Your thoughts on Grand Seiko's choice to move upmarket?

kromozome

I suspect most of us Grand Seiko fans bought our first GS watches after learning about the quality and history of the brand and then comparing them to comparably priced offerings from Breitling, Omega and Tudor. My 3 GS models came in at 3k, 5.8k and 6.8k list and I don't think there are better watches out there dollar for dollar. In the past year GS has promoted their Evolution line with improved movements and new cases, but these new models are now squarely pushing into the 8-12k range. This now competes at a different level which includes Rolex, JLC, Glashutte and IWC, and to my mind, changes the value proposition somewhat. I am not saying the new range of GS offerings is not worth their asking price, because I think they are. It's just that the alternative options are starting to become equally appealing. Do you think GS will be able to compete in this new price echelon? They've clearly done amazingly well growth-wise year over year, but they're entering a different league now. What are your thoughts?

#object #grandseiko
Reply
Mr.Dee.Bater
·

I always end up running out of space!  (Response 1 of 2)

When it comes to Grand Seiko's price increases, I think there are a number of fascinating things to consider:

  • Grand Seiko was primarily focused on the Japanese market since its relaunch in 1988 - which  is right around when Japan's Nominal GDP effectively stopped growing.  For 3 decades (and growing), Japan has experienced, effectively ZERO economic growth!!!  Not exactly the most auspicious time for you to relaunch your luxury brand!  When your economy stagnates, not many people are all that excited about spending thousands upon thousands of dollars on luxury goods
  • Grand Seiko didn't start selling in the U.S. until 2010, at which point the U.S. was still mired in "The Great Recession."  Again, not the best time to introduce a luxury brand into the American market.  Tens of millions of middle class Americans have lost their homes, and the equity markets have all collapsed!  
  • With that economic context, hard to imagine that Grand Seiko imagined that they had much in the way of pricing power.  So, GS watches didn't command a very high price
  • Starting in 2016, the U.S. economy begins to pick up steam, the equity markets begin to recover, and GS starts to wake up to the fact that they need a U.S. specific strategy.  Now check out this chart:
Image
  • They went from 24th in revenue in the U.S. to 5th, from 2016 to 2020.  (The pie chart leaves out Rolex at #1 otherwise Rolex would have dominated the entire graphic.)  GS positively ate up market share and leapfrogged big name Swiss brands who had been established players long before GS came along
Mr.Dee.Bater
·

(Response 2 of 2)

  • They did this by severely under-pricing their watches relative to competitors.  Here's a simple heuristic by which to understand how under-pricing or over-pricing affects market share:
Image
  • So, while the new Evolution 9 watches are now solidly in the $8k - $12k range, the question is, "Do these watches still reside in the lower right part of the graph, or do these new watches sit in upper left?"
  • When I got my SLGH005, the wait list was 6 months.  When I got my SLGA007, they'd already sold out after 1 day - meaning every single one of the 2,021 pieces had already been reserved and sold before they ever arrived at any boutiques or ADs
  • What this seems to indicate is that demand continues to outstrip supply, even at these much higher prices.  Which would seem to indicate that even these new higher priced watches continue to occupy the lower right of the graph
  • The President of Seiko, Akio Naito, was formerly the CEO of Grand Seiko USA - meaning he was so successful, and generated so much revenue and profit for Seiko, through his strategy running Grand Seiko USA, they went ahead and made him president of the parent company!

I used to be a Swiss watch fanboy.  Breitling, Porsche Design, Rolex, and Omega.  I ain't buying another Swiss watch moving forward.  It's all Seiko and Grand Seiko for me, from now on.  Seiko watches are, with regard to my preferences, very far on the X-axis, very low on the Y-axis; whereas, in comparison, Swiss watches are very low in terms of that quality / price ratio.

kromozome
·
Mr.Dee.Bater

(Response 2 of 2)

  • They did this by severely under-pricing their watches relative to competitors.  Here's a simple heuristic by which to understand how under-pricing or over-pricing affects market share:
Image
  • So, while the new Evolution 9 watches are now solidly in the $8k - $12k range, the question is, "Do these watches still reside in the lower right part of the graph, or do these new watches sit in upper left?"
  • When I got my SLGH005, the wait list was 6 months.  When I got my SLGA007, they'd already sold out after 1 day - meaning every single one of the 2,021 pieces had already been reserved and sold before they ever arrived at any boutiques or ADs
  • What this seems to indicate is that demand continues to outstrip supply, even at these much higher prices.  Which would seem to indicate that even these new higher priced watches continue to occupy the lower right of the graph
  • The President of Seiko, Akio Naito, was formerly the CEO of Grand Seiko USA - meaning he was so successful, and generated so much revenue and profit for Seiko, through his strategy running Grand Seiko USA, they went ahead and made him president of the parent company!

I used to be a Swiss watch fanboy.  Breitling, Porsche Design, Rolex, and Omega.  I ain't buying another Swiss watch moving forward.  It's all Seiko and Grand Seiko for me, from now on.  Seiko watches are, with regard to my preferences, very far on the X-axis, very low on the Y-axis; whereas, in comparison, Swiss watches are very low in terms of that quality / price ratio.

That's a really great analysis Omeganaut! I guess you're exactly right that it doesn't matter what either of us think about their pricing strategy, the marker is going to decide and apparently it's making it pretty clear it can eat up that price hike and not bat an eyelid. I think GS has done such a good job building and satisfying its market audience that its customers are willing to go along for the ride at a higher price point. 

Aurelian
·
Mr.Dee.Bater

I always end up running out of space!  (Response 1 of 2)

When it comes to Grand Seiko's price increases, I think there are a number of fascinating things to consider:

  • Grand Seiko was primarily focused on the Japanese market since its relaunch in 1988 - which  is right around when Japan's Nominal GDP effectively stopped growing.  For 3 decades (and growing), Japan has experienced, effectively ZERO economic growth!!!  Not exactly the most auspicious time for you to relaunch your luxury brand!  When your economy stagnates, not many people are all that excited about spending thousands upon thousands of dollars on luxury goods
  • Grand Seiko didn't start selling in the U.S. until 2010, at which point the U.S. was still mired in "The Great Recession."  Again, not the best time to introduce a luxury brand into the American market.  Tens of millions of middle class Americans have lost their homes, and the equity markets have all collapsed!  
  • With that economic context, hard to imagine that Grand Seiko imagined that they had much in the way of pricing power.  So, GS watches didn't command a very high price
  • Starting in 2016, the U.S. economy begins to pick up steam, the equity markets begin to recover, and GS starts to wake up to the fact that they need a U.S. specific strategy.  Now check out this chart:
Image
  • They went from 24th in revenue in the U.S. to 5th, from 2016 to 2020.  (The pie chart leaves out Rolex at #1 otherwise Rolex would have dominated the entire graphic.)  GS positively ate up market share and leapfrogged big name Swiss brands who had been established players long before GS came along

Look at you with your fancy facts and charts.

Kharisds
·
Mr.Dee.Bater

(Response 2 of 2)

  • They did this by severely under-pricing their watches relative to competitors.  Here's a simple heuristic by which to understand how under-pricing or over-pricing affects market share:
Image
  • So, while the new Evolution 9 watches are now solidly in the $8k - $12k range, the question is, "Do these watches still reside in the lower right part of the graph, or do these new watches sit in upper left?"
  • When I got my SLGH005, the wait list was 6 months.  When I got my SLGA007, they'd already sold out after 1 day - meaning every single one of the 2,021 pieces had already been reserved and sold before they ever arrived at any boutiques or ADs
  • What this seems to indicate is that demand continues to outstrip supply, even at these much higher prices.  Which would seem to indicate that even these new higher priced watches continue to occupy the lower right of the graph
  • The President of Seiko, Akio Naito, was formerly the CEO of Grand Seiko USA - meaning he was so successful, and generated so much revenue and profit for Seiko, through his strategy running Grand Seiko USA, they went ahead and made him president of the parent company!

I used to be a Swiss watch fanboy.  Breitling, Porsche Design, Rolex, and Omega.  I ain't buying another Swiss watch moving forward.  It's all Seiko and Grand Seiko for me, from now on.  Seiko watches are, with regard to my preferences, very far on the X-axis, very low on the Y-axis; whereas, in comparison, Swiss watches are very low in terms of that quality / price ratio.

wonderful analysis with facts Omeganaut! I believe GS is still the best bang for the buck, something about it just have a shine. Waiting for the day that I can purchase one for myself!

hbein2022
·

If one takes a look at the JDM Seikos, you can easily find regular Seikos in the $1k to $2k price range, and they are being bought at that price. These are certainly upgrades, from the strap, the finishing, to the movements. Seiko has not quite that been successful with the Prospex and Astron lines in other countries.

To me this is truly product positioning, meaning that the GS label may become more exclusive, but the watches offered may not change all that much, meaning that Seiko is trying to perform an uplift of their base brand. Will be interesting to see how that works out.