Main distribution methods
The main distribution methods for watches are: using a distributor, using an agent, working with a subsidiary and dealing direct with retailers.

Distributors
Distributors are defined herein as companies that buy product from the manufacturers and are exclusively responsible for distributing those watches in a clearly defined territory. Distributors are usually responsible for the bulk of all advertising and marketing expenditures in these markets and they get paid for the product from the retailers.
“Distribution is pretty much trial and error,” says Steven Holtzman, President, Helvetia Time. “You try different ways until you find something that works. Creating demand is important - aggressive marketing, promotion and public relations. As a distributor, we are the liaison between the retailer and the factory. If the factory is doing their job, they are working on making the product and creating the image. It's the distributor's job to sell the image to the stores and to the consumers. If we do our job well, the consumer comes into the store and asks for the brand, the store has the right product at the right time at the right price.
”A good distributor performs thorough quality control, we act as the last stop before the product gets to the retailer,“Holtzman continues.”The Swiss think that everything that leaves their factory works. The reality is that a lot of watches don't seem to work the same when they get to the store, so we make sure the watch is working when it gets to the retailer. If a watch wasn't working when we got it, we took it apart and made it work. That kind of ethic is what makes a distributor worthwhile and if we can have that kind of impact, we can be the difference between a brand being successful in a market and failing."
In all countries where Swatch Group has its own subsidiaries, companies within the group go through them, and in other countries they use distributors. “It's a question of outcomes, really, not a question of distributor or subsidiary,” says Matthias Breschan, President, Hamilton World-wide. It always comes down to how good the organization is that you have in the country. As long as the service is good, the retailer is happy. When you have your own subsidiary, the decisions can be made quicker, but we also have distributors that do exceptional work.”
Most brands use a mixture of distributors and subsidiaries. “There is a benefit to using a distributor - they know the market, they might have a brand portfolio that is complimentary to your brand,” explains Martin Bachmann, Director, Country Operations, Maurice Lacroix. “If a distributor is experienced in emerging markets, he certainly has better local knowledge, so it makes sense to cooperate with someone local. There are times, however, when distributors handle too many brands. We demand that our brand is serviced exclusively by people within the distribution company. We are in 65 countries, which is difficult to manage.”
Jeff Roth, President of LWR Time, Ltd. is the distributor for Fortis in the USA. He imports product from Switzerland, pays all the duties, stocks watches, buys all the support materials, the catalogues, sets up the repair facility and more. As a distributor, he buys everything and gets his profit from the sale of the watch to the retailers.
“It's easy to deal with me because I can make decisions,” Roth says. “Retailers want decisions quickly. We can be more responsive to after-sales service problems. 99% of the time, I make decisions based on what my customers need, it's not about someone from a foreign land making decisions for the US market. Even if the manufacturer doesn't agree with what I am doing, we will make the decision to benefit the customer, because that's my life blood.”
In some countries, like Switzerland, distributors are a good option. Distributors know they need to work hard in order to keep brands. “It is to the distributors' advantage to do the very best in order to please the manufacturer and at the same time please his retailers with impeccable service,” says Bernard Metzger, Horlogerie-Bijouterie Guillard (Lausanne, Switzerland). “Nowadays this is not an easy task but for those who can provide excellent service, experience and good advice, business relations will be more and more rewarding in the future. Many manufacturers and their subsidiaries have become over-confident, almost arrogant, by asking outrageous repair prices with extremely long service delays and on top of it bad quality. Marketing is a good tool to position brands but what they promise they have to deliver; otherwise the unsatisfied customer will rapidly choose another of the many tempting outstanding exceptional and unique brands available.”

Agents
Agents are not so popular in the watch industry today. Agents take product from the manufacturers and receive a commission on the sale, so they have no real investment in the product.
“We use agents that are distributors specific to each nation,” says Barry Cohen, President, Luminox. “These people run their own businesses with our brand but must do so within the constraints of what is within our guidelines. The biggest challenge is usually a lack of awareness of the brand and this requires a marketing and education process to make consumers aware of the brand and its attributes and virtues.”
Agents work for the brand but have no financial commitment. “Agents are the troops on the ground, but they don't have an ownership stake in the operation, where I have ownership over the product,” explains LWR Time's Roth. “I didn't say to Fortis, 'give me a chance to sell this product'. I have to invest in product and advertising, with my own money, so I have to believe in the product. There's a huge difference between me and an agent.”
Certain markets can be worked with an agent, who works on a percentage commission for being the local salesman for the brand, providing local support, shipping points and so on.

Subsidiaries
Subsidiaries are companies that are owned by the brands themselves, or by the groups which own the brands. “In key markets, we do the distribution through our own subsidiaries,” says Thomas Morf, CEO, Carl F. Bucherer. “Distribution is key. There are a lot of brands that don't have their distribution under control, that's why there is so much transshipping. The subsidiaries are my people, or we are a joint venture (like in the US), to get better control over my distribution. Distributors think 'fiscal year', which is a contradiction to building a brand that stays. In the key markets, you have to have your own subsidiary to be as close to the market as possible. In smaller markets, you either work with distributors or work direct. We don't want to expand too big. We want to keep the territories clean.”

Direct
Some small brands, with very limited production capacity, deal directly with a handful of retailers. With such limited quantities, there is no reason to work with a distributor, because the volume isn't there.
“It depends on the countries where I can physically take care of the retailers directly,” says Renaud de Retz, CEO, Hautlence. “In Europe, we have a direct relationship with the retailers. In the US and Asia, we are working with distributors. In Europe, I can take a train or a plane and in one day I can go see a retailer. I can control the image of the brand and the work that is done directly from Switzerland.”

The progression
In most cases, when a distributor is successful, he is working himself out of a job. In many markets, brands start with a distributor, and then when some success is realized, especially if the market is an important one, the brand opens a subsidiary there and does the distribution themselves.
“We have started in the UK, for example, with a distributor, then when the distributor closed its doors, we started our own subsidiary,” says Maurice Lacroix's Bachmann. “It's not necessarily the natural path though, it depends on the distributor. If he shares the vision of the brand, it's not an absolute necessity to have our subsidiaries all around the world. With your own subsidiary, however, you get full focus on the brand with no distractions. There is no disagreement on strategy - you don't have to convince and argue, whereas an independent distributor who has invested his own money has to be brought on board.”
“If you do your job really well, as a distributor, you get replaced,” Helvetia Time's Holtzman laments. “It's a difficult place to be long term. Most companies start with distributors then one by one they buy them out and own their distribution network.”

The future
As watches continue to grow in popularity, developing countries will become bigger markets for watches. It doesn't seem to matter to retailers who does the distribution, only that they work hard for the brand and help the retailer as much as possible.
“It is becoming rarer to purchase watches in the USA from anyone other than the manufacturers’ subsidiaries today,” confirms retailer Ken Grazi, Kenjo (New York). “Only the smaller, more niche brands are presented by distributors and/or agents. It is hard to define the differences that are encountered when purchasing from one rather then the other. There is usually an underlying feeling that when you buy from a distributor that they may not be there in the long run (say 5 – 10 years from now) while when you buy from the subsidiary you feel that as long as the brand is around the sub will be there to support it. The only negative experiences that I can recall are when a distributor stops distributing a line that we carry and we are left holding the proverbial bag (yes, the bag filled with watches that we paid for).”
“It seems that they all have their limitations and flexibility,” adds Robin Levinson, co-owner, Levinson Jewelers (Florida, USA). “It all comes down to getting what you need as a retailer. Whether that be stock balancing, advertising and marketing dollars, memo flexibility on larger product, etc. The service for me has depended on the strength of the person who is representing the brand. I find that most channels of distribution are very interested in doing all they can to be supportive. It is so competitive for market share and the real bottom line is reaching the end-user - the customer. It seems that everyone is out for that goal and will try to do what they can to achieve that.”

The most important aspect, whether distributor or subsidiary, is to get the brand into the right stores and in front of the right customers. “The most important fact is to grant a five star position at retail level in front of the end consumer, and to preserve the brand’s heritage, image and to secure its future,” says Jan Edöcs, CEO Milus International SA. “Within key markets, Milus is opening up its own subsidiaries to strengthen all forces and energies. But in addition to subsidiaries, it is a must to have local connections with long-lasting relationships and a vast network in the watch industry.”


Source: Europa Star December-January 2007 Magazine Issue