Changing tides of time
Manama, August 21, 2014
by Jennifer Gnana
While Middle Eastern investment banks and sovereign wealth funds have bought up shares in luxury brands such Louis Vuitton, Valentino and Versace, others are approaching regional investors to offer stakes.
Italian fashion designer Roberto Cavalli was rumoured to have approached Bahrain-based Investcorp to buy a stake in his high-profile brand in May.
While brands such as Versace play into the hands of rich Gulf investors as trophy assets, an equity stake in a luxury brand remains out of reach for most investors. The 230-year old Swiss watchmaker DuBois et fils, on the other hand, has taken an unconventional method to raise capital.
In 2012, the luxury brand, which calls itself the “oldest Swiss watch factory”, turned to crowdfunding to raise capital, enabling true watch lovers to become part owners of the company.
Crowdfunding refers to the use of small amounts of capital from a large number of individuals - who don’t have to be high net worth individuals - to finance a new business venture through social media, for instance. This financing option has been made popular through online platforms such as US-based Kickstarter.
The exercise, very unusual in the conservative Swiss watchmaking business, surprised the traditionalist industry.
Nevertheless, DuBois et fils managed to raise $1.7 million from 600 shareholders, spread across 21 countries over a five-month period. Nearly 90 per cent of the investors were from Europe, but now the firm is looking to draw in savvy investors from the Gulf region by offering up shares.
“The Middle East is an important market for us,” says DuBois et fils chief executive Thomas Steinemann. “We say ‘luxury for the future is limited access’ and to be one of the few is very important. Limited edition products are very popular in the Middle East.
“The interesting thing as well is that more than 10 per cent of our shareholder group are women, which is a big surprise for us. Normally the luxury watch business is dominated by men. These are gents toys. It’s fascinating to see how different the shareholder group is,” he explains.
Steinemann, who has previously been involved with relaunching the US Fossil brand, acquired the heritage Swiss brand from the DuBois family in 2010. The family, which established the watchmaking business in 1785, specialised in creating pocket watches and remained successful through the 1900s.
However, in the 1970s and 80s the watchmaker, along with its Swiss contemporaries, faced a crisis that rocked the foundations of the entire industry. Japanese watch company Seiko had launched the world’s first quartz watch on 25 December 1969, challenging the dominance of Swiss mechanical watches. While Swiss manufacturers such as Swatch embraced change by opting to sell quartz models, other firms remained rooted to their traditional craftsmanship.
Noticing a need for change and the potential it held, Steinemann took it upon himself to revive the DuBois brand.
Such a relaunch is capital intensive, however. The successful crowdfunding raised the required capital, and the ongoing share offering is expected to increase the financial strength of the company, he says.
“To re-launch a luxury Swiss watch brand, you need to have a long view, that it will take seven to 10 years to pay dividends and start to trade with the shares,” says Steinemann.
In the meantime, all shareholders have the opportunity to immediately cash in on their ownership of the watch company.
“The shareholders get one to three vouchers, which enables them to buy one of our watches with a 50 per cent discount,” he adds. “Now you need to be aware that the average price point is around $10,000 and all our watches are limited edition to 99 pieces.
“So if somebody invested, for example 1,000 Swiss Francs, they would receive two vouchers with a 50 per cent discount, which means that finally if someone used a voucher, they would get a return on investment of $5,000. That was the advantage of it because it gave the shareholder an immediate return on investment.”
This innovative business plan also proved to be an effective marketing tool. DuBois et fils shuns celebrity endorsements and Steinemann makes it clear that his company is “not a brand that is doing billboards everywhere”.
His stakeholders double up as brand ambassadors, he says.
“We really have a lot of stories to tell. We are the oldest Swiss wrist watch factory but also one of the most innovative - not product wise, but in everything else we are doing, such as how we are going into the market,” Steinemann explains.
“Until today more than 300 of our shareholders have bought the watch. There are 300 people with our watches on the wrist and they are showing the watch to everybody, and they are talking like owners of the company, talking well about the brand and the company.”
DuBois et fils, which has also embraced online distribution, is in discussion with retailers in the Middle East.
“A lot of the luxury business will move from the retail to online and I think that is the big danger for the retail in future, and how you handle this,” says the chief executive.
“That’s why we have developed a system where we can integrate retailing and online, because online is the future.”
DuBois et fils is confident of becoming cash positive in “2016 or 2017”, according to Steinemann, on the basis of its five year budget, powered in part by the immediate sales from watch vouchers given to investors.
Borrowing restrictions by European banks following the financial crisis of 2008, was one of the reasons behind DuBois et fils opting for an offbeat financing option, and one Steinemann adds he is keen to tap again.
“First of all it is our target to increase our shareholder numbers and get close to 1,000 shareholders and see how this works worldwide, and how we can connect people worldwide,” he says. “If we want to build up our own small factory building, then we need to do another share capital increase within the next 12 months.”
Interestingly, DuBois et fils lists its consumer target as a clientele “interested in politics and economy” and “not impressed by status symbols”.
When pressed, Steinemann adds that the targets reflected the brand’s current campaign, titled ’Nomads of Time’.
“The customer is the modern nomad of time who is travelling with his mobile phone or tablet or his computer,” he explains. “So he is not interested in status symbols and he is also looking for new places and new products, and that’s why we say that our customer is understated and looking more for products, which are unique and not mainstream.” – TradeArabia News Service
This feature appeared in the August 2014 issue of The Gulf.