According to the brothers, a luxury watch is sold at over 10 times its production cost due to the overinflated margins charged by wholesalers, distributors and retailers to pay for expensive advertising campaigns and luxurious stores . The public seems to support the brothers’ premise given that Filippo Loreti’s first collection was the most funded timepiece project in crowdfunding’s history, raising close to $1M.
Digitalization: challenge or enabler?
The road to growth hasn´t been easy for the Jakutis brothers. One of the first challenges they faced was how to setup and finance a high-quality supply chain centered on watch manufacturers, in light of the limited funds at their disposal. Furthermore, customers’ rising demand for faster delivery times, integrated solutions and more options (e.g., of drop-off locations) fueled by the rise of e-commerce and associated digital developments made this endeavor even more complex . In fact, leading players in this space, such as Amazon (now experimenting with drone delivery), keep raising the bar for tech-enabled startups.
Secondly, the brothers had to find ways to provide a high-end online buying experience consistent with a high quality product. This was particularly challenging since the Internet as a distribution channel for high-end watches was still incipient – e.g., in the UK only 3% of watches with price tags above £1 500 were sold online in 2015  – while consumers increasingly demand more customization and transparency, enabled by new technologies . Moreover, watch lovers typically like to try on the time piece before making a final decision , a hurdle that needed to be overcome by improving other aspects of the shopping experience.
In short, digitalization has become of utmost importance for FL since it raised customers’ service level and transparency expectations. Interestingly enough, digitalization was not only a source of challenges for FL’s supply chain but also its main enabler.
Filippo Loreti’s action plan
To maintain low costs while ensuring the customers’ high-quality expectations were met, FL adopted a made-to-order model – a watch is only produced once the customer places an order online. Additionally, consumers receive regular status updates: when the watch is sent to production; when production is finalized and when the watch is shipped. This mechanism relies on high integration with FL’s production partners. In fact, when looking at a watch in FL’s website, consumers can observe the number of people currently looking at that same watch, the last time it was ordered and its expected shipping time. Clients also have the option to choose among different logistics operators with distinct price points and delivery times. All of it seemingly integrated in a single interface to match the audience needs for transparency and choice.
When purchasing a watch, customers also embark on a journey of digital story-telling: they immediately receive an email explaining the mystery behind the fact that each collection is limited to 1,641 units, as well as links to articles explaining the potential return of investing in a high-quality watch. The use of these digital tools aims to recreate the interaction one would have with a watch master at a physical boutique.
Furthermore, besides the short-term oriented measures previously highlighted, given customers’ increasing focus on integrated smart devices, FL has recently launched a crowdfunding campaign to develop a smartwatch, following the lead of both tech players (e.g., Apple) and traditional watch makers (e.g., Tag Heuer).
Given the increasing need to reduce the time-to-market of new products and to provide options to consumers, FL should focus on using 3D Printing to develop prototypes. The technology doesn´t require manufacturers to order parts or tools to build new models and is in fact already in use by 64% of Swiss watchmakers .
Moreover, given the rising focus on transparency highlighted above, FL should be crystal clear about the origin of the components inside its watches, as well as the production / quality standards it follows. Only recently did the company disclose that its watches were manufactured in China .
In the medium-term, FL could also leverage Virtual /Augmented Reality technology so that consumers can see how a given watch will fit in their wrists using the camera on their smartphones (particularly relevant to see how different watch sizes match one’s wrist size).
Nonetheless, the question emerges: can a startup like FL scale by itself and continue to play digital disruption to its advantage in a world of “sharks” both in the watch and in the tech industry? Only time will tell…
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 Tomas Laurinavicius, “How Elon Musk Inspired Brothers Are Disrupting Watch Industry,” Forbes, May 3, 2017, https://www.forbes.com/sites/tomaslaurinavicius/2017/05/03/brothers-disrupting-watch-industry/#251b79b38140, accessed November 2017
 Filippo Loreti, “Our Story,” https://www.filippoloreti.com/shop/our-story, accessed November 2017
 Martin Joerss, Florian Neuhaus and Jurgen Schroder, “How customer demands are reshaping last-mile delivery,” McKinsey & Company, October, 2016, https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/how-customer-demands-are-reshaping-last-mile-delivery, accessed November 2017
 Robin Swithinbank, “High-end watch brands finally embrace the digital market,” Financial Times, November 13, 2015, https://www.ft.com/content/7ffa86f6-6c2d-11e5-8171-ba1968cf791a, accessed November 2017
 Knut Alicke, Daniel Rexhausen, and Andreas Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company, April, 2017, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/supply-chain-4-0-in-consumer-goods, accessed November 2017
 “The Deloitte Swiss Watch Industry Study 2016”, Deloitte, https://www2.deloitte.com/content/dam/Deloitte/de/Documents/consumer-business/CB-The%20Deloitte%20Swiss%20Watch%20Industry%20Study%202016_English.pdf, accessed November 2017
 Filippo Loreti, “How China Became the Home of Watcmaking,” Watchmaker’s journal (blog), October 20, 2017 https://www.filippoloreti.com/shop/journal/article/watch-production-in-china, accessed on November 2017