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Starting a luxury watch business

Business Matters

Manufacturing Meets Logistics in the Watch Business

Australian SME co-founder Wes Knight talks about the learning curve involved in setting up a global watch business.

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Since launching in 2014, the ERROYL brand of affordable luxury watches has seen its market share grow around the world. We talk to co-founder Wes Knight about the learning curve involved in setting up a business that relies on outsourced manufacturing and global shipping solutions. 

 

ERROYL does all its own design and marketing in Australia. But how do you go about manufacturing your watches?

When we launched it was simply not cost effective to produce our collection in Australia. We would have loved to, but the cost base would have killed the business. This meant that we had to identify a manufacturer and source from overseas. 

We would have launched much earlier but we went into painstaking detail to find a manufacturer who could meet the standards we had set for ourselves. With sampling and everything, it’s a process that probably took the best part of a year.  It wasn’t easy either. We went through over 40 companies before we found someone who understood our needs and had the same objectives.

The costs are something that we perhaps did not fully appreciate when we started – there are so many additional cost factors involved in getting a business up and running. Not to mention the factors involved in production and shipping that can cause cost overruns.

That's part of running a business, and it's something any prospective business owner should think of in advance – think of a worse case cost base and then add at least 50% and price your products accordingly.  

Estimating consumer demand can be tricky. What has been your approach to this issue? 

Meeting consumer demand is the hardest part of running a watch business, I would say. Some models you know will be popular given initial feedback. But sometimes sales can surge thanks to an influential review. This can also happen quite sometime after you launch a model, making inventory management even harder. 

For example, our Regent Luna is one of our best selling models. But not from day one. Interest in the model suddenly spiked after a year and we have not been able to meet demand since. Expect the unexpected in business.

The production timeline also represents a major challenge. For watches, it’s approximately three to six months and more often than not closer to six. The business is very capital intensive though, and managing from low margins means that planning six to twelve months ahead is not always feasible. Consequently, sometimes you have to accept you are unable to meet demand. But this entails the risk of damaging your brand and having to forgo the revenue opportunities that small business need in order to continue innovating and creating new products.  

What about markets? Does exporting to a wide range of countries pose a problem? 

Our major markets are in Europe, the US, UK, and Australia. We have sold ERROYL watches to over 50 countries now and have generally only focused our marketing on a small number of countries. Nevertheless, we have hit audiences and markets we never thought possible. For example, although we’ve never targeted it, we are seeing quite a lot of interest from Poland at the moment. 

Exporting from Australia to European markets is a major challenge for our business.  The duties charged on incoming orders often take away our competitive price advantage. We have seen this impact our business in Europe over the past 18 months but we are still seeing steady sales.  Australia is lucky in that it has a trade agreement with the US. Accordingly, orders under $1000 are free of duty on entry. Nevertheless, marketing this has been a challenge since we need to find new ways of selling this angle. Customers always ask themselves what other costs they will incur when the product arrives onshore. 

So do customs issues impact your business?

We have had very few customs issues to date. In a few countries we have had issues with the import of leather straps but that’s about it. Depending on the market, import duties can range from a few percent to 20% plus. Different VAT charges are also applicable. We cover the shipping costs on orders but pass the duty and customs related charges onto our customers. Given that each market has its own complexities, we like to work with DHL.  

Our customers are always conscious of the total cost and often want to know what a watch will the cost when import duty and VAT are added. Since these rates are constantly changing in many markets this can present a challenge. Importing our products into Australia isn’t an issue since DHL manages it all for us. We have very few problems with this side of the business.  

And logistics? How do they play into your business model?

Since we’re based in Australia – for many the other side of the earth – we need to be able to mobilize orders quickly and ensure timely delivery.  DHL gives us the ability to ship from Australia to Europe, the US and South America in four to five working days.  

Our customers expect prompt deliveries, especially since they are used to receiving domestic orders within one to two days. We need to compete with these times and offer a solution that provides confidence and timely delivery. A customer once expressed amazement at receiving their order just a few days after placing it. We had shipped their watch the very same day and they received it on the following Monday.  

One of the key elements an online retailer needs is an end-to-end logistics solution. We have been lucky to work with DHL who have been very supportive and have made both importing and exporting a breeze for us. In fact, they’ve brought Australia a little closer to the rest of the world.

"The best time to plant a tree was 20 years ago. The second best time is now."

Chinese Proverb

2018 © DHL. All rights reserved.

2018 © DHL. All rights reserved.