Hour Glass Ltd (SGX: AGS) recently released its annual report for the year ended 31 March 2019. The luxury watch retailer had a remarkable 12 months with revenue growing 4% and net profit after tax rising 41%. The group also ended the year with a net cash position of S$166 million.
With another solid year behind it, here are three insightful quotes from Hour Glass’ Chairman Dr Henry Tay’s letter to shareholders.
No. 1: Asian demand will drive growth
“Looking forward, whilst we expect continuing geo-political tensions and volatile stock markets, and so anticipate an overall deceleration in the growth of Swiss watch exports to approximately 3% for 2019, all major watch producers realise that Asian demand will remain the key driver of growth for the next decade and beyond. In response, they are deliberately channelling merchandise to the countries where true demand originates. Where we sit, so long as we continue to collaborate with the right partners, we are cautiously optimistic the ensuing years will bode well for the Group.”
Swiss watch exports continued its recovery in 2018, expanding 6.3% in 2018 to reach CHF21.2 billion. Hour Glass, with its network of shops in South East Asia, North Asia, and Australia, can continue to ride on the industry tailwinds as demand picks up in Asia.
No. 2: Customers still want to shop in physical stores
“In a recent survey on digital shopping behaviour conducted by McKinsey, it was reported that whilst 54% of the respondents based their purchasing decisions on peer reviews with a similar number saying that e-commerce sites aided in research of product facts, these factors alone were insufficient motivation for them to go the last mile and close the transaction online. What was most surprising is that 90% of all respondents stated that they considered the in-store, in-person experience still the most critical source of influence when making purchasing decisions. In other words, what customers desire is information online and shopping offline. This fact is evidenced by the recent news of the world’s largest online watch resource Hodinkee announcing its entry into traditional bricks and mortar retailing. It demonstrates that even with the largest and most captive watch audience in the world, there is a cap to the potential of pure-play e-commerce, and growing beyond a niche requires a physical space.”
While Dr Tay did note that today, around 10% of the US$400 billion luxury goods market is through e-commerce, there is still a cap to the potential of pure-play e-commerce. This is perhaps more so for luxury products, where consumers still want an in-store, in-person experience when making critical purchasing decisions. This consumer behaviour could be the reason why Hour Glass has held up so well despite the proliferation of e-commerce around the world.
No. 3: Luxury, expertise, and “watch culture” are valuable
“Underlining our view that retail is still important, the value we can add as a specialist luxury watch retailer is our expertise and ability to create physical environments where consumers can engage with a human being. We seek to contextualise the wristwatch across different universes and hence, have developed differentiated retail experiences with our thematic salons. At The Hour Glass, we advance watch culture by building communities, empowering their constituents with the sharing of specialist knowledge and at the same time, engaging them with tailored experiences that enrich their lives with passion.”
Industry observers may have noticed that a few luxury watch brands are choosing to migrate from multi-brand retailers to pursue sales exclusively in their own contained brand environment or focus on the strongest regional multibrand retail partners. However, Dr Tay does not think watch retailers will fall victim to disintermediation. Major brands such as Patek Philippe, Rolex, and Hublot still remain firmly committed to the wholesale distribution model.
Even the world’s largest luxury brands realise watches are different from other luxury products like bags and clothing. Brands like Chanel and Hermes, which have the financial muscle to open their own watch boutiques, are choosing to distribute their watches through third-party distribution networks. Hour Glass has recognised this and intends to make use of its reputation as a specialised luxury watch retailer to add value to customers and continue its partnerships with the world’s top luxury watch brands.
Dr Tay added:
“We view our single biggest weapon against any future channel threat to be our army of watch specialists and have continued to invest extensively in the area of qualitative learning and development.”
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns shares in Hour Glass Ltd.