher sense of quality. I think the Datograph is probably the best all-around watch in either product line. Patek doesn't really start to clobber Lange until you get into the minute repeaters, which is a game that Lange didn't even play until recently. With a product that good, the number one challenge for an executive is to get others to recognize it. Outside of watch collectors, Lange does not nearly have the name recognition that they should.

My personal A Lange & Söhne Datograph. Tough to beat.

My personal A Lange & Söhne Datograph. Tough to beat.

In general, the failure here is that conservatism does not work in the US. Lange is a very conservative brand. It is easy to use this conservatism as an excuse not to try new things, explore new markets, and, most of all, inject charisma and a point of view into the business. To truly communicate the level of quality that the watches achieve requires PASSION. But passion does not communicate when it is put across conservatively. So, first and foremost, I would communicate, communicate, communicate and do it with extreme passion. The quality of the watches would back this up. There are plenty of ways to leverage this communication: working closely with online taste makers, journalists, partnerships in other verticals, events, etc. Ultimately, it should feel like something very exciting is going on with Lange that people want to be a part of.

Next: the dealer network. This is hard to comment on without the data, but I would very closely examine each retailer and boutique to ensure we had the right partners and locations. All of the communication in the world is wasted if the watches are not represented properly at the point of sale. At MB&F I did training of all the sales staff at our retailers myself and made sure I found at least one sales person in each store that fully understand my passion for the brand and what makes it great. In a boutique, everyone on staff should understand this and be capable of communicating it. I would also ensure that each retailer/boutique is an inviting space to be in. This goes back to the conservatism point. Current luxury buyers are different than those of decades ago. Why is it that I will go into an Apple store just to look around, but I hesitate to walk into a watch boutique even if there is something I want to see? This is an industry-wide issue that needs to be addressed. A highly respected, top notch player like Lange would be the perfect brand to address it. There is an absolutely huge amount of marketing value in these boutiques that is not being realized because they don't make you want to walk in the door. There is a formula for this that many industries have cracked, yet luxury watch manufacturers insist on ignoring it.

Lange could be the conservative watch for cool people. People with taste should aspire to own a Lange watch, whether they are into watches or not. The product is there, they just need the personality.

Here's a video review I did of the Lange 1815 Chronograph to get an idea of how fantastic these pieces are in person (and yes, that is the same Hodinkee strap on both watches):


The Biggest Baddest Luxury Company of All Time: Apple

I originally wrote the following piece for Esquire Magazine in late last year (it was published in their Mexico edition). The purpose of the piece was to opine on what Apple should do with its cash hoard, but to understand that it is necessary to know what Apple truly is. While it clearly has a business focus, I think my general thesis has proven to be completely true. Yesterday Apple launched a collaboration with Hermes and spent 10 minutes of their keynote talking about watch straps! Here is the piece below, let me know what you think.

 Everyone knows that Apple is a high tech company. Founded in a garage in Silicon Valley by two college dropouts, it certainly has the origin story of a proper tech company. Its main competitors through the years have been Microsoft and Google, both clearly tech companies. And yet many Apple investors, such as Carl Icahn, are calling for Apple to aggressively return capital to its shareholders, a practice that would have been unheard of for a tech company previously. Returning cash in the form of dividends was previously reserved for utilities and other low growth sectors. Traditionally, high growth tech companies never returned cash because they constantly had other projects to invest in which would ultimately create even more value for investors. Apple, however, is making money faster than they can spend it, and they can't spend it very fast because they are not a traditional tech company. In fact, they might not be a tech company at all. Apple is a luxury goods company – the biggest and best the world has ever seen. That its medium is gadgets makes them no more a tech company than Rolex is. This understanding is vital to solve Apple's “cash problem” – the problem enviably being that it has way too much cash.

Over the last few years, Apple has returned about $75 billion of their cash in the form of share buybacks and dividends, yet its coffers keep filling up and it currently has another $133 billion in the bank. Where does all this cash come from? The vast majority is from consumer gadgets, mainly iPhones, but also iPads, Macs, and soon to be Apple Watch. Apple did not create any of these product categories. Many companies sold MP3 players before the iPod, smartphones before the iPhone and tablets before the iPad. Apple simply makes great products. Its products are generally designed better, made with higher quality, and work better than the competition. They are also often more expensive. Apple's strength does not lie in creating new products, it lies in making great products, promoting those products, and perfecting the retail experience. Those is the hallmarks of a true luxury brand.

Apple unquestionably knows this. That is why it is pushing the Apple Watch so hard as a fashion item. Months before its release it has been featured in Colette, a high end design and fashion boutique in Paris, and graced the cover of Vogue China. It was launched with Karl Lagerfeld and Anna Wintour and promoted by new Apple employee Marc Newson, famed designer and formerly a designer behind his own luxury watch brand. The gold version of the watch is rumored to cost upwards of $5,000. We are all familiar with the lines outside of Apple stores worldwide for a new product launch. This is the Apple magic and it is a magic fueled by the tools of the luxury industry, not tech.

The playbook is already written: celebrity endorsements, limited product availability, tight control of retail distribution and pricing, these are staple luxury brand tools that Apple is using. None of this is a knock on Apple, in fact it is a great testament to their genius. Never before has luxury been so accessible and so mainstream. That the greatest luxury product in history resides in the front pocket of nearly everyone reading this is itself a major step forward. From the marketing, to the retail experience, to the product itself, Apple has brought luxury to the masses and the rest of the luxury industry would be smart to copy as much of it as they can.

Quality is a universally recognized attribute that is often promised and rarely delivered. Luxury is the delivery of the utmost quality no matter what the barriers. When it is done correctly, this genuine blend of quality and luxury represents the best of the human spirit itself. Ultimately that is what we love about luxury goods. That Apple has been able to deliver this at a price point that millions of people can afford is why it is the most valuable company in the world, and why people will continue to line up for its products for a long time. This is what an investment in Apple is. It is not a bet that Apple will develop the next great technology, which is capital intensive and risky. It is a bet that no matter where technology goes, Apple will be able to deliver it to us with a level of quality that we all value. That is where business becomes art.

So, back to the cash, what can a luxury company invest in to provide value to shareholders? One area is vertical integration of production. However, Apple has proven time and again that they do not want to own production, famously partnering with huge Chinese manufacturers such as Foxconn. They even sign long-term contracts with specialty manufacturers such as GT Advanced Technology, a synthetic sapphire manufacturer like those used for watch crystals – a company they very easily could have purchased if they were interested in vertical integration.

However, that's not to say that Apple is failing to increase Capital Expenditures. Its 2014 CapEx budget is $11 billion, up from $7 billion in 2013, according to their 10-K filing. This includes big set asides for opening and remodeling retail stores, but mainly is allocated to “other capital expenditures”, which are further described as “product tooling and manufacturing process equipment, and corporate facilities and infrastructure, including information systems hardware, software and enhancements.” It has also increased its advertising budget, which topped $1 billion in 2013 for the first time.

But $133 billion is a lot of cash. These increases are not going to make a dent in it, especially considering that it keeps flooding in the door. There are still some major, cash-intensive problems to be solved which Apple could invest in, chiefly battery technology. Some have speculated that it could even buy Tesla, another Silicon Valley-bred company making luxury products with technology driven solutions. However, Apple has proven time and time again that it would rather let others do the inventing preferring to use those inventions once they are fully sorted out, and that it is very happy to have a small, focused product range. And that is where ultimately, returning the cash to shareholders makes the most sense. These shareholders can then invest the money in companies who are solving these other problems. $100 billion returned to the tech investment pool can impact the entire ecosystem, possibly funding the next great battery technology or other innovations. This provides better return for investors and ultimately can result in technological advances that Apple can capitalize on with their future products.

Steve Jobs famously told Larry Page, co-founder of Google, that Google did too many things and they should focus on doing just a few very well. Apple continues to be the shining example of this. It makes the best electronic devices in the world. Hopefully it will free the cash to let others invent so that those devices can get even better.