For the past several years, the Movado Group has been at the center of the storm. Since the arrival of the Apple Watch in April 2015, no segment of the global watch market has been buffeted like the fashion-watch business in the United States. That market is dominated by two giant, publicly traded U.S. watch groups, Fossil Inc., with 17 watch brands, and the Movado Group, with 11. *
"I will tell you that 2014 and 2015 were challenging," Movado Group Inc. (MGI) chairman and CEO Efraim Grinberg told HODINKEE in an interview last September. "They were for the whole industry. It was the combination of the saturation of the fashion-watch industry and the introduction of wearables and connected watches."
The next two years were no picnic either, as the decline of department stores, the rise of e-commerce, reduced mall traffic, the changing tastes of millennials, and a stronger dollar intensified the smartwatch migraine.*
All of that sent MGI into a slump. For calendar 2016, (which MGI reports as fiscal 2017 because its fiscal year ends January 31), net sales dropped 7% to $552.8 million. Net profit was down 23% to $35.1 million.*
When we have to reinvent ourselves, we reinvent ourselves.
Movado Group Chairman & CEO Efraim Grinberg
The next year, sales rose slightly, but MGI fell $15.5 million into the red.*
In 2018, though, MGI came storming back. It reported the best sales and operating profit in its history for FY 2019, ended January 31. Net sales increased 19.7% to $679.6 million. Operating income rose 44% to $62.2 million. And net income soared, propelling the company $61.6 million back into the black.
The group's total U.S. sales, including at its 43 outlet stores, increased 18.3% to $308.4 million. Total international sales increased by 20.8% to $371.1 million.*
So, what happened?*
A lot, MGI executives say. Over the past three years, Grinberg and his team have, in effect, remade the Movado Group. The goal was to refashion it to compete in what Grinberg described in a May 7 letter to MGI shareholders as "a challenging and evolving landscape for both retail in general and the watch category in particular." *
"Our strategic vision," he said, is to become "the leading global omni-channel company in our industry." *
Grinberg is an MGI veteran. Next year marks his 40th year with the firm founded by his father, Gedalio (Gerry) Grinberg, as North American Watch Corp. in 1965. He succeeded his father as CEO in 2001. "Our company has been through numerous challenges throughout its history," he told HODINKEE. "Where we do a good job," he said with smile, "is when we have to reinvent ourselves, we reinvent ourselves."
Here's a look at four factors behind the MGI rebound.
Acquisitions

MVMT has become part of the third pillar of MGI's group.
In the past two years, MGI has made two strategic watch company acquisitions to capture a crucial new audience: millennials. *
In July 2017, it acquired the British ladies' fashion-watch firm Olivia Burton for $79 million. In October 2018, it acquired California-based men's fashion watch firm MVMT for $100 million, plus two future contingent payments that could total another $100 million.*
Both brands were founded by and appeal to millennials, an audience all watch companies are trying to reach. The quartz-analog millennial brands were a bright spot in an otherwise bleak fashion-watch picture.*
The two fast-growing young companies (Olivia Burton was founded in 2011; MVMT in 2013) added a third pillar to MGI's watch business. *
Licensed fashion brands, such as Lacoste and Tommy Hilfiger, are an important part of MGI's business.
The first pillar consists of three wholly owned Swiss-made brands: Movado, Concord, and Ebel. Movado, which competes in the accessible-luxury watch segment, priced from $500 to $2,500, is MGI's best-selling brand. Its top market is the U.S., where it holds the largest market share in its price segment. Concord and Ebel are luxury brands ($1,300 to $10,000) with strengths in the Middle East and Europe, respectively. *
The second pillar consists of MGI's six licensed fashion brands, priced from $75 to $500. They are Coach, which MGI launched in 1999; Tommy Hilfiger (2001); Hugo Boss (2006); Lacoste (2007); Scuderia Ferrari (2013); and Rebecca Minkoff and Uri Minkoff (2017).*
MGI's new pillar is company-owned fashion brands. They made a difference last year. Olivia Burton was on the books for the full FY2019 and MVMT for the fourth quarter. In fiscal 2018, sales in the group's "owned brands category" were flat (down $499,000) at $204.9 million. In fiscal 2019, that category rose 29% to $263.9 million.*
MVMT started with quartz watches (left), but plans to expand into automatic models as well (right).
MVMT (pronounced "movement") contributed to MGI's robust U.S. watch sales last year, which jumped 22.2% to $225.8 million. Movado led the way, with increased sales to chain store customers and a 50% boost in e-commerce sales in the second half of the year, the company said in its 10-K filing with the Securities and Exchange Commission. Licensed-brand sales were flat, reflecting the continuing difficulties of the fashion watch market. (MGI does not break out sales by brand.)
MVMT's strength is clear in MGI's fourth-quarter U.S. sales, which rose 56% over the previous fourth quarter. Without MVMT, sales were up just 8%, the company said. *
While MVMT's fourth-quarter contribution was impressive, MGI noted that it still would have set record sales and operating profit without it. Group sales were up 12.7% for the year, excluding MVMT sales.*
E-commerce

MGI has moved aggressively into e-commerce over the past few years. "Connecting directly with our consumers in the digital world has been a key growth driver in our business," Grinberg said in his May 7 letter.
Historically, MGI's strength was its brick-and-mortar wholesale business. (It accounted for 87% of total sales two years ago.) Grinberg realized that to be an omni-channel player, the group had to go digital.*
At the beginning of last year, MGI created two new positions: a chief digital officer to accelerate the company's transition into a digitally oriented organization, and a vice-president of social media. They are part of what MGI calls its Digital Center of Excellence, charged with developing sophisticated tools for MGI websites. It has a data analytics department and a digital marketing department. "We didn't have that capacity before," Grinberg says. "It's about having a relationship with your consumer and being able to give your consumer what they want to see and know about."*
MVMT co-founder Jake Kassan at Movado's recent summit in Davos, Switzerland.
Indeed, digital competence was one of the reasons for the acquisition of MVMT. MVMT sales grew to $70 million in five years largely due to social media, where it has more than 5 million followers. "MVMT built the business by reaching consumers 100% digitally," Grinberg says. "The acquisition helps to accelerate that for us as a company because it is so digitally native and allows us to get a tremendous amount of synergy in that area."
MGI's digital center also works with the company's retail accounts. "With all of our big customers today, a nice chunk of our business is in their e-commerce. So, we want to help them grow that business," Grinberg says.
MGI does not disclose specific e-commerce sales data. But it is substantial. One clue is that MGI's wholesale sales in FY2019 increased by 9%, but dropped to 78% of total sales, a 9% slip.*
Another clue: the company broke out "direct to consumer" sales for the first time in the 10K report. They amounted to $142.4 million, 21% of total sales. Company stores accounted for $83.7 million of that. The remaining $58.7 came from e-commerce sales, plus consumer repairs.*
International Sales

The biggest factor in the Movado Group comeback has been a striking surge in watch sales overseas, which now exceed U.S. sales for the first time. "We are becoming truly global," Grinberg says. *
Between FY2017 and 2019, international watch sales jumped by 44.3%. Over the same period, U.S. watch sales fell 1%.
That has flipped the company's regional sales ratio. In FY2017, the U.S. accounted for 54% of MGI's total sales, including wholesale and retail sales. Two years on, the U.S. accounts for 45% of MGI global sales versus 55% for international markets.*
Grinberg cites several factors for the international growth. One is a corporate decision to acquire its distributors in overseas markets and set up subsidiaries. MGI now has subsidiaries in 12 foreign countries. *
Hugo Boss watches posted record sales last year (as did Tommy Hilfiger watches).
Another factor is regional strengths within the brand portfolio. In Europe, for example, the licensed brands are stronger than Movado. So, even though their sales were soft in the U.S., the licensed brand division grew by double-digits in FY 2019 thanks to strong overseas sales. Tommy Hilfiger and Hugo Boss watches posted record sales for the year. Lacoste watches sales were up by double-digits. "We have worked very closely with our licensing partners to align our story-telling and marketing efforts to help drive growth, particularly on the international front," Grinberg told shareholders.*
Another key factor in the overseas sales spike is the Olivia Burton acquisition, which pumped up group sales in Great Britain, Burton's strongest market.
While not the hottest brand in the U.S. market, Ebel does well in Europe and the Middle East.
Concord and Ebel also boost overseas sales. Concord is strong in the Middle East; Ebel primarily in Europe, as well as the Middle East.
In Latin America, both Movado and the fashion brands are strong. Movado is the leader in Asia. "Asia is still a small part of our business but we have a significant growth opportunity there," Grinberg says.
Given MGI's plans to roll out MVMT and Olivia Burton internationally, international sales are likely to remain the largest portion of the group's business, Grinberg says.*
Cost-Cutting

Instead of attending Baselworld, Movado Group hosted its own summit in Davos, Switzerland, for the second year.
In 2017, MGI announced it was taking steps "to reduce costs and improve profitability." It consolidated operations and reduced the workforce at its U.S. and Swiss operations. Among those let go was Ricardo Quintero, MGI president, who joined the firm in 2014. The savings were designed to save $12 million in FY 2018 and $15 million annually in succeeding years, the company said.
It also decided to leave Baselworld, the costly annual watch show in Switzerland. It did so, it explained in a statement, "in light of the changing retail landscape and the growing importance of digital marketing and online sales."
Instead, for the past two years, MGI has hosted a Movado Group Summit in Davos, Switzerland, immediately prior to Baselworld. The event brings together key customers and distributors with top MGI executives for product, strategy and marketing meetings, seminars, and some recreation in one of the world's most famous resorts. It also includes an appearance by a prominent keynote speaker: former British Prime Minister Tony Blair in 2018; British human rights lawyer Amal Clooney this year.*
The summit offered retailers and press opportunities to see the new products and meet with brand executives in a less chaotic atmosphere.
Three hundred people attended the first summit; this year attendance rose to 500 from 40 countries. "We were thrilled with the results," Grinberg said in a statement after this year's summit. Plans for next year's event will be announced this summer.
The Davos Summit is cheap compared to what MGI spent to exhibit at Baselworld. The cost for the Davos event is roughly $2 million versus around $10 million for Baselworld, Grinberg told HODINKEE at this year's summit. "That's a significant investment of funds that can be used on other initiatives. It's not a savings because we don't save that money. We reinvest it in what I call consumer-facing initiatives. And so we increased our marketing across the brand portfolio last year."*
Smartwatch Smarts?

Movado Connect is the brand's smartwatch platform.
One could also add to the list of comeback factors something that the Movado Group didn't do in the face of the Apple invasion. Unlike the Fossil Group, the Movado Group opted not to compete head-on with the $200-plus billion Goliath. **
Fossil, six times the size of the Movado Group in 2014, decided to protect its turf, and battle Apple for the smartwatch market. It bought Fitbit, retooled the company, developed a new strategic plan called New World Fossil, and introduced smartwatches across its brand portfolio.*
From a technology point of view, do you want to compete with Apple? But from a design standpoint, I think we can.
Efraim Grinberg
Grinberg flirted with smartwatches, but decided to stay out of Apple's way. He explained the strategy to HODINKEE last September. "We're going to make some smartwatches where technology allows us to make a beautiful product. But from a technology point of view, do you want to compete with Apple? But from a design standpoint, I think we can. Because everybody walking around wearing the same watch isn't exactly what I think people want."
In 2017, Movado introduced Movado Connect, the brand's first smartwatch. Priced at $475, it was powered by Android Wear 2.0 and featured five customizable versions of Movado's famous one dot/two hands Museum dial. Tommy Hilfiger and Hugo Boss also have a few smartwatches.
This summer, MGI will introduce Movado Connect 2.0, its second-generation smartwatch with increased functions, including heart rate monitoring. It will come in two sizes with hundreds of customizable dials and interchangeable straps.
While smartwatches will play a part in MGI's future, analog quartz watches will continue to be the groupís important product.
But Movado Connect "is not done to compete with Apple," Grinberg said. "It's done from a product design point of view, It's about the dials. We're the only ones that can give you a Museum dial in a smartwatch. It's more about the design than the functionality. It's niche: A few products, highly focused. It's not done to compete with Apple." ***
So far, Grinberg made the better bet on smartwatches. In the last four years, Fossil Group net sales have dropped by nearly $1 billion, from $3.51 billion in 2014 to $2.54 billion in 2018. Net losses in the last two years have totaled $481.7 million. Fossil executives acknowledge that smartwatches are a major reason for the decline. "We didn't have the technological capabilities to compete with smartwatches, leading to a decline in our market," Fossil CEO Kosta Kartsotis said in 2017.
Movado Group sales have grown by $93 million over the same period and the company is profitable. It told financial analysts it forecasts net sales to grow 10% this year to $750 million to $765 million, with net profits of between $64 million to $66.4 million. *


More...