BRAND IDENTITY: Thomas Baillod’s distribution revolution

With Swiss watchmaking running through his veins, Thomas Baillod is better placed than most to talk about the sector’s strengths and weaknesses. After serving his time at multiple Swiss high-end watch brands, Baillod decided that enough was enough. Deciding that the whole business model of watch distribution needed a reboot, what started as an attempt to educate the industry turned into launching his own brand. He spoke with Watch Insider’s Daniel Malins about how this came about and what he’s learnt since its inception.

Watch Insider: Can you give a bit of background about the original vision of BA111OD and why you launched it, and then how it looks today and how it’s changed?

Thomas Baillod: We’re close to seven years now since effectively launching the brand, so it’s probably 10 years since I started to think about it. The more time passes, the more I understand the reason why I did it. The original idea was not to launch a brand at all. I had been fired from my last position as the vice president of Louis Erard. I had to basically apply for a new job, but with zero motivation. To start everything again, go for a new brand, say to everyone that this is the best brand in the world, and try to do the good old job that I didn’t believe was effective anymore. 

See, distribution and selling the product, which is my job, had gone through a major shift in the 2000s and through the digital age. You, from the press, understand it even better than anyone because it has completely changed the panorama of media, but distribution used to be and still remains the good old linear process it was thousands of years ago. The way we were selling products didn’t fundamentally change, and that business model was, for me, outdated. And I could say it because I knew it, I was a specialist of sales. 

I acknowledge that regular physical traditional distribution had changed and that the new business model supposedly replacing it was e-commerce. That little ‘E’ in front of commerce was just raising the shop online, which is the equivalent in digital marketing of putting a banner on the screen. It’s not just about the banner that was on a newspaper and was now on a screen. It’s not about putting a store online instead of a physical place. I saw the limit of commerce, I saw the limit of e-commerce, and I thought it was interesting to promote and think of a new business model, which would become a ‘phygital’ approach between physical and digital. I was honestly the first one to speak about phygital in 2016 in the watch industry, and I renamed it as ‘we-commerce’ — the ‘W’ in front of e-commerce represents a community approach. I was lecturing this in many universities in Switzerland, France, Italy, and in my own academy, and training hundreds of executives from the watch industry or people launching their watch brand how to actually sell a watch.

Why did I think that things had changed? I believed in the necessary reform of distribution in the light of the digital impact on distribution. And I believed that e-commerce wasn’t the answer. So I preached for a new approach, a digital approach. And as you say in English: “Talk the talk, walk the walk.” At some point, having told others that I had a new revolutionary way that could rethink the whole business model and allow it to bring extremely aggressive prices, people said: “Why don’t you do it?”

And ultimately, Daniel, in 2016, there was a crisis that started in 2014 in the watch industry. We would see year by year decrease in quantities. And that’s exactly what happened in the 70s and 80s with the quartz crisis. We were facing exactly the same dilemma of losing quantities. Even though sales were increasing, they were fewer and much more expensive. So basically, one day we’ll end up selling just one watch at $30 billion!

I’m from ‘watch valley’ [the Swiss Jura Arc] and the problem is I see all my friends losing their job because it’s exactly what happened in the 70s and 80s. Production is decreasing — we lost half of our production in 10 years. So how do you solve this and how do you do the same miracle as [Nick] Hayek did? In the 70s, it was by rethinking the way you produce a watch. I was preaching for a new approach, which was not about production, but about distribution. It’s not about the taxi, it’s about Uber. It’s not about the hotel anymore, it’s about Airbnb. The ecosystem is the new grail, the new key that you have to rethink. To summarise all this, I was preaching that today innovation in the watch industry should not be in the product, but in the way we sell it. Why? Because the watch itself counts for 10%–15% of the price you pay.

That’s the crude reality. The distribution accounts for 65%. That was my job. So why should you innovate in terms of pricing or insult the suppliers by lowering the prices or put more pressure on consumers by making it more and more expensive when this is just 15% of your problem. Why is the 65% of the price you pay being untapped, which is distribution? 

I didn’t mean to launch a brand. It was by mistake! I just meant to bring new solutions to the industry as I was teaching in universities about international watch distribution. And I walked the walk because I offered my business model to 25 independent brands for one year, trying to convince them to test my approach. And everyone said it will never work, it’s not possible, blah, blah, blah. So, after one year, I politely told myself: “Screw it, I’m going to do it myself.” And this is how BA111OD was born, not as a watch brand, but as a laboratory for my conceptual, new economic business. And then I needed a watch, so I made one.

It’s funny because I’m one of the very few that succeeded, but I’m the only one that didn’t mean to launch a brand. This is how we were born. I now define the brand as a heritage of a long family tradition in the state of Neuchâtel, as my ancestors have been doing watches since 1775. I want to keep that tradition and I do beautiful, traditional Swiss made watches the right way. We design in-house. Now we produce our own tourbillon, which is not the simplest movement, and we belong to the 10–15 brands existing in the world capable of doing their own tourbillon. And we assemble them in-house by hand.

So we represent the dream of every watch lover of these kids from ‘the valley’ that one day they can say: “We’re going to do things correctly.” We design in-house and we do everything the right way with the best suppliers and with the best quality possible, but respecting my promise to deliver it at real prices.

WI: When you look back to that vision on day one, you referred to phrases like ‘we-commerce’ and ‘phygital.’ What exactly does that look like? We can all have a guess in a general sense, but you were teaching this stuff so it must have been quite a specific idea you had in mind.

TB: Oh, it’s specific. Basically we-commerce is a community approach. Word of mouth has been working for 10,000 years so who else would you trust but a colleague or a friend who wears the watch, tells you about the story with the watch, and offers you the opportunity to acquire the watch? When that friend does so, the watch he wears is the point of sale. It’s an unconventional one, but it’s a point where sales can happen. It’s your wrist. He will be speaking to you about the product and his experience of it. That’s the service. So you have that person being able to give you, or share with you, a QR code. It’s very simple. I’ll show you. I have my cards here and you can see ‘BA111OD.’ So if you scan this code, you arrive on my page on the website and it will tell you Thomas Baillod is welcoming you. You buy the watch, and then when you buy the watch, you get rewarded.

That was the initial idea. The problem with the business model of conventional distribution is that, although it’s extremely good in terms of experience, that store experience costs two-thirds of the price of the watch. It’s extremely costly. E-commerce cuts all distribution, so you get back the 65%. But nobody sees you, nobody hears you. So you have to overinvest in marketing to compensate for what you lose in distribution.

With my model, because it’s the person who shows the watch and speaks about the watch, it’s embedded distribution and marketing. The traditional distribution model is a multiple of seven from the cost price to the end consumer’s price. You multiply by 10 in the luxury space, or even 30 for the big ones that are shameless. E-commerce is a multiple of at least four, because you have to over-invest in marketing. I preached that I could do a multiple of cost, and a margin for the brand, and that’s it. And that’s why I pretended that I could come with prices unmatched in the market as Swatch Group did previously. But Swatch was using industrial performance — the way you create the watch, the way you produce the watch — to lower the cost of production. I looked the problem in reverse to Hayek, and I solved the problem of the multiples, not the cost of production. And my multiple was a multiple of two. 

Why is this very important? It’s important to highlight the major issue of my business model. We have such amazing prices that, in fact, people don’t believe us! And that’s the problem of my business model. People, when they see the prices and the watches, the first thing they would think is there’s something wrong. It can’t be possible. That’s why everybody believed our tourbillon was Chinese. We were investigated by the media, etc. Ironically, if they go to anyone here in the valley and investigate, they will be full of Chinese components, but they will never ask these brands. They come to us because we say that we make a 100% Swiss made tourbillon. That’s why some people didn’t care about my community approach. “I don’t want to ask someone or get recommended by someone, I just want your bloody watch!” Fine. Go online to BA111OD.com and buy it. So from we-commerce, we acceded to e-commerce. Perfect. I don’t have to give any commission to anyone. We are now back in the stores, doing commerce, and we are rapidly opening stores. I don’t know why, but nothing in the UK. The UK is a mystery for me because we are the perfect brand for the UK. 

Anyway, people started to say: “You said you didn’t want it to go in stores, and now you are.” I never meant that I would not go in stores; I meant that I would get the best possible prices. What is incredible is that I’m back in the store with still more or less the same prices as I initially had. We have ended up in the window at a very, very competitive price compared to the quality we offer. Look at the Chapter 7 Certified Chronometer — it starts at £715. I mean, you never get this from anyone. And that’s why we started to open shops because our lack of credibility because of our [low] prices needed to be compensated with the possibility to touch the product and benefit from the credibility of retailers. If Watches of Switzerland would list us, then people would say: “Okay, they did their due diligence.” It means that you can say it’s a Swiss made tourbillon and people will know it’s true, because otherwise they wouldn’t list you. So, we have to benefit from the aura of retailers to compensate for the lack of credibility because of the prices and the quality we have. That’s funny. 

WI: Do you feel like you had to be adaptable? You had a vision of what we-commerce looks like, but you’re trying to take the best of that and adapt it.

TB: Yep, go where the road takes you. I must say I’m very proud that I’m able to respect my initial promise and offer the best possible product at the best possible price. The price you see on my website and in the store speaks for itself.

WI: You’ve got watches in your blood and you’ve worked at big brands and now you’re doing it for yourself. Do you think that there is something fundamentally incompatible about your very logical and rational approach, and applying it to a luxury industry where often people are irrational and let their vanity tell them that the more expensive, the better?

TB: Look, I am an economist, and I understand exactly what the Veblen effect is [where the demand for a luxury product actually increases as its price goes up]. The first tourbillon I did was called T.V.D. The Veblen Dilemma. That name was already pre-answering the criticism I would get by offering that level of tourbillon at that price, because I knew that people would say that at that price it must be Chinese or poor quality. And that’s why I called it The Veblen Dilemma because if it’s the most affordable in the world, it doesn’t mean it’s a lower quality. We are 100% Swiss made. We’re exactly the same level as all my friends from the valley but my prices are different. 

I somewhat live out of the reputation and the aura of these very respected, beautiful, and expensive watches. Customers that are victims of the Veblen effect and are seduced by the very costly watches make my product more attractive. I would be a fool and disrespectful to speak bad about these brands because I live out of their reputation. I’m very thankful of the brands and the customers that support the magic of this watch industry and good for them.

I know who I’m speaking to, and I hope not everybody understands what we’re doing and the quality we’re giving because my production this year is foreseen at 3,000 pieces. Imagine if the UK got crazy about my brand. We’d be dead and wouldn’t be able to deliver. I would have to pause sales on my website. A journalist once said that we are one of the Swiss best kept secrets, and it’s good like this.

WI: I take your point. Those brands you’re talking about can elevate the value proposition and set an anchor in people’s minds. As a result of that there is a vacuum created underneath them that you can slip into.

TB: My name is pretty unpronounceable, but there was an economic approach in the name of the brand. The first thing people will ask when they see a watch is the brand, and it’s weird to wear a watch that you bought and you don’t know which brand it is or how to pronounce the name. It was all part of a concept. Most people say: “How do you pronounce the name?” My answer from now on will be: “If you know, you know, and if you don’t, you don’t.” And that’s okay, with all due respect. If you know how to pronounce it then you know who’s behind it and that we have two centuries of experience within my company.

Bloody hell, Daniel, we produce our own tourbillon! It’s the maximum quality you can get and it starts at £6,800. When most experts dig into what we’re doing they wonder how that is even possible. 

WI: How difficult is it for you to not be tempted by some short-term wins? Everything you’re describing is very long-termist. You’re doing things to elevate the brand and create a legacy and protect it over the medium- to long-term. But there’s not a huge amount of price sensitivity at your price point, so aren’t you tempted just to cash in a little?

TB: Look, it’s very simple. Firstly, that’s what you get when you put passion before profit. That is something extremely rare in a finance-driven world such as the watch industry. Everybody sees the industry in a very romantic way, but it’s just stock market listed companies that want to maximise profit. 

Secondly, I have my name on it. My ancestors for the past 250 years have been doing these things so I have to have some respect for that. Although I’m the founder, it’s something bigger than me. I have also had very good schooling on international watch distribution. I’m essentially a farmer. You open, put down the seed, close, water, and you wait. And nothing goes fast. What happens when you’re in a finance-driven company is that people want more money as soon as possible. It’s absolutely not the logic I have here. Absolutely not. I’m a farmer and I respect how things grow. 

There are also 20 families counting on me and putting in 8–10 hours a day, so I have to respect every hour people invest. I know I’m paying them and paying them well but, bloody hell, they invest their life in growing my dream. So now it’s my responsibility to make sure that this is built correctly. If people live in a house, I don’t want that house to tumble on them. I know it may sound a bit unusual or old-fashioned but. I don’t care. This brand is about doing things right.

The two real people that are completely forgotten: the guy who makes the watch and the guy who pays for everything. Not enough people talk about the watchmakers except maybe a couple of Hollywood actors. And when the brand, the consultants, and suppliers are all having a big dinner with foie gras and champagne, there’s the guy at the end of the table that no-one cares about or speaks to until he stands up and pays the bill for the whole table. I care about the guy who put his hand on his wallet and the guy who put his hand on the watch. And these two hands have a short path connecting each other. That’s why I have these prices. I believe in these values. And it’s my brand, I do what I want.

WI: How difficult is it to retain that independent thought process? Have you got external investment? Or do you answer to no-one?

TB: It’s my brand. I don’t owe anything to anyone. So I make my own decisions. Everybody asks me: “Why don’t you raise the prices?” Because it’s my brand and I do what I want. I do have investors and there’s a godfather programme where I include them. They lend me some money, I give them a very interesting interest rate, and they are included in the programme. So, the investors meet the team, have meetings with us, suggest models, etc. They do help us with stuff and get involved. Just like you would go in the cockpit of a plane — you don’t pilot the plane but you can give advice or benefit from the different view. And I was able to raise more than £2 million by doing three LinkedIn posts, saying: “Hey guys, I need some money, who’s in?” And I received £2 million, so screw the banks!

WI: So these individuals who have backed you are benefiting from the relationship and from the interest you’re paying. But are these people you’ve developed a relationship with as well or are a lot of them just silent partners in the background?

TB: So many people I didn’t know would actually send me something like £100,000 without even signing the contract. They would say: “We trust you. It’s been five years and we follow you on LinkedIn and know what you do.” I said: “But we didn’t sign the contract?” and these guys would still be like: “It’s no problem, we trust you.” These people end up being friends and then after a year they either stay or I reimburse them and another comes on board. 

WI: We’ve discussed how the we-commerce idea was initially a reaction to traditional in-store commerce and then e-commerce, and it was an attempt to take the best of all those elements, but is there one element that you’re missing that you would like to get into? Would you like to do your own commerce in your own store under your own name? 

TB: No, I’m not a fan of this. I’m good at selling watches, but I’m not a retailer. Leave retail to retailers. They’re good at that. Plus, they have invested decades, and it becomes a family thing. Why should we change something that works? They also might have multiple brands that they divide the risk between and that is how it should be. I’m accompanying those retailers. We give them slightly less margins than the common brands, although we now give the same margins as many other brands. We enjoy a rotation in store because we hit windows with amazing prices. So there is a little less margin, but you multiply it by three or four, whereas most of the brands struggle to have a rotation of two.

We’re selling more direct-to-consumer where we enjoy the full margin. So we’re just mixing those two margins to make regular margins. You are seeing more and more brands selling direct to consumers, enjoying 300% more profit than when they sell through Watches of Switzerland, but they don’t change their prices. On the contrary, they often increase their prices. This is wrong. Maybe I’m just naive, but I’m just trying to do things correctly. I take the money I should take for my activity, but not more. It’s based on one very simple thing, Daniel. Respect your customers, respect your product.

WI: Do you see any brands in the market that are at least a little bit similar, not in terms of the business model, but in terms of not passing on unnecessary costs for their product? One brand that springs to mind is maybe Christopher Ward.

TB: That’s exactly the brand I would name. Christopher Ward is 20 years old, so they are way ahead of us. They offer amazing quality design at a very reasonable price. The Bel Canto is an example to follow now that I’ve acquired [movement manufacturer] BCP Tourbillons. Now I have my hand on the movement and I will be able to enrich my whole portfolio and product line with amazing manufacturer complications or movements at a price, I would dare to say, that’s half of half the price of Christopher Ward. 

WI: Just to focus on BCP Tourbillons for a moment — as a percentage, how many movements that BCP produces will go into your watches compared to how many you will sell to third parties? 

TB: 30% goes to BA111OD and two-thirds to the rest of the industry. I will proudly serve and continue serving the rest of the industry. I’m very happy to sell movements to my competitors, and even to Christopher Ward.

WI: You’ve mentioned a couple of times that the UK hasn’t got on board with the brand. Is it a case of just needing feet on the ground in order to spread the word or do you think that particular market just believes in traditional brands too much?

TB: I have an opinion on many things, but I wouldn’t dare having an opinion on England. I have no clue why we don’t get traction. The UK is a leader in e-commerce and I think we deserve more visibility. Maybe one limitation is that our prices do not include VAT so UK customers are reluctant to buy something knowing that they will have to pay the VAT at the custom delivery. Maybe that’s a limitation. 

The second one is probably that we would need to partner with a retailer so that we are in England and people can go and see our watches. I love this place but I don’t know why we aren’t succeeding in the UK. We are booming in France, in Germany, and the US..

I remember two years ago, in the early stages of going into retail, I went to the best retailer in Italy. They were very impressed and enthusiastic but the answer finally was no. The guy said to me: “What if we take you in our windows and the window next to you is Vacheron Constantin?” He told me that with an €80,000 Vacheron Constantin they earn €40,000 and that he didn’t want to tell the truth about the quality of our watches and sell a BA111OD and get maybe €3,000 out of the sale. So putting a BA111OD in the window would be threatening a potential €40,000 sale. So that’s one answer. We have seen it already. We are in windows and it’s selling like hell. 

WI: From your experience so far, is it better for you to be surrounded by super premium brands, or is it better when you’re the most elevated option in the store?

TB: Absolutely not. Take Ellert [jeweller] in Vienna, one of the best on Stephansplatz, for example. We are between TAG Heuer, Tudor, and Breitling. That’s perfect. They took our Delta Triangle and the Tourbillon exactly for that reason, because Breitling and Tudor don’t have a tourbillon. These brands cannot say anything because it’s not challenging their product. So that’s why we’re developing a lot in those stores.

We just opened in a store in Hong Kong and Macao, and they have Czapek and Tudor and other big brands for the same reason. We fit perfectly because for £4,000 you can get a decent three-hand mechanical watch, whereas with my brand, you get an amazing in-house complication.

WI: If you fast forward another five years or 10 years, can you predict what the next shift will be? Will you look at other acquisitions?

TB: I want to remain small, maybe 10,000 pieces at most, and I want to make sure that we keep the fun in the company and the vision of respecting everyone. We will be extremely strong in the mechanical watches space, revisiting the biggest, most amazing complications. We can go higher than just the tourbillon itself, like a perpetual calendar. Whatever you think of, we can do it, and we probably will do it. But I will still be selling a £600 watch. I know that makes no sense if I have a £20,000 Tourbillon with amazing features and perpetual calendars etc. I don’t care. I want to be a destination for those who, regardless of having a budget of £600 or a budget of £20,000, can know that this brand revisits all of the best icons and it will be in their price range. We just do the watches we like, and I really want to become that brand and destination, just off mainstream, that people know about. I hope I don’t sell a million watches because then I would harm and hurt other big watches that deserve to live alone.

WI: Do you ever worry that if/when you get to the stage where everyone does understand the brand and they take it as seriously as they should do, that maybe you’d lose the hunger a bit?

TB: Yeah. Then I’ll buy a sister company and pass on my passion to a new baby. I will not sell my company, but it’s now under BA111OD Horology Holding. It’s a holding, so we can hold many things. Plus there is my team and my people. I’m 54 now but in 10 years time? You know what, I could leave it to other people. My daughters are people with much more passion. I’ll still be there to drive the values, but the passion should be in the DNA of the company.