IDEX Online Research: Movado to Use Slowdown to Beef up Boutiques; Streamline DistributionApril 16, 08
Along with most other jewelry industry suppliers and retailers, the economic slowdown has affected Movado Group, both in its watch marketing division and in its retail stores. The company reported fourth quarter and year-end financial results: the U.S. market was weak, while international markets were very strong.
Rather than focus on the obvious – financials that were weak – Movado’s enlightened management decided to outline to Wall Street investors its plan to revamp certain divisions in the company while demand is weak. Both the Movado Boutiques and the Movado brand watch distribution will be affected.
Rather than sitting around hand-wringing and moaning, Grinberg is building a distribution platform that is expected to be a springboard for growth, when the U.S. economy recovers. With nine brands, management has many opportunities for growth. Four of those brands are owned by Movado – Movado, Ebel, Concord, and ESQ; the others are licensed brands including Juicy Couture, Coach, Hugo Boss, Tommy Hilfiger, and LaCoste.
Movado Brand Distribution to be Cut
In our mystery shopper visits, IDEX Online Research had begun to notice that Movado brand watches were beginning to appear in a large number of retail doors. As it turned out, distribution of that brand had gotten out of hand. Movado branded watches were selling well among better-end jewelers, but it is not producing sales at some middle-market and lower-end stores.
We previously reported how the company plans to revamp distribution of its Movado brand watches; for those readers who missed it, here is a condensed version:
Grinberg says that the Movado brand has among the highest levels of brand recognition with consumers for watches in the $500-1,500 retail price range. The company’s goal is to harness the power of that brand, he said. Among the tactics that management plans to implement are the following:
- Product development, marketing and merchandising will be centralized.
- The company is recruiting for a new president of the Movado brand division.
- A single marketing message will be developed for the Movado brand, regardless of the channel of distribution.
- Movado branded product offerings will be tailored slightly for each of the key retail channels – Movado Boutiques, specialty jewelers and department stores.
- Point-of-sale materials will be strengthened for both the Boutiques and the company’s retail partners
- Movado will require that its retail partners devote more linear feet of display to Movado branded watches. Of Movado brand revenues (about $200 million total last year), roughly 80 percent comes from its retail partners.
Movado Boutiques to Undergo Face Lift
Sales in Movado’s retail division, consisting of 30 Movado Boutique units and 32 Movado Outlets, were up about 5 percent in 2007. Revenues from this division were about $90 million; that places this chain in the top 25 largest U.S. jewelers. However, this chain is still not generating a profit. Initially, management had expected to post a profit when the total number of Movado Boutiques reached about 25 units. Unfortunately, the chain now has 30 units, but continues to generate an operating loss.
During the current economic slowdown, the company’s 30-unit chain of Movado Boutiques are getting a make-over which should result in profitability within a year or so:
- More Movado brand watches will be added, and the linear feet of display for those watches will rise to about 40 percent of the store total, from the current level of 20 percent.
- About half of the jewelry will be removed.
- Merchandise in other categories – tabletop and giftware, for example – will be trimmed in the Movado Boutiques.
- The boutiques will add more color jewelry.
- Movado will focus on its branded diamond jewelry.
- Movado will develop unique, exclusive Movado-branded jewelry for its Boutiques. This jewelry will not be offered to other jewelers.
- New design talent has been brought in.
- New point-of-sale marketing material is being created.
- The targeted price point range in the revamped Movado Boutiques will be $1,500 to $3,000. Currently, the average ticket is near $1,000, just below the average for an upper-end store such as an AGS jeweler.
- Movado’s goal is to raise the sales per square foot in its Boutique stores to around $900 in three years, from the current level of $600. Management has always said that a three-year old store should generate sales of $800-1,000 per square foot, but its stores have never been able to consistently generate sales at that level.
- The Movado Boutiques are profitable on a four-wall basis, but lose about $5 million annually when overhead is allocated.
- While the stores undergo transition, the company will cease reporting quarterly same-store sales for this division.
After a total revamp that took 18 months, the Concord luxury watch line has just been relaunched. If you missed it, don’t be surprised. The company has tip-toed back into the market, with just one collection prior to Basel.
Movado Group has two watch brands – Concord and Ebel – in the luxury end of the market, defined as generally $1,500 to $10,000, with a few watches above $10,000. Management says its competition in the luxury end of the market is Audemars Piguet, Chopard, Patek Philippe, Vacheron Constantin, Baume & Mercier, Breitling, Cartier, Omega, Rolex, and Tag Heuer.
This is an interesting time to relaunch a watch brand. With demand weak, retail jewelers aren’t likely to be keen to add new merchandise. However, from Movado’s viewpoint, they will be who jewelers are interested in a long term commitment versus those who are simply opportunists. The committed jewelers will willingly promote the Concord relaunch, while others will want to wait until times are better, in our opinion.
Weak Fourth Quarter Drags Down Financial Results
Like most merchants, Movado Group reported weak sales in its fourth fiscal quarter ended January 2008. Because of currency translation and other one-time adjustments, it was difficult to sort out exactly what the numbers were, but Grinberg spoke frequently of the current “challenging times.” The actual numbers are inconsequential; the bottom line is that sales were below plan in the U.S., but above plan in international markets.
Here are some of the highlights from the company’s fourth quarter:
- Sales at Movado began to soften in December in the U.S.
- Sales in the luxury watch division – Ebel and Concord – were down in a low-single digit range. Ebel sales were up, while Concord has just begun to relaunch its line.
- The accessible luxury division – Movado and ESQ – was hurt by the U.S. market. Roughly 80 percent of the sales of these two brands are generated in the U.S.
- Movado Boutiques, with 30 units, posted a 3.9 percent total sales decline in the fourth quarter, with a 7.3 percent same-store sales decline. The 32-unit Movado Outlet division posted a sales gain in the fourth quarter of 1.2 percent, but same-store sales fell by 7.4 percent.
- The company’s licensed division continues to post strong sales. These brands include Tommy Hilfiger, Hugo Boss, Juicy Couture, Coach, and LaCoste. Interestingly, management did not focus much attention on this superior performing division during its recent conference call with Wall Street analysts.
- On an adjusted basis, the company’s gross margin rose due to margin improvements across almost all brands as well as a boost from currency translation.
- Operating expenses were hurt by higher marketing spend, currency translation, and retail expansion. Payroll costs declined slightly.
- The company has said that sales in the fiscal year of 2008 (ending January 2009) will be about flat with 2007, or about $555-565 million. Profits could be flat, but there are too many one-time variables that could ultimately affect reported profits.
The company continues to search for a new president for its Movado brand watch division.