Analysis: How Watches of Switzerland is moving with the times

Watches of Switzerland posted soaring profits and sales during the six months to October 27 – its first half-year results since its IPO earlier this year.

Adjusted profit before tax was up 112% to £26.5m and group revenue jumped 17.3% to £428.7m – on a like-for-like basis, sales grew 10.3%.

The impressive results bucked the trend on the high street in both the UK and USA as the luxury watch market remained “robust”, with demand outpacing supply.

As other recent retail stock market debuts such as Footasylum and The Works have struggled to live up to their initial promise, how has Watches of Switzerland driven such impressive results – and how does chief executive Brian Duffy plan to maintain momentum?

The price is right

The luxury watch retail group – which owns Goldsmiths, Mappin & Webb, Mayors and Watches of Switzerland – floated at 270p per share, giving the retailer a market cap of £647m.

This was exactly “the right price”, according to Shore Capital analyst Clive Black, and one that Duffy describes as “modest”.

“You have to think carefully about the value of an IPO and post what’s going to happen; you have to think long term,” Duffy says.

“It’s pretty obvious that you have to earn the trust of the investor.”

This was something Watches of Switzerland was able to do well as it had “a good historical track record”, giving more substance behind the five-year plan presented to investors.

“We have a story that needs to be told – people have a lot of negative ideas about the market that people are wearing more tech but that’s not true,” Duffy says.

Retail analyst Nick Bubbb agrees “the luxury watch market is strong” today, but warns that Watches of Switzerland has a way to go yet to truly get the City onside.

“Companies always time things so that the first year is good after they go public. However, so many IPO’s go wrong in their second year, which is why the City has become so cynical about them, so the challenge for Watches of Switzerland is to keep it up next year,” he adds.

Location, location, location

Alongside its interim results, Watches of Switzerland unveiled the acquisition of four new Fraser Hart showrooms in Stratford, Kingston, Brent Cross shopping centres and on York high street, adding to its 132 showrooms across the UK and US. It is also the only luxury watch retailer in the Brent Cross and Kingston area.

The retail group has stores in some of the most desired locations in the world including Las Vegas, New York, Regent Street, and in New Jersey mega-mall The American Dream.

Duffy says the combination of these affluent locations and high footfall shopping centres will be one of the keys to the specialist retailer creating ongoing sales momentum.

Black says: “Premium and prime locations seem to outperform the broader sector compared to secondary locations, and Watches of Switzerland is undoubtedly in premium and prime locations. It’s got a nearly 10% share of the US market and is following the same strategy in the UK, with well-located stores, a clear understanding of what it is about and engaging in a very effective store refurbishment programme to keep their stores modern, fresh and relevant.

“Watches of Switzerland is benefiting from bringing something fresh and new to the US, which a lot of British retailers don’t have the opportunity to do.”

Moving with the times

As well as acquiring and opening new stores, Watches of Switzerland is constantly evolving and refurbishing the ones it has to encourage different types of customers to engage with the brand.

It has collaborated with Rolling Stones guitarist Ronnie Woods to release a series of painted clock faces, hosted an event with American rapper Nas and an exhibition with Sneaker Time, showcasing the rarest trainers, to appeal to a wider audience as well as refurbishing shops to make a customer’s shopping experience more relaxed and experiential.

Black says: “Their store refurbishing programme is very relevant because it’s making their centres more focused and hospitable so it’s more of an experience – the term experiential is more important going forward and having that service space in luxury retail in particular.”

“We’re making the stores a nice place to walk around,” Duffy explains. “You can go in-store and sit and talk over Champagne or a coffee.

“Buying a watch is an emotional event in your life. I remember buying my first Rolex or buying my wife her first Cartier.”

Watches of Switzerland is opening in Broadgate in London next summer alongside a cinema, bars and restaurants.

Duffy knows people do not want to rush into buying a watch. Sitting side by side with bars and restaurants allows them to “try it on in the morning and come back in the afternoon”.

The events, collaborations and new-look stores are all in line with the group’s wider strategy to invest in and elevate its showroom portfolio as well as delivering exceptional customer service.

But showrooms and shops have not been the only new thing for Duffy to deal with this year. Since Watches of Switzerland floated, he has had to adapt to a new way of working.

“Obviously, I’m spending more time with investors, ” he says. “Working with the external board of directors and all the disciplines that that brings, the compliance and the review and overview. It’s different and we’re adjusting well.”

Much like its chief executive, the 100-year-old company has adapted to the ever-changing retail backdrop and is on track to outperform its full-year guidance issued at the time of the IPO. The early signs are good, but the City will keep no doubt be keeping a watchful eye to ensure the retailer’s performance stays in time with its growth potential.