Brand & Deliver - 2020 State of the Jewellery Industry: 10 Year Report on Australia's branded jewellery and watch stores

The trend of jewellery retailing moving towards two distinct ‘types’ has continued over the past decade with few surprises in store numbers. However, there have been some very significant changes to the mix of the Brand-Only retail category.
 

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T O P I C S

» Strategy backfire
» Ups and downs, like-for-like
» New trends
» Concluding thoughts

O W N E R S H I P

» Brand Groups: Who owns which brand? 

 
When Jeweller published the 2010 State of The Industry Report there were 153 brand-only stores along with 17 flagship stores operating in Australia – a total of 170 outlets. And while the number is similar a decade later, the structure and mix is not.

In 2010 Jeweller defined a brand-only retailer as a fine or fashion jewellery store – or group of stores – that sells and markets its own brand of jewellery and/or watches. It is usually a vertical-market operation, does not utilise local suppliers, and does not distribute to third-party stockists on a large scale.

Evolution and changing market

Brand-only stores are often owned and operated by the proprietor of the brand, or they can be operated under license. Before we look at the state of play in 2020 it’s important to recognise and acknowledge a few issues.

Firstly, as markets and industries evolve, the consumer’s perception of products and brands changes, which in turn alters the market via different shopping habits.

Therefore, to develop and collate industry information in a consistent manner, it’s vital to define categories so that the data can be measured and analysed fairly and accurately, allowing meaningful comparisons to be drawn.

In other words, to count something you must first define it.

It should be noted that we did not classify airport stores or shop-in-shop arrangements, such as concessions, as brand-only stores in either the 2010 or 2020 reports. Under the concession model, brands occupy space within a host store like Myer or David Jones, in return for paying a lease and/or a percentage of their sales to the larger store.

Flagship stores

A decade ago we considered that flagship stores were different to brand-only stores in that they were owned and operated by the brand itself, rather than a third party. These outlets usually stock the largest range of the brand’s merchandise and are regarded as a ‘landmark store’ or ‘face’ of the brand.

Flagship stores take their name from a nautical term, referring to the head ship in a fleet of vessels – one determined as the fastest, largest, newest, and most heavily armed, or the best known.

In retailing, flagship stores stand as ideal examples of their featured brand, excelling beyond lesser stores in every way – they have more product, a greater access to brand marketing, occupy more floor space and hold a better position in terms of foot traffic. They are designed to be the very best of what a brand has to offer.

Therefore, flagship stores usually form part of a company’s marketing and advertising budget, which can mean the profitability of the store is less important than its presence within a specific market.

For these reasons, flagship stores are usually not large in number because, by definition, they are designed to be the lead store – the archetype of the company and the brand. By nature, there can only be one or a few leaders. They are also more expensive to operate.

We believed it was appropriate to distinguish between brand-only and flagship stores in 2010. However, after 10 years of evolution in the market, the difference is arguably irrelevant – particularly in the watch sector, which has changed dramatically over the past five years.

Given these changes as well as the closure of many flagship stores (Autore, Briel, Storm, Georgini), Jeweller has determined that the distinction between flagship and brand-only stores is no longer substantially significant for the purposes of a State of the Industry Report.

The flagship category has therefore been discontinued and all flagship stores will be considered brand-only stores, regardless of the commercial nature of the outlet.

Marketing strategy backfire

A decade ago, high-profile watch brands – mainly Swiss – were distributed via a wide wholesale channel to independent stockists/retailers.

Many watch companies began to establish flagship stores as a way to promote the brand, while arguing that the flagship store itself was not a direct competitor to its independent stockists.

However, many jewellers did not agree! While the flagship store strategy can work, especially in jewellery where repeat purchases are common – think charms, for example – it’s more complex for expensive ‘one-off’ purchases, such as luxury watches.

This complexity stems from the fact that successful brands often consider their customer as the end consumer and the ‘bricks-and-mortar’ retailer is simply seen as the delivery method; while the retailer is undoubtedly an integral part of the transaction, they are viewed as a facilitator of the transaction – a conduit  between the brand and the consumer.

With that perception in mind, the brand – justifiably – wants to exert more control over its relationship with the customer. After all, it takes a great deal of time, money and effort marketing and developing a product, and a vital component of the product’s image is the perception of value and prestige.

TABLE 1: BRAND-ONLY STORES 2020

Click chart to view larger version. There are 220 brand-only stores in Australia as at 1 December 2020, across 38 individual brands. This represents a 72 per cent increase in store numbers since 2010 and shows 24 new entrants in the same period. *While Dior operates several boutiques in Australia, only two sell the brand’s watches and jewellery.

Arguably, a $100 watch can tell the time in the same way as a $10,000 watch, so why pay the extra cost?

As a result, the more expensive Swiss watch brands began cultivating the flagship store model, establishing high-profile outlets in premium CBD locations as ‘destination’ stores that complemented their wider distribution to independent stockists.

Yet in some cases the strategy backfired by souring relationships with those retail stockists.

One notable case was the 2010 decision of luxury conglomerate Moët-Hennessy Louis Vuitton (LVMH) to open new Tag Heuer flagship stores in the Melbourne and Sydney CBDs, while simultaneously closing the accounts of neighbouring stockists.

The move was met with howls of protest from retailers who were already worried about losing sales to rival watch and jewellery stores – let alone dealing with direct competition from their own suppliers!

In April of that year, jewellery chain Angus & Coote took a stand. Reacting swiftly, the high-profile jewellery chain withdrew the Tag Heuer brand from all its stores.

Asked at the time whether Tag’s decision would affect the way Angus & Coote would select its watch brands in future, Andrew Nock, then-general manager of merchandising and marketing said, “Yes,” adding, “We see the supply chain as being a partnership; we give respect and we expect respect in return. We want a win-win situation for all involved.”

There was a similar uproar in 2007 when the Swiss watch giant Swatch decided to open an Omega flagship store in Sydney. Although Swatch did not close surrounding Omega accounts, many stockists were up in arms.

It is important to note that, in those days, luxury watch and jewellery brands avoided selling their products online.

With the subsequent change in strategy – and their slow acknowledgement that they would have to embrace e-commerce – they believed that consumers would still visit a destination brand-only store because of their strong connection to the brand itself.

The result is that today, in many cases, the only remaining distribution channel of a luxury watch brand is via a brand- only store – either company-owned or operated under licence.

In the jewellery sector, Pandora offers another case study into the changes in market dynamics. The 2010 State of the Industry Report listed the Danish company with one flagship store owned and operated by Pandora Australia, and 41 brand-only stores – some of which were operated by franchisees, and others by Pandora.

A decade on, Pandora has 123 brand-only stores – which it refers to as ‘Concept Stores’. It recently announced the closure of its original flagship store in the prestigious Pitt Street Mall retail precinct, which it had occupied since 2010.

The company opted not to renew its lease on the premises at the end of September following lengthy discussions with Scentre Group, which is Australia’s largest retail landlord and the operator of Westfield shopping centres.  

New trends

TABLE 2: WATCH BRAND-ONLY STORES 2020

In 2010 there were only six watch companies with brand-only stores, however, a decade on there are 18 operating a total of 79 stores. Some stores are operated by the brand owner, while others are operated under licence from the owner.

It is possible to compare the 2010 and 2020 data by combining the 2010 categories. Excluding Pandora, this shows that 10 years ago there was a total of 20 watch and jewellery brands in the Australian market responsible for 170 flagship and brand-only stores, compared to 38 brands responsible for 220 stores today.

However, as detailed in Jeweller’s State of the Industry Report 2020: Part I, which examined chain stores, Pandora’s business has changed to the extent that we now list its 123 retail outlets as chain stores rather than brand-only sores, in line with teh notion that Pandora is not a vertical-market operation.

That is, Pandora still has a wide wholesale channel to independent stockists – unlike, for example, Tiffany & Co., Cartier, and Georg Jensen, which have vertically-integrated business models.

A vertically-integrated business consolidates multiple steps in the typical distribution process, from manufacturing to consumer purchase. Hence Pandora stores are now classed as a ‘chain’ for the purpose of our 2020 State of the Industry Report.

This means we can compare apples with apples, and observe that there were 128 flagship and brand-only stores in 2010 (excluding Pandora) compared to 220 in 2020.

Further, we can see that five of the 19 brands in 2010 (Autore, Briel, Storm, Georgini and Guess) no longer operate any retail stores today.

Despite this contraction, 24 new brands have entered the market, meaning that there are now 38 watch and jewellery companies operating brand-only stores in Australia.

It should be noted here that the increase in brand-only stores has been driven by a number of internationally-renowned luxury conglomerates such as Moët Hennessy Louis Vuitton (LVMH) and Richemont, which cover a wide range of products, from jewellery and watches to fashion and leather goods, perfumes and cosmetics.

These groups account for many of the new brand-only stores introduced to the Australian market over the past 10 years – including Montblanc, Chaumet, Hublot, Piaget, Van Cleef & Arpels, Jaeger-LeCoultre, and Vacheron Constantin – and increases in the number of existing brand stores, notably Bulgari and Tag Heuer.

International luxury brands such as Chopard and Hèrmes have followed suit.

It is notable that Kennedy Jewellers, which was established in Sydney in 1976, operates 10 boutiques (brand-only stores) for Rolex, IWC Schaffhausen, Jaeger-LeCoultre, Panerai and Graff.

These have been included in this section of the State of the Industry report, consistent with Jeweller’s definition that brand-only stores can be owned and operated by the proprietor of the brand, or under licence by third parties.

Rolex, for example, has two other boutiques in Queensland operated by Langfords Jewellers, while owner Richemont operates a second Jaeger-LeCoultre brand-only store in Melbourne.

The evolution of the watch and jewellery brand mix over the past decade is also interesting. Of the 19 brands in the 2010 report, only six were watches; a decade on, that figure has tripled to 18. And not all are Swiss! Japanese watch brand Seiko selected Australia as an early location for its expansion into brand-only stores.

In March 2016 its first store debuted in Sydney’s Queen Victoria Building and a Melbourne CBD location followed in 2018. Importantly, in December 2019 the company opened a new boutique for its prestige brand, Grand Seiko, at Pitt Street Mall in Sydney.

Today there are 79 brand-only watch stores and, unsurprisingly, 81 per cent of the outlets (64) are in Sydney and Melbourne. Of course, many jewellery brands also offer watches.
 

LUXURY GOODS GROUPS: BRAND OWNERSHIP - Who owns what?

Economists define a luxury good as a product for which demand increases more than proportionally as income rises – the expenditure on a luxury good becomes a greater proportion of overall spending. The international conglomerates cover a wide range of product categories other than watches and jewellery such as fashion, perfumes, cosmetics, eyewear, wines and spirits.  In addition, they continue to expand their businesses via brand extensions, moving an established and well-known brand in one consumer category into another. Think Hermes expanding from luxury leather goods to watches and jewellery, or Montblanc from writing instruments into watches and accessories. The tables below show brand ownership by luxury group:

Ups and downs, like-for-like

TABLE 3: JEWELLERY BRAND-ONLY STORES 2020

There has been a large move by international luxury goods brands to establish outlets in Australia. Of the 38 watch and jewellery brands with brand-only stores in Australia, nearly 40 per cent are owned by LVMH, Richemont, or Kering.

If we analyse the brand-only stores from 2010 to 2020 on a like-for-like basis, we find some interesting results.

Swarovski is the standout performer, having increased its store count by 14, from 32 in 2010 to 46 in 2020. Paspaley doubled it store count, from four to eight – equalling Tiffany & Co.’s local store count.

Tag Heuer also doubled its store count to six, while Bulgari increased its presence in Australia by four stores (from two to six).

Secrets Shhh has had a topsy-turvy decade. The 17-store retailer specialises in cubic zirconia jewellery and was listed in Jeweller’s 2010 report with 18 stores, so it has declined by only one store in 10 years.

However, that’s not the full story.

Jane Meredith, along with friend Dietmar Gorlich, co-founded Secrets Shhh in Noosa, Queensland in 2000. Under a franchise model, it quickly grew to 26 stores across Australia and New Zealand before the 2007–2008 Global Financial Crisis took its toll, as it did on so many retailers.

By 2010, it was down to 18 stores – but more decline was yet to come. In April 2017, the number of Secrets Shhh stores had fallen to only seven – four company-owned and three franchised.

At that point, former Michael Hill International (MHI) CEO Mike Parsell acquired a majority stake in the business and set about reinvigorating the retailer. Parsell was well placed for the task; he had been with MHI for 30 years and was responsible for establishing the New Zealand jewellery chain in Australia in 1987.

In October 2019, Parsell oversaw the opening of the latest Secrets Shhh store at Robina Town Centre on Queensland’s Gold Coast, bringing the total number of outlets to 17 – nine company-owned and eight franchised – which is almost the same level as a decade ago.

Another interesting ‘story’ is that of APM Monaco, a silver jewellery brand with seven Australian stores. It was founded in Monaco in 1982 but is now headquartered in Hong Kong. US-based private equity firm TPG Capital, which focuses on leveraged buyouts and growth capital, acquired a 30 per cent stake in 2019.

Many retailers might recall that Bolt International, the original distributor of the hugely successful Ice-Watch, first introduced the brand to the Australian market in 2012. Its first local brand-only store opened in Sydney in 2016. However, as a wholesale operation, the brand was not successful and distribution was ceased a few years later.

APM Monaco is not the only retail brand that first attempted a comprehensive wholesale distribution in Australia. Danish brand Ole Lynggaard entered the Australian market in 2009 – with much fanfare – as a wholesaler. It established a flagship store in Market Street, Sydney in October 2010 – one of just six worldwide. The others are located in Copenhagen, Stockholm, Singapore and Paris.

The Sydney flagship store is still operating today, and the brand is also stocked by a small number of retailers including Trewarne Jewellery in Melbourne and McKinney’s in Brisbane.

Concluding thoughts

TABLE 4: At a glance - Number of stores

Between 2010 and 2020 Australia saw a dramatic increase in the number of brand-only stores, from 128 to 220.

TABLE 5: At a glance - Number of brands

Of the 19 brands operating brand-only stores in 2010, five closed their outlets, which means there has been 24 new entrants into the market – a 126 per cent increase – over the past decade.

It is clear that the market has changed, with the internationally renowned luxury conglomerates focusing on global expansion as consumers become more ‘brand-centric’ shoppers.

In addition, the line between jewellery/watch companies and fashion companies has continued to blur. That is, increasingly, luxury brands in one category are expanding their product offering into watches and jewellery, thereby making it more difficult to clearly define the brand.

For example, Hèrmes, which has a heritage in leather goods, and Montblanc, which is best known for writing instruments, now have watch and jewellery ranges.

It is called brand extension, and it is nothing new. Indeed, the Australian market already has an interesting story about how a brand extension takes over the original product: JAG watches.

JAG remains one of the most popular brands in Australia and yet it was originally founded as a denim jeans label in the 1970s by Adele Palmer. JAG jeans are said to have gained international recognition when Steve McQueen, Jackie Onassis and Mick Jagger joined the brand’s star- studded following.

In an unusual move back then, the Australian distributor of Sheaffer pens, Izzy Wolfe, approached JAG to launch a new watch range under licence, and the rest is history.

Given the success of the model, it is likely brand extensions will continue and we will see more expansion from luxury brands into non-core product categories.

That said, on a like-for-like basis, there were 128 brand-only stores in 2010 across a total of 19 watch and jewellery brands. A decade later, there has been an increase of 92 brand-only stores (72 per cent), to 220 across 38 brands today.

These figures neatly illustrate the shift from ‘retailer-centric’ to ‘brand-centric’ distribution and marketing – though there is, clearly, still a firm place for independent stockists in the overall strategy.

And, if you consider that five brands in 2010 either exited Australia or closed their retail operation, then there have been 24 new entrants since 2010. That’s an increase of more than 125 per cent!

The numbers indicate that over the past 10 years, international jewellery and watch brands began to appreciate the Australian market and consider it a viable investment, both in terms of cost – establishing one or several flagship store – and time, in the form of forming distribution networks with independent retailers.

2020 State of the Jewellery Industry

» Part 1 – Chain Reaction
The past 10 years has seen significant change in the Australian jewellery landscape – yet analysis of the chain store data shows a number of surprising trends.

» Part 3 - Buying Groups through the Pandemic
Increasing from three buying groups in 2010 to four in 2020, Jeweller provides an in-depth update of Australia's jewellery buying groups over a decade
 

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