From Rolex to Ferrari: The Secret Formula of Luxury

Arun Upneja: Welcome to the Distinguished Podcast. I’m Arun Upneja, Dean of BU School of Hospitality Administration. Thank you for joining us. Here we skip the small talk and get right into the top of mind topics in the world of hospitality, including and certainly not limited to inflation, recruiting, and retaining talent, the need to increase diversity, equity, and inclusion, wellness and well-being of our team and our guests, climate action, and the impact of robotics and AI on the future of hospitality. That’s just to name a few. On this show, you’ll hear from executives, general managers, founders, and investors who live and breathe hospitality. The distinguished guests on this podcast represent all areas of our industry, from hotels and restaurants to entertainment and sporting venues, and of course, our favorite pastime for many of us, shopping. Because to put it simply, hospitality is at play in most parts of our lives and livelihood. You can subscribe to this series wherever you find your favorite podcasts. Thank you for listening. Today, our guest is Ian Carter, Chairman of Watches of Switzerland Group, the world’s leading retailer of luxury watch brands. He’s also the owner and partner of the Exclusive Automotive Group of Washington, DC, dealers of the cars that I want to drive, Aston Martin, Bentley, and Kerma Luxury Vehicles. And very important to us here at Boston University School of Hospitality Administration, Ian is the Chair of our Advisory Board. Welcome, Ian, to the Distinguished podcast.

Ian Carter: Thank you, Arun. Pleasure to be here.

Arun Upneja: First question, and most important, what watch are you wearing right now? What’s the story behind your tries of this watch?

Ian Carter: So today I’m wearing a Audemars Piguet Royal Oak. If you don’t know anything about watches, it’s a chronograph, meaning it’s got lots of little buttons on it and other little dials that tell you how fast you’re going, seconds broken down into tenths of a second. But it’s a mechanical watch. It’s beautifully built. I’ve actually been to Switzerland and see where they’re made. It’s a family-owned business, Audemars, up in the lakes. Interestingly, it has a fabulous hotel there, which the family built. If you look at it online, it’s worth taking a look. It’s the Audemars Piguet Hotel. They also have a museum. But it’s a beautiful representation of technology quality, I would say. And that was the reason I chose the watch.

Arun Upneja: So you want all sorts of data, like a smartwatch, maybe?

Ian Carter: Interestingly, I actually chose to wear an Oura Ring, if you’re familiar with the Oura Ring, which gives me technology and information based upon my quality of sleep, for example, my average heart rate during the day, etc. So it performs many of the similar functions as a smartwatch, or even your iPhone, if you walk with your iPhone, obviously you can measure your steps during the day, etc. But I think what we found in the watch industry, at least, is that there is a desire and need and demand for high-quality, traditional timepieces, and there’s a whole market, which is often overlapping, which is for technology, and they both go hand in hand.

Arun Upneja: So with the Oura Ring and this show watch, the way you describe it, so you can have it both ways. You can have all your data, as well as you can have a nice watch that you’re wearing on your wrist.

Ian Carter: Yeah. I mean, I think so. I think many people treat a traditional timepiece, a high-quality traditional timepiece, as a piece of jewelry. It’s as much a piece of jewelry as it is a piece of equipment to tell the time, and it makes a statement, whatever that statement might be. You know, if you have a Tag Heuer Carrera watch, which has got its origins, you know, relationship with Porsche, that tells you something about the person that wears it, maybe have an interest in motorsport. Or if you have an Omega watch, which was the watch that went to the moon, that tells you a little bit about, you know, the technology that was involved in that time, a mechanical watch with incredible accuracy. So I think, you know, there are occasions where watches for men and women are considered really more a statement and a fashion statement, or a jewelry statement.

Arun Upneja: That’s an excellent way to describe it, Ian, since all watches tell the same time. So I want to move to the retail experience. So I want to walk into a store to buy an expensive watch, maybe, you know, multiple thousands of dollars, 30, 40,000. But I have to stand in line behind 20 people who have no interest in buying anything. Now, our society demands that you treat everyone nicely and fairly. So how do you balance treating everyone fairly with your need to make money as a retailer?

Ian Carter: So it’s a really interesting question, and there are a number of ways to address it, one of which is the technological way, which is that multiple shoppers now of all ages do a lot of research online. So your online presence is hugely important, not just from a purchase decision perspective, but more from a research perspective. So we spent, both in the companies that I’ve been most closely involved with, Burberry, and now with Watches of Switzerland, we spent a lot of money on online presence. As much as anything to allow comparison, to allow real pre-decision making work to be done. There’s a selfishness to that, that allows work that would have been done in the bricks and mortar to be done prior to entering the premises. Secondly, I think what we’ve tried to do, and this is a little bit more difficult, but you try in essence to, as you said, be as welcoming as possible to everyone. And at the same time, try and ensure that you’re getting to everyone that happens to be in the store. Particularly in Watches of Switzerland, we have a whole program which was actually interestingly defined by our relationship in the hospitality industry. We worked actually with Ritz-Carlton in this case to develop a program called Xenia. And Xenia is all about the way our associates interact with customers. And in some parts, it might be as simple as saying, you know, welcome to our store. I’m just busy helping another client at the moment. Please feel free to browse. This is the various areas of the store. If you’re interested, you know, work clockwise and you’ll see what’s available and we’ll get to you, you know, we’ll come back to you as soon as possible. So there’s kind of some training that goes into this as well as the natural instinct to try and want to help everybody. And it’s interesting because what we’ve tried to do in every acquisition we have made, and as you mentioned at the start, we’re the largest retailer in the world that sells luxury timepieces by, you know, a long way, is every acquisition that we’ve made, we’ve tried to make our stores be more welcoming. So we actually want the problem of having people coming in, number one. And number two, we’ve seen this emergence of hospitality being an integral part of a luxury shopping experience. And what I mean by that is if you were to go, for example, since we’re here in the US to our Watches of Switzerland store in Soho or our Watches of Switzerland store at Hudson Yards, we have a bar. We have a coffee bar. We have a full champagne bar. We have, in the case of Soho, a full mixologist working downstairs in our bar. Because what we like to do is have people come in and browse and stay a while, understand the history of watches, understand some of the background of how they’re manufactured. For example, if you take a Patek Philippe watch, which is highly, highly technically put together by craftsmen, it’s a story worth hearing and we want you to linger and understand and talk to our associates. And when we want you to celebrate, if you make a purchase, what better way to celebrate making a purchase of say, for example, a luxury watch than having a coffee or a glass of champagne or whatever it may be with one of your loved ones who happen to be in the store. So it’s not an easy thing to manage, but what we have tried to do through the use of technology is take some of the basic questions that would have occurred in store in the past and make sure they’re workable online before you get in. So that includes much more the use of videos, for example, and actually having influencers talk about our products, so it’s not just us.

Arun Upneja: So I think that’s a very good point. And perhaps you’ll agree with me when I say that luxury watches would not be perhaps an impulse buy, like a piece of cloth or something that you would buy at a Burberry store.

Ian Carter: Yeah, I mean, you know, interestingly, however, Burberry, you know, in luxury you tend to look at average unit value or retail sale value per unit. And, you know, often with luxury manufacturers of clothing and or, you know, small leather goods, there is actually quite a low entry point. You know, you can go into a Gucci store, for example, and buy a key fob or buy a belt. That’s a relatively low AUV value at sale. But then you can work up to a Birkin bag in Hermes and it’ll be $50,000. It’s similar in watches. You know, we have relatively speaking low but high quality entry point product right the way through to $2 million timepieces, you know, from Vacheron Constantin, for example, in some of our stores. So there’s a wide range. Tend not to be impulse, however. You know, they tend to be researched. It is a tactile product. And I say this about most luxury goods, including my time at Burberry you can do an awful lot of work online. But in the end, someone really wants to feel the weight of the timepiece, for example, on the wrist or feel how heavy it is, you know, between their fingers or what the band feels like. And you can’t substitute that. So there is a lot to be said for the in-store experience.

Arun Upneja: Is it also fair to say that people who are just browsing, at some point there might be customers later on, because who wants to go spend an afternoon browsing in a watch store if some part of their mind and their mind is saying, I do want to buy this at some point?

Ian Carter: Absolutely. You know, that’s the really interesting thing about every, I mean, pretty much every luxury product, I think, that’s for sale, you know, in the consumer level. You know, you may not be a customer now, but you may be a customer ten years from now. You know, your social circumstances, your economic circumstances can change over time. You may be intrigued by or really love a particular brand, and you might simply be building towards your dream by going in and looking. And we see that in my car business. You know, we’ll have people that aspire to own an Aston Martin, and, you know, we hope one day that they will, but they may not be for a few years. So, you know, it’s again, what we try to do is treat every customer, every guest at exactly the same level. You know, it’s because you really need to understand that any customer could be a customer now or tomorrow.

Arun Upneja: I want to move to ethical and sustainable way of doing business. That’s a very great societal need. I think everyone has discovered that this is the way we want to live and this is the way we want to do business. But the question for you is how far does responsibility extend for a company such as the Watches of Switzerland, which is not a manufacturing company, but you are a retailer. So how far do you go in the supply chain and the manufacturing chain to make sure that there is ethics and there is a sustainable way of doing business?

Ian Carter: So look, I think in all the case of the manufacturers, I think I’m safe in saying all of them understand the need to be socially responsible from an environment perspective and actually beyond just the environment, but from the way we work, the diversity programs that we have in place, governance generally, the ES energy in ESG. So we work with all of our suppliers to ensure they’re getting the point of sale, direct verbal feedback we get and incorporating that into their thinking. So if customers are telling us this is important, we make sure they know that. And we work with them. I will give you an example, Panerai, which is an Italian-derived watch used by the Navy divers in the Italian Navy. They produce a recycled band and they did that on purpose. And it was part of their ethical thinking. So putting this into categories, we work with all the manufacturers to ensure that we are trying to be as socially responsible as possible because that’s their role and that’s what they are doing. From our perspective, when product is shipped to us, how product is shipped to us, everything we do when we touch the product, we take great responsibility for. So all of our stores, we try and get them what would be called gold certified so that we have low power usage lighting as an example. When we build or rebuild or reorganize a store, we do that to the latest possible standards when we’re adding Airco, for example, Aircon or renewing capital equipment to the latest environmentally certified standards. We try really through our ESG programs, and I think there is no longer a discussion about, you know, should we do, should we do, should we not do? It’s now a question of just how much do we do and how big do we take this within our company. And I think it’s paramount. It’s an integral part of what we do. When I get to the strategy day discussions that we have once a year, it’s an integral part of our discussion, the way we do business.

Arun Upneja: There’s one more aspect to the sustainability, which is the long usage of these watches. So people don’t buy watches and discard them after two years from the luxury watches. But many other watches you go buy in the store, and a year or two later you throw them and buy a new one. So do you see that aspect of luxury watches as a sustainable practice?

Ian Carter: Yeah, I think it’s actually a great point. I mean, watches for life is the way you can look at it. In fact, Patek Philippe, one of the oldest and most respected, you know, fabulous watchmakers, their slogan is effectively, you’re just looking after the watch for the next generation. And I think there’s truth in that because there’s no reason why it wouldn’t last years and years and years and years if you look after it. And I think that’s part of the attraction of owning a traditional timepiece. You know, it can be generational. There’s a whole business developed around pre-owned. We actually own a pre-owned company as well, which we acquired a couple years ago. It’s called Analog Shift, based in New York. And effectively, it’s a circular economy. You know, you can buy a timepiece, sell it back through Analog Shift, and then buy another timepiece and so on so that it constantly has a life as a watch.

Arun Upneja: Since you did talk about resale, I have a question about supply and demand for luxury watches. Today, when I want to buy a watch, a Rolex or a Patek Philippe, there is a waitlist. But at the same time, there is an instant in a highly profitable resale market. So if you sell me a watch at an X point, I can immediately resell it for X plus Y. So is that a missed opportunity, short-term gain? I mean, you could increase your prices to mop up that extra profit that resellers are selling their watch for.

Ian Carter: You know, if you want a watch that’s in short supply or rather high demand, and you want it tomorrow, there’s a potential to buy that. You just pay a premium, like any other product which has a demand that’s outstripped supply. And this is, you know, many industries go through this at different points in time. And, you know, it’s a question of how you want to treat that excess demand versus the supply that you have. We’ve chosen the path which we think is right for the long term, which is that, you know, a retail price is a retail price, and you can trust us that’s what it’s going to be at. There’s no short-term game for us in just inflating prices because demand is high. That said, because, as I mentioned, we recognize that there are people that will want to, you know, have an immediate access to a particular timepiece, and it may not be brand new. You know, it might be a timepiece with history because that appeals to people as well. Then there’s a whole market for that, and it’s the pre-owned market. And, you know, that has kind of flourished. You know, is that great? Is it the long term? Probably not, because demand and supply will come back towards equilibrium at a certain point in time, presumably, you know, as most markets do eventually. But, you know, I always refer to other fabulous luxury brands that are constantly in short supply. Ferrari, you know, where literally you need to go on a waitlist, and if you get on the waitlist, you’re going to have to buy an awful lot of extras to be able to buy a Ferrari on that car. You can’t just buy a basic one. And then Hermes, the Birkin bag, which for years has been very much the most sought after handbag, and is constantly at resale markets for two, three times the original price. And you could argue that that’s actually the mark of true luxury, you know, where demand is always higher than supply. That’s, they got it right, the equation is right. It’s a difficult balance, however, because the third part of the equation is customer satisfaction. If you want something now and you say, it’s going to take two or three years to get it, it’s like, what? I’m not sure I want to wait. So there’s a fine balance in there. We try, I think, on the foundation of integrity, say, look, our retail operation, and Watches of Switzerland at least, is the retail price is the retail price. We can help supply you that, but you may have to wait a while. If it’s a high demand watch.

Arun Upneja: I want to pick up on something that you said, which is that the supply and demand will eventually catch up. But isn’t it true that these companies want to maintain some exclusivity, and if they see that a model is in very high demand, not necessarily they’re going to scale up the production to meet all the demand. They’re going to keep the production constant. So there is some element of yearly sale market.

Ian Carter: I think that’s true. What I meant was in a more general sense, but I think if you go down to model levels, for example, it would be the same in cars. There’s a degree of exclusivity which is evident in wait lists. That’s the point kind of thing. If it was available to everyone, it wouldn’t be as exclusive, even if you can afford to buy whatever the particular product is you’re looking at. So there will always be an element, I think, of demand being a bit higher than supply. But in certain products right now, not just in watches, by the way, but in certain other segments, the demand has become higher than supply because of some really crazy things that happened during the tragedy of COVID, meaning that supply chain was adversely affected. And so whilst demand came back quickly, supply just couldn’t keep up. I think that gap will start to close a little bit over time, whether it’s in cars or timepieces or other particular products. But I think you’re right. Yes, there’s an exclusivity around Ferrari where the gap will always be, there’s going to be more demand than supply, as an example.

Arun Upneja: Do you see any movement towards building smart elements within these traditional luxury watches?

Ian Carter: Yeah, it’s interesting. You might define smart different to me and I might define it different to my daughter. But I would argue that there are some incredible, at the time, innovations that were built in traditional timepieces, where there was alarms built into very thin wristwatches, that kind of thing, a perpetual calendar that’s not just day-date but year, that actually calculates leap years mechanically so you don’t need to change it. Those sorts of things. But I think if you look at it more kind of like on the true technologies I think you’re referring to, which is more like measuring my heartbeat or measuring my steps as well as looking traditional, to an extent that exists now. If you, as an example, look at Tag Heuer, they have watches and timepieces now that a little bit like an Apple watch, you can change the look of the face to the requirement that you might have given a particular occasion. But they’ve also looked very much at their design of the case, physically what it looks like, to look more like a traditional watch and less like what an Apple watch might look like. And introduced, as Apple have done, more interesting strap types, etc. Apple has some kind of partnership with Hermes, for example, where they have the Hermes strapped. So I think those things are kind of naturally evolving. And there’s some overlap for sure. The more technically based luxury Swiss watch manufacturers do have that element of technology built in, in a smart, again, inverted commas, a smart way. One of the beauties of the timepiece is that it can be considered timeless. And that’s one of the beauties of something like a really high quality, high value luxury timepiece is that there is a degree of timelessness to it. And that’s actually what people look for.

Arun Upneja: Ian, for a little fun, we wrap up this edition with a speed round to take you on a few hot topics. The idea is for you to respond with one word to these prompts. Just say the word that comes to mind first.

Queen Elizabeth.

Ooh, superstar.

Ron DeSantis.

Polarizing.

Arun Upneja: The School of Hospitality at Boston University.

Ian Carter: Fabulous.

Arun Upneja: Thank you. That was amazing.

Ian Carter: Thank you.

Arun Upneja: And thank you, everyone, for joining us today. Special thanks to the team who produces this podcast, Mara Littman, Andy Hallock, and the entire team at Boston University School of Hospitality Administration. To keep up with Distinguished podcasts, be sure to subscribe wherever you listen to your favorite podcast. You can also learn more about our undergraduate and graduate programs at Boston University School of Hospitality Administration by visiting bu.edu/hospitality