Morgan Stanley report heavily criticizes Omega's bloated SKUs and inventory

Riviera Paradise · Dec 25, 2018

ABTW / Ariel just posted a good article, commenting on a recent Morgan Stanely report on the Swiss Luxury watch industry:

https://www.ablogtowatch.com/ablogt...ch-industrys-biggest-problems-in-2019-beyond/

Swatch and Omega take a battering, being criticized for having too many SKUs and too much inventory...not exactly a huge surprise for the OF members.😗.

50% of Swatch sales and profit in 2018 were based on sales to Chinese nationals and this market is now starting to slow down again. Morgan downgrades Swatch stock to underweight. There are some interesting figures in the original report which you can download via link provided in the ABTW article.

I do think Omega's product development seems to be more on point now (eg. new SM300 Pro diver product a big hit), but they will clearly have a tough time changing their supply chain strategy moving forward. I am not at all sure that their current senior management will really want to tackle the supply chain elephant in the room, but perhaps with Morgan's rather damning report they might be spurred into action😀

Archer · Dec 26, 2018

Riviera Paradise
I am not at all sure that their current senior management will really want to tackle the supply chain elephant in the room, but perhaps with Morgan's rather damning report they might be spurred into action😀

When you start running your business based on what will make stock market analysts happy, that's a very bad sign IMO.

I didn't read the report directly, but looked at the ABTW article. I have to say whoever came up with that Bullwhip illustration is completely out to lunch. No manufacturer I know would make 100 of something when the order was only 50. The pricing of something is based on an order quantity, so indirect costs are spread over a particular volume - lower the volume the higher the unit cost to the customer, so I don't buy this theory at all. When someone orders 50 of something you start making 50 + enough to cover the defect rate. The only way you start making 100 is if you have a horrendous defect rate.

No one wants to be stuck carrying inventory, so to suggest that every level is padding their orders or production seems quite a stretch.

Riviera Paradise · Dec 26, 2018

Agreed Al, that Bullwhip image did seem a bit OTT, but clearly Omega & Longines have very poor adjustment (intentionally or not) between supply and demand, with 720 days of finished goods inventory. I found the report to be better than the article.