Inside Montblanc Montre Headquarters

While going through my blog I realized that there was a story from November that I failed to post. Below is the story of my trip in the fall to the headquarters of Montblanc Montre SA. It's still timely, especially as the Salon International de la Haute Horlogerie (SIHH) tradeshow for luxury timepieces approaches. Enjoy

Montblanc Montre Headquarters

LE LOCLE, Switzerland — It doesn’t take long to realize this city on the border of France is an industry town. And the industry in this town is watches. In fact, it is here that the Swiss watch industry is said to have been founded.

For all the romance that goes into the marketing and advertising of watch brands the reality is a little different. Many of these culturally and historically significant companies are housed in non-descript identical glass and steel structures located in what can only be described as an office park. The only distinguishing feature on the buildings is their logos on the front. They could very well contain insurance companies, pharmaceutical firms or just about any kind of unexciting endeavor.

A display of the individual components of an automatic movement that was conceived, developed and manufactured in house for Nicolas Rieussec timepieces. Its manual counterpart is the MB R100.  Photo credit: Anthony DeMarco

 
Pass the office park and onto the edge of a residential community you come upon an attractive Art Nouveau villa. This is the headquarters of Montblanc Montre SA.

Inside this one-time residential building is where nearly all of the Montblanc watches are made (with the exception of Montblanc Villeret watches). This includes the Star Collection, Sport Collection, Lady Profile Collection, Summit Collection and TimeWalker Collection. Its newer lines are the Nicolas Rieussec Collection, named after the person who invented the chronograph, and the Montblanc Collection Princesse Grace de Monaco, in honor of Grace Kelly, the famous actress and Princess of Monaco. In recent years it began building its movements in house, such as MB R200 for the Nicolas Rieussec.

Montblanc Montre recently began designing and building its own in house movements.Designing the piece is the first step in the process.  Photo credit: Anthony DeMarco

Comparing this building with the institutional-like facilities on the outskirts of town, it’s difficult to believe that Montblanc is the newcomer in the Swiss watchmaking industry. Known for its luxury writing instruments, the venerable Hamburg, Germany-based company entered the world of Swiss watchmaking in 1997, when it purchased the villa. Unlike some of its competitors, Montblanc uses this attractive, old-world building in its marketing.

Thierry Junod, general manager of Montblanc Watch Production, had to deal with all of the barbs from his established competitors. “Where do you put the ink?” is one of the most common ones.

Even with modern technology, skilled watchmakers are vital to making superior timepieces. Photo credit: Anthony DeMarco

 
“We have a lot to do and lot to prove,” Junod said.

The brand already has proven a lot and now stands as a permanent fixture in the world of Swiss watchmaking, particularly with the chronograph models that is its specialty. Inside the one-time residential building, there’s a lot activity as approximately 135 employees churn out watches throughout the year, combining traditional Swiss watchmaking techniques with the high-tech machinery that is now commonplace in the industry.
 

Automation with the human touch. Photo credit: Anthony DeMarco

In addition to upholding tradition, this newcomer has also shown innovative tendencies, particularly with its testing facilities. An area in the building is dedicated to testing the integrity and endurance of watches through five sets of tests for a total of 500 hours. The program is designed to simulate the first five years in a watch’s life. Approximately 2 percent of the watches produced are tested for winding performance, accuracy, function of the movement, general performance and water tightness. Videos of the some of the testing are below following the story.

An example of a typical workstation. Photo credit: Anthony DeMarco

Junod said he has a lot of plans for the future. Those plans someday may have to include moving Montblanc Montre to one of those nondescript buildings in the office park.

That would be a shame.

Montblanc will be releasing a number of timepieces at SIHH (January 21 - 25 in Geneva). I will be attending and will provide an overview of the new products. 






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Tiffany Holiday Sales Up 4%, Comps Flat, at ‘Low-End Of Expectations’

Tiffany & Co. said Thursday that worldwide net sales increased 4 percent to $992 million for the November-December holiday period, while same store sales were unchanged from the prior year.

“Holiday period sales growth was at the low-end of our expectations, and we now expect that net earnings for the year ending January 31 will be at the lower-end of the forecast that we issued on November 29 of $3.20 – $3.40 per diluted share,” said Michael J. Kowalski, Tiffany chairman and CEO. “Due to uncertainty about general economic conditions in all our major markets, management is planning sales growth conservatively for 2013 and at this point expects net earnings growth of 6 percent – 9 percent.”

Net sales for the holiday period by region and category include:

Sales in the Americas region increased 3 percent to $516 million in the holiday period. On a constant-exchange-rate basis, total sales increased 2 percent, and same store sales declined 2 percent in the New York flagship store and in branch stores. Performance was relatively similar across much of the region. Internet and catalog sales rose 4 percent.

Sales in the Asia-Pacific region increased 13 percent to $187 million. On a constant-exchange-rate basis, total sales increased 11 percent (due to growth in Greater China and most other markets) and same store sales rose 7 percent.

In Japan, total sales declined 5 percent to $153 million. However, on a constant-exchange-rate basis, both total sales and comparable store sales rose 1 percent.

In Europe, sales increased 2 percent to $119 million due to mixed performances by country. On a constant-exchange-rate basis, total sales also increased 2 percent and same store sales were flat.

Other sales increased 114 percent to $17 million, largely reflecting the conversion in July of five Tiffany stores in the United Arab Emirates from independently-operated distribution to company-operated retail stores.

“Looking forward, we are formulating plans for continued store expansion and new product introductions in 2013,” Kowalski said.

Tiffany currently operates about 274 stores (115 in the Americas, 65 in Asia-Pacific, 55 in Japan, 34 in Europe and five in the U.A.E.), compared with 246 stores (102 in the Americas, 57 in Asia-Pacific, 55 in Japan and 32 in Europe) a year ago.

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$1 Billion Increase in 2012 Swatch Group Sales

Swatch Group, the world’s leading supplier of finished watches and watch movements, said Thursday that annual gross sales for 2012 increased by $1 billion, year-over-year. Its 2012 gross sales totaled 8.143 billion Swiss francs ($8.88 billion), a 14 percent increase over 2011 gross sales.

The Swiss company said in a statement that its 2012 watch and jewelry gross sales increased 15.6 percent year-over-year, to nearly 7.3 billion Swiss francs ($7.96 billion), led by sales in China, with double-digit increases for all of its brands.

In the production segment of the company, capacity was expanded, resulting in improved performance. This led to a 10.1 percent increase in gross sales to 2.21 billion Swiss francs ($2.41 billion). Bottlenecks, which had been a problem in past years due to robust demand, were reduced in 2012, the company said.

Its electronics systems segment “is still exposed to a combination of strong price pressure and adverse exchange rates,” the company said. As a result, gross sales decreased by 7.4 percent in 2012 to 311 million Swiss francs ($339,373).

The Swatch Group brand, Omega, is the official timekeeper for the Olympics, which meant that the company had major marketing expenses during the 2012 London Summer Olympics. This along with “unsatisfactory currency developments” will hit projected operating profit and net income. However, the company said it still expects “good results.”

The company also said that the first 10 days of January saw strong sales, indicating “healthy growth” for 2013.

Based in Biel—the vertically integrated company with full manufacturing capabilities, branded retail outlets and alliances with other retailers throughout the world—owns and operates the following brands: Breguet, Blancpain, Glashütte Original, Jaquet Droz, Léon Hatot, Omega, Longines, Rado, Union Glashütte, Tissot, Calvin Klein Watches + Jewelry, Balmain, Certina, Mido, Hamilton, Swatch, Flik Flak, Endura and Tourbillon.

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Zale Corp. Holiday Comps Up 2.3%; Holiday Sales Total $567 Million

Jewelry and diamond retailer, Zale Corp., said Thursday that same store sales increased 2.3 percent for the combined months of November and December 2012, encompassing the entire holiday selling period. This increase falls short of the 5.9 percent rise in same store sales for the same period last year. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased 1.6 percent for the holiday selling period, compared to an increase of 6.2 percent in the prior year period.

Revenues for the two-month period were $567 million, an increase of $3 million compared to $564 million in the same period last year. The increase in revenues is primarily due to the same store sales growth partially offset by revenues associated with the net decrease of 50 stores compared to last year.

“This holiday season, we focused on driving bottom line improvement,” said Theo Killion, Zale Corp. CEO. “Our comp performance, combined with an expected 100 basis point operating margin improvement, brings us closer to our goal of achieving positive net income for the fiscal year.”

Holiday selling period same store sales details are as follows:

* Zales branded stores, consisting of Zales Jewelers and Zales Outlet, posted an increase of 3.1 percent, compared to an increase of 10 percent in the same period last year. U.S. fine jewelry brands including regional brand, Gordon’s Jewelers, posted an increase of 2.2 percent. In the same period last year. U.S. fine jewelry brands same store sales rose 9 percent for the 2011 holiday season.

* Canadian Fine Jewelry brands, consisting of Peoples Jewellers and Mappins Jewellers, posted a same store sales increase of 2.7 percent. This increase follows a 0.2 percent rise in the same period last year. At constant exchange rates, Canadian Fine Jewelry brands posted a comparable store sales decline of 0.7 percent, compared to an increase of 1.7 percent in the prior year period.

* Piercing Pagoda, Zale Corp.’s kiosk Jewelry business, posted a same store sales increase of 1.7 percent, compared to a declined 2.1 percent for the 2011 holiday season.

In its outlook for the quarter ending January 31, Zale Corp. said it expects gross margin to be in line with the prior year quarter’s gross margin of 50.5 percent. Operating margin is expected to be approximately 7.5 percent, or 100 basis points higher than the prior year quarter, primarily as a result of improved leverage on selling, general and administrative expenses.

As previously announced, the company expects to achieve positive net income for fiscal year 2013.

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Jean Dousset Finds Niche with Custom Diamond Engagement Rings

Jean Dousset in his showroom next to a portrait of great-great grandfather, Louis-François Cartier.

In the luxury jewelry world, pedigree means something and there are few who can claim to be a descendent of Louis-François Cartier, the founder of one of the world’s most renowned jewelry and watch brands. Jean Dousset, owner of Jean Dousset Diamonds can make this claim.

However, the French born jeweler didn’t rest on his Cartier name recognition. He worked his way through stints at some of the best known French high jewelry houses in the world, beginning at the epicenter of French style, Place Vendôme, with Chumet. This was followed with stops at Boucheron and Van Cleef & Arpels before first going on his own with an online jewelry business in 2005. 

The Eva cushion engagement ring.

In 2010, he opened a showroom on the edge of Beverly Hills, Calif., on Santa Monica Boulevard. About half of his work comes through the store and the rest is done online through his website. In 2012, he produced approximately 70 rings, mostly engagement, which is his specialty, although he does other custom pieces as well. What may a bit surprising is that his inspiration for creating a custom high jewelry business was Blue Nile. He said the success of the online diamond and diamond jewelry company left a void in the business of provide service oriented high jewelry.

“Blue Nile was whole selling diamonds and they were really offering mountings as a must but not really as a message of design,” he said sitting behind an antique desk inside his showroom. “So I thought that might be an interesting void to fill … offering design, branding, craftsmanship, service.”

Whether he is working with clients in person or online the process is the same. He personally selects three diamonds through his dealers and then explains to the client the strong points of each stone. The clients select which diamond they prefer then he creates the mounting using his drawings and builds them from scratch. Again, the client will have their choice of mountings to select. If it’s online he’ll shoot high-definition videos of the diamonds and mountings for the client to view. 

The Riviera cushion engagement ring.

“The biggest thing now is people are highly educated about diamonds. They understand diamonds by browsing the Internet. There’s a lot of resources and that is great. They do their due diligence. They know what the 4Cs are,” he said. “They come with a certain amount of knowledge. The four Cs are trade guidelines to define the price of diamond ... but they do not say anything about the beauty of a diamond. The beauty of a diamond comes from its cut. The way the rough is taken down to a polished stone. So if you put four stones with the exact same cut, say four cushion cuts same price, same 4Cs there will be one stone that will be much more desirable. That’s the stone I’m looking for.”

He continued, “I work backward through their budget because it’s essential. Prices vary so much we need to know what people feel comfortable spending for their ring. So they share that with me and I try to optimize that budget to deliver them the best 4Cs but most importantly the most beautiful cuts. And that’s just a matter of taste and experience. That’s the way for me to distinguish myself from everybody else. I work very hard at that. And I also want to make that the cornerstone my reputation.”

In addition to his specialization in engagement rings, custom design and personal service; he also works primarily with cushion-cut diamonds of approximately 2-carats. He does so because round diamonds have largely been commoditized by Blue Nile and other similar mass marketers and thus makes it easy for people to buy their own stones once they are educated. 

The Victoria cushion engagement ring.

“I’m big on cushions, again, because of the Internet. It’s very hard to compete on round diamonds,” he said. “Because of the cut distinction and finesse of selecting a (cushion-cut diamond), there’s really an argument for me to make for people to work with me and trust me in making that search for them. It would be incredibly difficult for anybody to find a great cushion by themselves without knowledge, without experience just by looking at the 4Cs. If they are not exposed to what a great cut is, then they just don’t know what to look for so my hope is once I present them with my taste, my selection of stones, then they can benchmark anything they see to that.”

He said his focus is on engagement rings because that is the foundation of the jewelry business.

“You have to start with what truly creates the original idea of jewelry, which is a man and woman is buying something that’s significant and the engagement ring is just that,” he said. “It is still the core message of even the bigger brands … but the truth is that today the bridal business, those big famous brands, do not cater to that market. It’s too time consuming for them. There’s not enough profit in it. But they must still advertise and create bridal collection, because that’s where it all begins.”

He hopes to grow into other areas but he doesn’t seem to be in a hurry. He is more interested in differentiating himself in the marketplace, creating a place that few occupy. His traditional French high jewelry training makes this type of business a natural fit for him. He says in his own small way he wants to give his customers the same quality and service of the French luxury jewelry houses but do it in a more casual way and do it with an emphasis on value.

“On the rooftop of Place Vendôme, each of the jewelers have 25 or 30 hands working (ona piece of jewelry). They all have very distinct and specific responsibilities. There’s woman who is outstanding at polishing pieces with cotton strings…. All of this is to deliver the kind of product that they do. So I’m humbly in my own means, trying to incorporate as many of those steps into how I work. It’s a decision I made that I want to stick with to really establish those cornerstone values. Well-crafted and well-made jewelry doesn’t have to be expensive. It’s how much you really care about delivering a really outstanding product. Handcrafted jewelry is about people who are skilled, experienced, with a desire to execute really well. That is something I feel very strongly about.”

Jean Dousset Diamonds, 10100 Santa Monica Blvd., Los Angeles, CA 90067

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Signet Jewelers Holiday Sales Up 7.1%, Same-Store Sales Up 3.3%

Kay Jewelers, one of the U.S. brands
owned by Signet.

Signet Jewelers Ltd., the largest specialty retail jeweler in the U.S. and U.K., said Tuesday that sales for the November-December holiday period rose 7.1 percent to $1.23 billion. Same store sales were up 3.3 percent for the nine-week period.

Strong sales in the U.S. overcame a decline in sales for the company’s U.K. stores. Consolidated e-commerce sales increased by 39 percent, comprised of a 49 percent increase in the U.S. and an 8 percent increase in the U.K. Holiday sales for 2012 did not quite reach the level of growth that the jeweler saw in 2011, which was 7.5 percent.

“We saw particularly strong performance in the weeks and days leading up to Christmas,” said Mike Barnes, Signet CEO. “Business trends continue to be encouraging in the U.S. and have improved in the U.K. after the holiday season.”

The Bermuda-based jewelry retailer owns and operates Kay Jewelers; Jared, the Galleria of Jewelry; and a number of regional brands in the U.S. and H.Samuel and Ernest Jones jewelers in the U.K.

The company’s U.S. division saw a year-over-year sales increase of 9.9 percent to just over $1 billion, compared to an increase of 9.2 percent in the comparable nine weeks. Same store sales for the period increased 4.7 percent led by both Kay and Jared, compared to an increase of 9.2 percent in the comparable nine weeks. The total sales figure for 2012 includes $37 million from the Chicago-based Ultra Stores retail chain, which Signet acquired in October.
 
“In the U.S. we experienced broad based strength across our merchandise offerings led by our initiatives in bridal, branded and exclusive merchandise, colored diamonds, fashion jewelry and watches,” Barnes said.

Holiday sales in the company’s U.K. division fell by 5 percent to $203.4 million, compared to an increase of 0.9 percent in the comparable nine weeks. Same store sales in the U.K. were down 2.6 percent compared to an increase of 1.8 percent in the comparable nine weeks.

“In the UK watches and branded jewelry were the strongest performers,” Barnes said.

In its outlook, Signet said diluted earnings per share for the fourth quarter are projected at $2.05 to $2.10. Diluted earnings per share for the 53 weeks ending Feb. 2, 2013, are projected at $4.28 to $4.33.

Capital spending for Fiscal 2013 is anticipated to be $138 million to $142 million reflecting current estimates of project timing. In addition to the Ultra Stores, Inc acquisition. Signet says it anticipates 48 new US-based stores for the year.

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Tiffany to Pay Elsa Peretti Up to $436 Million Over 20 Years, Maybe More

Variations of the Elsa Peretti “Sevillana” pendant on the Tiffany website.

Since 1974, Tiffany & Co. and Elsa Peretti enjoyed what is arguably the most successful affiliation ever between a retail jeweler and a jewelry designer. The value of that relationship was put to the test in 2012 when Tiffany announced in May that the partnership was in danger of ending.

Peretti jewelry and other branded products accounted for 10 percent of Tiffany’s total net sales for the past three years, the jeweler recently said. Tiffany’s net sales totaled $3.6 billion in 2011, which would mean that sales of Peretti pieces totaled $360 million for the same period. If Tiffany were to lose this business it would have created a huge sales hole that would be difficult to fill—particularly during a time when consumers have become much more cautious of their discretionary spending. In addition, for Peretti, 72, it would be difficult for her to find another partner with the reputation and international reach of Tiffany.

So last week they struck a 20-year deal. It included a strengthening of the termination clauses in the agreement, which were rather loose for both parties. But the main portion of the agreement dealt with finances and from the looks of it Tiffany very much wanted Peretti to stay, according to a document filed with the U.S. Securities and Exchange Commission.

The main component of the financial agreement is that Tiffany will pay Peretti 5 percent of total net sales of Peretti jewelry and other branded objects. In 2011, that would have amounted to $18 million. If sales remained flat during the 20-year life of the agreement, this would amount to $360 million, similar to the total of Peretti sales in 2011. However, with modest increases of less than 5 percent, this could easily add another $20 million over the life of the contract.

As part of the agreement, on December 31, 2012, Tiffany paid a one-time fee of more than $47.2 million to Peretti (no less than $40 million after taxes). In addition, Peretti, 72, will receive a basic annual royalty fee of $450,000 for use of Peretti Intellectual Property ($9 million dollars over 20 years). The one-time payment does not reduce future royalties.

So a conservative estimate of the grand total over the life of the contract, including the modest forecast of annual growth per year of Peretti sales, is $436.2 million.

There are other parts of the contract, according to the SEC document, that will add to Tiffany’s financial commitment and may earn additional money for Peretti. This includes the following:

* An increase in non-jewelry, Peretti-licensed products that Tiffany will sell. In the prior 60 months, that amounted to $4 million in net sales.

* A 100 percent increase (in cost) in the amount of “on-hand and on-order” Peretti-licensed objects in Tiffany’s inventory.

* Peretti will receive an additional 2 percent of net sales of Peretti branded objects for fees in respect of certain quality control services that the designer has committed to in the agreement.

* At least every five years, Tiffany agreed to publish a special catalog or folio of Peretti products that is representative of the full collection of Peretti products being offered for sale by Tiffany.

* Tiffany will expand the content of its website to include a special section containing content regarding Peretti and Peretti products, including narrative and visual information regarding the craftsmanship and the creation of Peretti products.

* Promotional expenses paid by Tiffany equal to at least 2.6 percent of net Peretti sales.

* Under the agreement, Peretti isn’t obligated to make promotional appearances on behalf of Tiffany. However, if she did make an appearance, the luxury jeweler will pay round-trip, first-class air transportation (including to and from Europe) and first-class hotel accommodations for Peretti and another person.

* Tiffany will establish retail prices for Peretti products in accordance with its usual practices. However, under the agreement, Tiffany may reduce retail prices by 20 percent in order to achieve an overall average gross margin for Peretti objects of no greater than 50 percent.

* Peretti products will not be subject to advertised promotional pricing or inventory liquidation events.

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