Do todays “in demand” micro brand offerings have staying power?

My opinion:  The vast majority micro brands will go out of business

• Due to Instagram and the Pandemic, there's been a massive positive demand shock for luxury watches and anything that people can get their hands on in order to signal wealth and status, resulting in this...

• Traditional luxury producers have not been able to expand production quickly enough to meet that new demand.  As a result, prices have skyrocketed
• High prices induce new entrants into any given industry, unless there are structural barriers to entry - government regulation, patents, network effects, etc.  In the case of manufactured durable consumer goods, there are no structural barriers to entry
• Hence, over time, this will happen...

• As price falls, due to increased quantities supplied, every manufacturer's margins will fall
• Only the largest and most efficient producers will continue to have enough margin to survive / thrive
• Why?  Because, in a manufactured, durable, luxury consumer goods environment, MARKETING SPEND is key.  And marketing spend is a fixed cost.  Fixed costs get allocated across every unit sold.  Thus, if I am Rolex, and I spend $1M on advertising and I sell 1M units per year, my annual advertising cost is $1/unit.  Meanwhile, if I am Kurono, and I spend $1M on advertising and I sell 1,000 units per year, my annual advertising cost is $1,000/unit.  Scale gives a manufacturer of luxury goods incredible advantage over smaller competitors

So, over the coming years, all these little players should go out of business, and only the big, established players with enough scale economies will survive.  But, even these established players will need to retrench.  Their operating costs are skyrocketing.  They're expanding like crazy to try to meet demand, and each marginal unit they build is raising the average cost of production significantly (see Richemont Group's latest earnings statement - I think their operating costs jumped something like 35%!!!).

I just watched the YouTube interview with the talking microphones and Richard from Studio Underdog.  It appears that he isn't a one trick pony.  He is also entertaining the idea of upgrading the movement to something Swiss(I don't know why.  I am a fan of the Seagull ST19 which I believe is a Venus 175).  My bet is on Studio Underdog being around for years to come and even having their own shop and live employees some day.

I figure a few might stay. At least, I hope some of the “resurrected“ brands make it long term (Airain, Excelsior Park, Nivada Grenchen, etc). They are in a great position to offer the watch community what they want. 

For the record, I have only been into watches since 2017 and have no grasp on the economies of scale.  Thanks to @Omeganut for the education posted above as it is helpful.

That said, I believe the well established microbrands with efficient business models have staying power. The ones that do not hold a ton of inventory (Halios, Oak and Oscar, Monta). On the flip side...

I think the larger players in the $500-1000 space (Swatch group companies like Mido, Certina, Rado) are in trouble.  In a lot of instances, when cross-shopping a microbrand vs. lower-end Swatch group watch, I really believe the microbrands tend to offer better quality for the money more times than not.  

Not to mention a major player with staying power like Seiko, also moving upmarket to the $1,000 price point.  Not that the quality has come along with the price hike BUT Seiko do offer a very unique design language that cannot be found anywhere else.

Okay I'm done, thanks for reading if you read this far. I love this discussion.

My guess is that the sale of regular watches will decline fairly quickly. This will surely be bought about by the increasing sales of phones (telling the time and everything else) and smartwatches (telling the time and everything else).

@Omeganut nailed it. I think the ones that have a genuine passion for the craft and offer something unique at a good value will stick around. The rest, not so much. A lot of new money in the industry trying to cash in.

There are brands I’d love to see evolve into something other than Chinese movements (Baltic and Studio Underd0g) as I’ve long since learned my lesson there, but they have a good design aesthetic and the owners seem like genuine watch lovers. Ditto for NH35. Nothing wrong with it, but at this point it’s in every fly by night “micro” kickstarter brand. 

I definitely agree with @Omeganut that we will probably see a lot of the current microbrands vanish as Adam Smith's invisible hand corrects the market. It reminds me of what happened in the comic book industry in the early 1990s when a similar phenomenon occurred. Comics grew massively in the early 1990s and many independent comics and smaller publishers appeared putting out some really different and interesting comics. Then, just as @Omeganut is predicting will happen now, the bubble burst and the market collapsed. DC and Marvel survived just fine. Most of those smaller publishers either went belly up or got swallowed up. There were a few that survived like Image, but DC and Marvel dominate the market even more than they did then.

A comment in another thread on defining a microbrand raises an interesting consideration. We may see some of the current microbrands survive, but will they still be microbrands? I still tend to think of Islander as a microbrand, but the comment specifically referenced Islander and questioned whether it can still be considered a microbrand at all. There are over 100 different Islander reference numbers and a variety of styles and models. When Marc was just offering his "fixed" SKX homages, yes, Islander was definitely a microbrand. It is open to debate where it falls now, but Islander premiered as a brand in 2019. How big will it be in another three years? I think Marc has taken a very smart approach to growing his brand and I do expect Islander to be a brand that survives market corrections and recessions, but I am not sure it will still be a microbrand in a few more years if it even is now.

I think the reality is like any other historic bubble (tulips, railroads, bitcoin, MoonSwatch, etc.) - in the mad rush to get "limited" product, people overpaid by a significant percentage for something that was more pedestrian than the hype would have you believe it to be.

When reality sets in and the demand normalizes, the prices for these "hot" microbrands will likely be discounted from their list - let alone their inflated secondary market prices.

Anyone who purchased the watches because they truly loved the design or bought into the story can still enjoy their watch. However, if they thought they were going to continue to increase in value, that will probably leave them disappointed.

Let's face it - many of these hype watches are only a little better than Aliexpress watches since many of them are made in the same factories. There is nothing special about the Seagull ST1901 or the VK63/64.

If you are buying Kickstarter watches because you want to support independent microbrands and help those enthusiasts make their dream come true - then Bravo to you and all of us who have that intention.

If not, then in the famous words from Edward in Twilight..."Well then, I hope you enjoy disappointment"

I'm going to use the example of niche cars. Remember the PT Cruiser, the Pontiac Aztek, the Chevy SSR, any truly different vehicle that came around and seized the imagination of a small but diehard market segment? What typically happens is very brisk initial sales. But then, as they say, everybody that wanted one already bought one. The niche was fulfilled and the business model is not long term sustainable, at least not for a single model.

Maintaining interest among a niche market is tricky. Lightning strikes once, but few can drum up repeat hits. Plus the timing has to be maintained, the hype machine fed, and most importantly the a positive cash flow sustained. There are just lots of things that can fail, and microbrands, almost by definition, are not diversified or overcapitalized.

But yeah, some will be the fittest that survive, even if this becomes the typical revolutionaries becoming the new establishment. 

I’m just going to say it, plain and simple, no.

1. I don’t think they are massively special, and the marketing is maybe all that is separating these from other brands. This is unpopular, but I’m old enough and ugly enough to stand by my opinion. I actually like a lot of these, but I’m not buying them because I’m either late to the party, or I just have no desire to own a modern curio with bespoke dials but off-the-shelf movements.
2. They cannot compete with volume producers to remain a viable alternative, and so apathy or hate will be generated within the enthusiast market if not readily available. The irony is, the enthusiast market is small but the one you want on-side. What a fickle bunch we all are. I wouldn’t sell to us given the choice.
3. Movements are generic, therefore these are just fancy ”kits”. To be honest, most watches are now, the market is oversaturated and like the 80s, if the bubble bursts these brands will be first against the wall.
4. @Omeganut’s economics covering more eloquently what I want to add.

I will double-down on the parallels I see with the market now, and how I understand the 70s market was. The main difference is that whilst there is no technology to mess with the status quo and the love for a classic watch is probably at an all time high, the market is over-saturated and driven by hype and content. Apathy is the next crisis, if it has not already set it. I couldn’t care less about the next Tudor BB, it seems like it’s all they do. There is little that has grabbed my attention in the last 12 months: Cartier movement within the rotor, Oris 400 series 10 year guarantee, interesting Chinese efforts, Swatch Group allowing Longines a crack-of-the-whip… it’s enough to bore you to tears. Imagine trying to sell people this s***.

1. Prepares intellectual response.
2. Reads posts by @Omeganut, @chronotriggered, et al.
3. Searches instead for an appropriate Simpsons gif that incorporates a sense of completion and Vulcan logic…

Remember when all the microbreweries and micro-distilleries went under... 

Well, many did, many were bought out.  But, many stuck around as small local concerns and changed the adult beverage industry. I don't know that local first is a business model for watches. So, consolidation and conglomeration may be the key to survival as it always has been for the Swiss industry.

I was thinking along much the same lines, some microbrands will die, and others will grow into "established" brands. 

CW has been around since 2005, has an "in-house" movement, sells ~20K watches a year, and is now a sponsor of Everton... but to some is still "just" a microbrand. 

The "hype" brands need to be more than just hype to live, but the hype microbrands are a tiny segment of the microbrand scene.  

Is Habring2 considered a micro-brand? 

Feel like I can perhaps contribute here - I've been a professor of econ for nearly 30 years...  So in my expertise as an economist I'd say...  I don't know...  

But, I suspect it will be like the beer industry - a few large dominant firms/conglomerates that supply most of the market, but many micros that enter and fail on a regular basis.  So I suspect most micros will not stick around for a long time, but there will constantly be new ones giving it a go.  

Given that most micro brands are not investments and we expect heavy depreciation I think this increased variety is a good thing.  I love microbrands that try to carve out something distinctive - I like the passion and the newness, but I also don't expect them to stick around for the long haul...

What's hilarious is that you're actually younger than me!!!

This is a very good point 

“Anyone who purchased the watches because they truly loved the design or bought into the story can still enjoy their watch.”’ If u purchase a watch for the right reasons, you will be happy. It Doesn’t matter if it’s a micro brand or a major…. 

Beer...  I remember doing a case study on beer in b-school.  Back in the day, Coors was WILDLY profitable.  Like, crazy a$$ operating margins.  Unfortunately, leadership there didn't understand the source of their own profitability, and pissed it all away by going national, rather than remaining a regional brand.  Same thing happened to Krispy Kreme Donuts.  Idiots totally destroyed that money machine!

Had all these classmates who wanted to get into the hot, new disruptive companies back then.  Vonage!  Prof showed convincingly that if an industry has barriers to entry, new entrants like Vonage cannot enter.  And, if, out of the blue, a new entrant like Vonage does emerge, then you know to stay the hell away, because barriers to entry have broken down, and with free entry, there are no excess profits to be made!  And, when there are no barriers and no excess profits, if you go into those industries, you actually have to work hard!  You have to be smart!  You have to make things happen!  You have to grind to make a living!!!

And every time I think about industries like beer and the rise of microbrews, this is what comes to my mind...

https://www.youtube.com/watch?v=zLRlY46ttfE

"Dying ain't much of a living, boy."

I was that idiot getting shot by Clint.  I went into all these startups, hoping to "disrupt" established players - I was too thick-skulled to heed the teachings of that prof.  And, well, all my career, I've had to grind!  

Only now, as I'm nearing my fifth decade on this earth have I finally learned the lesson...  find a nice company with a monopoly, and then you can be fat, stupid, and lazy and do nothing all day, and get paid for it!  That's why I have all this free time to post about watches!

Microbrews...  those poor bastards...  working their a$$es off...  dying ain't no way of living.

I think we often miss something about watches. We’re so tied up in what they are to us and what they mean to us, but I think we sometimes forget about others. We forget that, like it or not, some of our feeling towards a watch is based on what others think. 
 

Sure, we buy what we like, but some of what determines that is what others think. I love the look of several Rolex watches, but would I love them so much of others didn’t agree?  Honestly, no. It’s not that I actively seek the approval of others, but the fact that others love a watch has to make it more appealing in some way.

So while I own 1 micro watch and will surely buy more, theres a thing I always wonder.  When I’m old and dying, will the person I try to pass this on to give a sh*t?  Now that’s not nearly the first thing I think about a micro, but I do consider it. And I suspect you’re lying if you say you don’t.
 

So this issue of “staying power” is kind of important. I buy what I like, but there’s an extra implied added value to a watch that people will know. 

Yeah, but here’s the thing. People don’t buy products, they buy stories. Rolex and Omega are who they are because they’ve told the best stories. Yes they make great watches, but so do lots of other companies. 
 

So the challenge for Oris, Longines, and the Chinese isn’t making a more interesting product. Theyre product being boring to you doesn’t matter at all. They just need to tell the right story. And it’s always been that way. 
 

Some companies will innovate, and watches will get better over time. But long term success isn’t determined by innovation and interesting products, it’s determined by who has the best take to tell. 
 

So yeah, few if any of these micros will be able to tell a good enough story to  gain enough popularity to stay relevant. 

Hajime Asaoka’s Kurono Tokyo is independent watchmaking, not a microbrand. It’s more in the tradition of early watchmaking where everything is designed and made in house.  Even ming uses eta trian parts and Marri uses maybe la joux perret.

The term microbrand has sort of diluted the lexicon. 

I would agree that Rolex is the best at telling lies...whoops - I mean myths - ahem stories. The sheep follow the Rolex pied piper down the yellow brick road.

First dive watch - nope

First to reach Everest - nope

First waterproof case - nope

First automatic movement - nope

....

Is there anything Rolex did first except maybe to homage other brands watches and advertise them better?

So - totally agree. Stories and myths sell watches (of course, Rap music and Hip Hop doesn't hurt either).

Just like Apple.  In large they are not a innovative tech company. They are really masters of marketing.  They took technogical advancements that others really created, repackaged, made nice and shiny and effectively executed all 4 P's of marketing.

Watch-buying is not entirely straightforward, so I agree. I’ve said all that before on other threads, and I will also re-stress marketing (which would include heritage, legacy and other emotional blackmail designed to make you hand over your money to a soulless corporate entity). But at the end of the day, x brand makes a watch, it’s got y movement with a random dial, and if you factor in limited availability it‘s either got to be very special to have longevity, or your fanbase is just completely and irrationally fanatical. Factor this up by the number of brands in the market now, the current status quo is unsustainable, and the market will collapse soon if it has not already begun to do so apathetically. It’s the same with watch content - most of it is now so contrived I cannot take it seriously. 

You want watches with stories, go vintage, but take my advice, don’t.

• I've wondered this very thing. I think alot of watch enthusiasts get sucked up in the microbrand world because they offer affordable options and sometimes very unique designs or designs similar to much more expensive brands. I own a few casinos one vintage, a Bulova, a vintage Omega and a Nomos...the rest are micros. I worry about being able to get support or that the brands will even be there in a decade. I think a few micros strive to grow to the point of stable independents. Baltic appears to be on that path for example. I have 2 watches coming this year, one is a Baltic and one is a SE Nomos... But I do look more towards established brands now.. I even look more towards second hand to save some money or find an older model for example. CW is a great example of a micro growing to the stable independent phase. In reality micros are just risky independent brands until they are financially stable,imo

I really hope a lot of them do stick around. Some of those microbands look badass. Folks like me have less choice of timekeeping than others. I can't wear ANY tech on my person when I go into work. So a regular ole watch is my go to. Hell, I have to leave my keyfobs outside so I can go inside. Having more choices for folks like me is a good thing. obviously I'm in the .0000001% of watch buyers, but hey, I still want choices. 😎  I'm a newb watch guy so I need some of those to stick around as I build my collection. 

Well Who ate all the Damn Watermelon?

Studio UnderDog watches are hard to find.  Even on the secondary market.