Summary
The Far East procurement base is hiking prices above inflation and market possibilities of its customers. Streamlining operations is a temporary solution only.
Analysis
Movado Inc., like all watch manufacturers is currently affected by unprecedented increases in input cost.
Components for most of the world's fashion brands (in case of Movado's Hugo Boss, Lacoste and others) are made in the Far East mostly in China. New regulations protecting the environment coupled to much higher miniumum wages affect companies manufacturing and/or marketing watches to a high degree. In some instances costs of components have gone up by more than 50%.
This cost increase leads to a concentration on the side of components manufacturers. Smaller ones and less efficient ones tend even to go out of business. Thereby reducing overall capacity of the industry.
The success of mass-market watch brands depends to a large extent on the access to cheap sourcing of components and finished watches. This is the more important as marketing cost increase as well in the slackening market environment we see in big markets like the US, Germany or the UK.
As the price-advantage of the components side is pulled from under the marketing companies many of them, like Movado, Inc. has just announced, will be called to trim operational expenses in the coming quarters.
The current concentration in the Swiss watch industry is not helping either as many hithereto good sources of components will increasingly manufacture for their fellow group members brands only.
