Thierry Stern, President of Patek Philippe, reveals his thoughts on eCommerce, emerging markets and the opportunities ahead for complicated women’s watches.
Since his official appointment as President in 2009, Thierry Stern has served as guardian to the last family-owned independent watch manufacturer in Geneva, Patek Philippe. The famed Swiss brand has remained in the hands of the Stern family since 1932, continuing the vision of founders Antoine Norbert de Patek and Adrien Philippe.
Swiss watch exports attained a record level of sales in 2013, equivalent to 21.8 billion francs, an increase of 1.9% on 2012. The segment has grown beyond belief and expectation in the past decade, but growth is finally slowing and the market stands forever changed by rampant acquisition, where the playing field is now dominated by consolidated conglomerates with deep pockets.
Yet Thierry Stern remains positive. He is acutely aware of the challenges his brand will face as the giants mount pressure on retailers and blanket the world with boutiques and costly advertising campaigns. But he remains committed to focusing on independence, quality, service and craftsmanship, over the pursuit of excessive growth or new market entry.
We sat down at Baselworld 2014 to talk about the strategies designed to see the family-owned brand prosper well into the coming century.
“ The playing field is now dominated by consolidated conglomerates with deep pockets ”
How do you feel about the concept of luxury in 2014?
For me, there are too many brands. I’m not talking only about the watch industry, I’m talking about the luxury industry in general. I do not feel sad, but I would say I’m sometimes surprised, because everything is ‘luxury’ these days.
For me it is quite clear in my head. Luxury is when you are making a fine product, something that has significant knowledge inside. Handmade, but not only handmade, you need to manage the quantity. And for sure, you need innovation.
What is also very important in luxury today is the service, especially aftersales service. There is no way that you can say you’re a luxury brand if the aftersales service is not there. It has to be efficient, it really has to be at the highest level.
This is something I do not see quite often, to be frank. Brands claim they are luxury, but what happens when the product is broken? What happens when I need help? Nobody is there. This is where you start to define what constitutes luxury.
“ Brands claim they are luxury, but what happens when the product is broken? ”
Can you tell us a little more about what Patek Philippe is producing each year?
Today, we manufacture 55,000 pieces each year. 10,000 are using a quartz movement, 100% of which are made for ladies because of the size and because the movement is very thin. Then we have about 12,000 manual watches, and the rest – roughly 33,000 – are all automatic movement.
They are priced anywhere between ten thousand and one million euros, for the most complicated pieces. For example the Sky Moon Tourbillion, but there is just a few of them and quite a long waiting time.
We are noticing a change in quartz that I think is coming from the tastes of our female clientele. We have always been selling quartz – two years ago it was still around 12,000 – but the knowledge has now changed.
You can really see that the demand is coming for the automatic movement or the mechanical movement. There has been a lot of communication from the brands, from the journalists, from the web. The knowledge has been really increasing the past two years, which I think is very good.
But also I think we are seeing the rise of a new woman, a self-made woman who is willing to buy her own watches. She doesn’t need a husband or boyfriend to receive a significant watch. And she is willing also to invest in something more than just a quartz movement.
For Patek, I am very happy. You need to have the movement to be able to supply a mechanical watch and we have always been working very hard to have the finest, thinnest, smallest movement. This has allowed me to use our movements within cases made for ladies, which I believe will grow very strongly.
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How do you personally feel about the growth potential of women’s complications?
I think it’s as much as men, to be frank. I’m pretty sure that soon the men and women’s categories will be totally equal. There may even be more opportunity in the women’s category because of jewellery. We do have things like precious stones also for men, but I think for women it’s even more important.
There will be jewellery pieces, there will be simple mechanical ones, and then complicated pieces. I agree that there’s still a lot of growth to be done with ladies’ collection, no doubt. But today it’s a matter of finding the right design.
It is no longer the time when you just had to set a few diamonds on a men’s watch and say, “Here, this is a ladies watch.” They will need to have their own design. Maybe in the future there will also be a space for a new movement, or new calibre with specific complication for ladies. Who knows?
“ I’m pretty sure that soon the men and women’s categories will be totally equal ”
The world’s most affluent consumers are increasingly diverse, many new nationalities are becoming luxury consumers, bringing with them different cultures and aesthetics. Is this affecting design at Patek Philippe?
Not really, because first of all, we have been working with very affluent people in very diverse regions for many years. There are not so many new markets for us when it comes to where wealth is being created; we know most of these markets very well.
But secondly, when you buy a Patek Philippe, you are buying also the spirit of a Swiss company with a specific DNA. I’m not willing to adapt to watch, to be frank. It is not really my task to adapt my brand or my products.
I have to listen to all of my customers and that is the hardest part. To listen to what the Malaysian clients and to the German clients want, and to try to make one watch that will fit for everybody. Instead of having only one piece, I have 181 pieces in the collection, many different ones.
I believe that there is already enough choice for people within our framework. These kind of people are willing to have something that is rare, which has very high levels of technology and quality. When they come to Patek, this is what I can offer them.
“ There are not so many new markets for us when it comes to where wealth is being created ”
Growth through category expansion has proved a successful strategy for many luxury brands. Can you foresee a point in the future where Patek Philippe would diversify into any other category?
No. I think we are known and respected because we never went out of this field. We are watchmakers, we will not do anything else. We have no time to do anything else. It’s a 100% full time job and I think that’s important to keep it that way.
The credibility of the brand is really there. The market knows that we are experts, and we are not willing to diversify. For sure it will be easy to have sunglasses or whatever. We have had countless offers like this, but we should never accept because it would be very bad in term of image for us.
People trust the brand because they know this is what we love, this is what we do, and we are experts, and it has to stay like this. I will not go and try anything else.
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Your distribution structure relies heavily on third-party retailers. What are some of the challenges in managing sales when you don’t directly control the process?
There is no challenge that is impossible, but for us, I think it is a matter of respect. You have to choose the right partners. For us, the last challenge was China. No one is used to working with the Chinese market; the rules are different, the retailers are totally new. So you need to be very careful.
To protect the brand you have to choose the right retailers. You need to ensure that you don’t have someone selling Patek Philippe everywhere, 30% below the market price. I need to be sure about the partnerships that we have. There has to be a very, very high level of trust between us. Otherwise, I don’t think there is a great danger.
Many brands have chosen to have their own boutiques, for example. That’s a choice. But again, when you have to manage your own boutiques, this means that you have less energy for your core business, which is producing watches. Yes, you have a strict margin, no doubt. But what happens when you have a bad time? Or the market starts to decline? It’s a heavy weight when you have so many boutiques.
And our retailers, they know their clientele. I will never know the final client. This is not my job, it’s their job. They have the respect of their client. And when they have the right to sell Patek Philippe, the level of respect is even higher because it means that you are a good retailer.
You need to be able to work with theses clients, through these retailers, for the long term. When I partner with a retailer, it is not for two days, or two years. It can be for two or three generations.
“ We are watchmakers, we will not do anything else ”
I’ve read in previous interviews that you have no intentions to sell Patek Philippe on the Internet. Can you tell me some more about why?
Our client trusts their retailers, they want to see the product, and it needs to be tried on, to be explained. That is some thing you cannot have on the Internet. Of course you see the product, you can order it, but it’s not enough for a Patek.
We want to keep this relationship with the finest clients and we want to show them the whole collection to be sure that they made the right choice. And above all, if they have a problem, they know where to go. This is a big problem when you purchase on the Internet, and when you sell a €60,000 product it is not that easy to manage. Who are you going to send it back to if you only have an email address?
Then there is the issue of who is buying the product. With the Internet you really don’t know who the end consumer is. And when you have a very, very unique product, you do not like to sell it like this. When I sell a minute repeater, I check very carefully who is buying each piece. I need to protect the client who has been waiting two years to get this product.
With the Internet, it is easy for people to buy with the intention of reselling. They buy it and then they can go to my client who has been waiting for two years and propose the product at a premium. I have to protect my clients from these types of people. It is for my own credibility.
“ Who are you going to send a €60,000 watch back to if you only have an email address? ”
In a few words, what do you feel defines your communications strategy?
We have a strategy, very clean and clear and we haven’t really changed it. I believe that it’s a strategy about family, about passing on something with value and that really works. People understand it. This strategy came from the client.
When we started with the agency, Leagas Delaney based in London, we first asked them to travel the world for three months. The mission was to visit distributors, retailers, and final clients all over the world. They came back after three months with the slogan that we have today – “You never actually own a Patek Philippe, you merely look after it for the next generation.”
They said this is what we found and that is what the client was telling us. And it was fantastic to have something that was true. That is why it is so powerful.
Today, there is no need to change the strategy. It’s about family. It’s about quality. It’s about passing on something with value. Not only with money, but valuable also because of sentiment and feeling. That’s more than enough really, to be credible.
Ultimately I’m doing the same with the company. My father has passed Patek Philippe to me, one day maybe I will pass it to my son. It’s the truth. It’s very important for the retailers because it means that Patek Philippe doesn’t change strategy every two years or three years. I can really build up a relationship and I know that what I’m saying today about Patek will be still true tomorrow.
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How important do you feel it is for the brand to try and raise awareness at this point?
It is important, but we have to be realistic. We are losing share on one side, because the quantity that we have is not growing like crazy. When you see other brands, they are increasing, increasing, increasing. Of course, I’m losing share.
On the other side, I think awareness in term of quality and innovation is very important. The innovation is very, very strong. When you are able to innovate every year, to propose something new that is more complicated or even more beautiful in terms of design or the case is totally new, it helps a lot. But there is no way I can compete with big groups who have much more power than I do. Yes, I understand that.
But I can compete in term of quality. That’s what really keeps me going, the power to be new. I will never fight about market share. I can’t. They will always beat me. They’re taking more and more space everywhere.
“ We are losing market share because the quantity that we have is not growing like crazy ”
In terms of marketing channels, what do you feel actually reaches the people that have the purchasing power to buy your product?
It’s a mix. I do not believe you can say that there is only one channel. People still love to read magazines but they also love the Internet. And with retailers, they love to pass by and have a coffee and talk about what is new. You have to accommodate that mix, it would be a mistake to ignore one in favour of the other.
Events are very important that is for sure. You have to be very available to these top clients, otherwise nothing works. I am travelling all around the world, it is not easy, but it is so important because you get to meet the people. They love it. They are so proud. Sometimes I feel so ashamed because they ask to take a picture of me with the watch, which for me is crazy
I want to ask them to take a picture of all the 2,000 people working at Patek, because they are much much more important than I am.
“ There is no way I can compete with the big groups, but I can compete in terms of quality ”
In terms of geographical markets, are there places where you’re experiencing the strongest growth, or are you quite well balanced?
Well actually, we do control growth as we have a limited production capacity. This is our choice. The split that we like to have is 25% Europe, 15% America, and today, in terms of Asia, around 17% if I remember well, and the rest is Middle East. We do control that.
When one market goes down, the other one can go up also. We can transfer pieces depending on the various markets, which makes the retailers very happy. It’s very stable. We try to ensure the stability but it’s a lot of work.
The best example was China. Everybody went to China, and what happened is that I went to America. America was totally down. But then I spent weeks in America, weeks seeing all the retailers, all of them, without any exception. That really helps a lot, because you get to meet the local clientele, not only the tourists. Local clientele is the key.
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I was just about to ask you, do you feel most of your sales are by local, or traveling consumers, or does it change by region?
We really push for local consumers. The strategy of Patek was always to sell to local clientele first. Keep the best or the rarest pieces for your local clientele; they will come for Christmas, for a wedding, for a birthday.
The tourist will come only once, and that’s it. It’s an easy sale, but it is not appropriate for Patek. You also have to understand that each retailer may receive one piece from a new model. When it’s sold, that’s it for the year. That’s why we tell them; really keep it for this local clientele.
At the moment I would say that 30-40% of our clients are tourists and I would love to have this number down to 20-30%. But at the same time it is easier said than done. Imagine you have a store and I tell you, “Do not sell over 30% to Chinese.” And you have 99% of your client who are Chinese. It’s not easy to respect that.
“ We do control growth as we have a limited production capacity. This is our choice ”
There’s been a lot of talk about the MINT nations or the Next Eleven. What kind of markets do you feel are future opportunities for Patek?
For now, I’m not focused on these ‘emerging markets’ because I do not have enough pieces. For example I went to visit India, which it’s very important, but it’s too early. What can I do? Launch in India with 20 pieces?
It’s like China. When we launched in China we did so with 120 pieces, which is essentially what we had left after we took care of our established markets. I’m not going to cut a market that I’m working with today, just to open a new one. It’s totally silly.
Today I think Patek Philippe is well located in many different countries. It’s very good. The future for today, I have no real intention to open another market for now. Maybe there are some markets slightly missing in Europe but they are very small ones.
The biggest one for sure, it’s India. But it’s way too early for us. And we have the chance also that these customers that are coming to us in London.
“ For now, I’m not focused on these ‘emerging markets’ because I do not have enough pieces ”
How do you measure success at Patek Philippe?
I think it’s the credibility that makes really the best measure. When you see people believing in your brand and saying, “I trust the brand. When I buy the watch, I know …” and that’s very important for a retailer. He will tell you, “I love to sell Patek Philippe because when a client is leaving with the watch, I know I will not see him coming back after one week, saying the watch doesn’t work.”
Of course it also happens with Patek, but in reality it is nothing compared to the percentage of watches that don’t work properly by ‘luxury’ brands. We have a two-year warranty so I calculate over two years, and we would have about 2.3% to maximum 5% of watches coming back to us.
Do you feel any kind of pressure to grow the business?
No, as I do not have any shareholders. I think you need to grow step by step, very, very slowly. But you need to grow. If you do not grow, you die. But you can control your growth. Nobody can push me and say “we need more money.” That’s the beauty of my business.
“ Nobody can push me and say “we need more money.” That’s the beauty of my business ”
Lastly, what is the biggest challenge that the brand will face in the coming years?
Independency, no doubt. You need to be very strong and it’s not easy today. It’s very unique to have such a brand still controlled by just one family, by one person. This is a big challenge. You need to be strong, you need to have a lot of reserve, because when a bad time will come – and they will come no doubt – I am not a group, so I will be alone.
And the day you have to ask the bank for a loan, this is where you lose your independence. And for me this will be the biggest challenge.
For more in our series of conversations with Luxury Leaders, please see our most recent editions as follows:
- In Conversation With Michele Sofisti, CEO, Sowind Group
- In Conversation With Caroline Brown, President, Carolina Herrera
- In Conversation With Andrew Keith, President, Lane Crawford & Joyce Group