Since its establishment in 1979, The Hour Glass AGS has transformed from a single store in Singapore’s Lucky Plaza into a distinguished luxury watch retailer with over 60 boutiques across Singapore, Australia, Hong Kong, Japan and beyond. The group is a significant player in the luxury watch market, capitalising on the growing demand for high-end timepieces throughout Southeast Asia and Oceania.
However, the luxe watch retailing business has not always been smooth sailing. The Hour Glass, listed on the Singapore Exchange S68 in 1988, has experienced many ups and downs. Group managing director Michael Tay shares with The Edge Singapore that the recent pandemic was one of the group’s most challenging periods, and overcoming it stands as one of its greatest achievements.
“We made it through the pandemic, which was a defining moment for us. It was also when I took over the sole leadership of the company in April 2020, just when the circuit breaker first started,” says Tay, adding that before April 2020, he shared the group managing director role with his uncle, Kenny Chan, who has since retired. “The pandemic tested the organisation’s limits and how we could adapt to the challenge.”
During the circuit breaker, the group’s physical stores were closed as the government implemented measures to combat the spread of Covid-19 by mandating the temporary closure of all non-essential businesses. Unfortunately, selling watches was classified as non-essential, prompting The Hour Glass to explore alternative ways to engage its consumers.
Tay says: “We were quite fortunate because we started our digitalisation journey early — a few years before Covid-19. We began to work from home and put plans in place.” The group stayed connected with its loyal customers digitally and introduced training sessions for all employees worldwide.
Throughout the pandemic, group revenue and earnings grew consistently. FY2022 saw the highest growth, and that growth trajectory continued into FY2023. The company’s financial year ends in March. “We didn’t have a sales target per se, and we don’t reward general management based on financial objectives,” says Tay, adding that their compensation comes from qualitative objectives instead.
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“We pretty much go into the year not knowing [financial objectives], but having a good and strong sense of where the business will land. We did not anticipate the growth we had during Covid-19, but we were prepared for it and quite fortunate,” adds Tay. The group maintained a strong relationship with its brand partners and customers while beefing up its tech support.
While The Hour Glass navigated through the pandemic and emerged stronger, it faces new challenges today, such as a high interest rate environment and various uncertainties in global markets. In contrast to the growth it enjoyed during the pandemic, the latest FY2024 saw a decline in earnings, albeit with a slight revenue increment. Earnings fell 9% y-o-y to $156.5 million from $172.4 million a year ago, while revenue rose 1% y-o-y to $1.13 billion. Gross margin was 32.2% in FY2024 compared to 33.6% in FY2023.
According to the group, earnings declined due to higher advertising and promotion expenses, higher depreciation expenses, a stronger Singapore dollar and a one-off deferred tax charge of $4.7 million resulting from a legislative change in New Zealand’s government policy regarding tax allowances on buildings.
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Changing times
Tay noticed that the market had started to shift in the last quarter of 2022. In the group’s FY2024 results release, it acknowledged “a significant shift in the global macro landscape during the past year, resulting in the collectable and luxury watch markets finding a new equilibrium”.
Before delving into the changing market conditions, Tay emphasises that he does not typically associate watches with the luxury sector. “I think that watches are objects beyond luxury because of their ephemeral nature. It’s an object that stands the test of time,” he says, adding that it is an industry with its own culture, tradition and history predating luxury goods. “Watches have been around since the beginning of man wanting to control their destiny.”
While market-watchers may view the luxury goods sector as bulletproof, Tay has observed that the collectable industry has seen an overall decline in demand. He also noticed that auction houses have seen a drop in revenue and earnings.
According to EveryWatch, the world’s largest database tracking over four million current and historical watch sales from more than 350 auction houses, over 300 marketplaces and dealers, the secondary watch market experienced a modest dip in the average listing price in July, reflecting subtle shifts in market dynamics. Auction activity has also slowed compared to June, although popular models like the Rolex Cosmograph Daytona and Patek Philippe Nautilus have remained resilient. This is not surprising; as interest rates rose, investible asset classes and asset values, including those in the art and watch markets, have declined.
“The point that we are trying to make is that this equilibrium is the point of time when the froth has been taken out of the market because you don’t have the crazy crypto bros behind pumping up things like meme stocks,” says Tay, while acknowledging that watches were caught up in this turbulent landscape.
With the “froth” settling down now, the market is seeing a sort of normalisation where the premium to retail is not as egregious or excessive. Those who are still in the market are long-time enthusiasts and collectors.
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Interest rates today may have declined slightly, but Tay is not expecting to see a significant difference in the watch market as the rates are still considerably high. It will also take time for people to adjust, as the change in sentiment cascades into the watch market.
Amid this changing landscape, Tay’s objective for the company is to “hold revenue”, as he maintains a “realistic” stance, being aware of the group’s growth during the pandemic. “In every cycle, there is going to be some level of contraction, and in those periods of contraction, the most important objective is to try and stay where you are because that means you’re probably going to be taking market share,” says Tay.
While other organisations may push for growth, Tay is not hoping for anything beyond staying put. “Just by doing that, we are consolidating our position. It’s like kueh lapis, where you bake layer by layer. After that, you will have multiple layers, and our business is just like that — a multi-layered strategy based on a strong foundation,” says Tay.
As of Oct 22, shares of The Hour Glass are trading at $1.69, 3.05% up year-to-date. The group has also been conducting a fair amount of share buybacks, which Tay sees as “a good way to return value to shareholders” and is a programme that shareholders support.
In the future
If The Hour Glass does not have specific sales targets, what is in store for the company?
“We are going to keep doing what we’re doing. We believe that by building the right operating system and properly training our team to provide excellent client care and service, people will keep coming back to us,” says Tay, referring to both the group’s brand partners and customers.
“We are not chasing growth. And this is what most people don’t understand. I can’t tell you where we are going to be in the next five years. I just know that if we do the right things, we will be rewarded with it in the future,” adds Tay.
With geopolitical tensions and high interest rates expected to persist, consumer sentiment in the speciality watch market is likely to be tested for some time. However, the group anticipates maintaining profitability in the upcoming financial year.
For now, The Hour Glass is working on reorganising the group’s retail network. These include consolidating views on how the post-pandemic market will be and how the group can better capitalise on today’s trends. “We will continue to rejig our network by optimising the number of stores and team members in each boutique. We will see several large stores coming up in key markets like Australia and New Zealand,” says Tay.
In August, the group launched its first salon concept store in Tokyo. Tay explains that the group relocated its multi-brand store in the heart of Ginza as it decided to give up the space to build a single-brand Patek Philippe boutique, which the group will still be managing. The salon concept is located in an office building, which offers “a differentiated idea of how to present watches and sell them”.
“So far, it has been very positive,” adds Tay. Singapore, meanwhile, remains a vital market. He cites statistics from the Federation of the Swiss Watch Industry, which reveal that Singapore ranks fifth in terms of Swiss watch exports, following the US, China, Hong Kong and Japan.
“Everybody acknowledges Singapore is an important market,” says Tay, adding that the city-state is strategically positioned to capture demand across Southeast Asia and Australasia.
In addition to the consistently high demand for watches in Singapore, Tay describes the nation as a hub of enthusiasts, noting that those passionate about hobbies like watches will “geek out” and ultimately play a significant role in shaping global taste. To foster this interest, The Hour Glass hosts events like IAMWATCH, which offers lectures and discussions on all things watch-related. This free event is expected to attract a wide range of attendees, from novices to seasoned collectors.
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