Time – an abstract concept, yet one that profoundly shapes our human experience.
From ancient sundials to intricate chronometers, instruments designed to measure this invention have consistently captured our imagination.
Within this rich history, luxury watches have carved out a unique niche – not merely time-telling devices, but exquisite pieces of art and increasingly, tangible investment assets.
While the profound appreciation for their intricate craftsmanship may elude me, I’m pleased to have invested in one of Singapore’s premier luxury watch retailers, The Hour Glass (SGX:AGS), or THG.
My recent attendance at THG’s Annual General Meeting (AGM) marked my third participation.
While previous AGMs offered valuable insights into the company’s business models and leadership, this particular meeting provided clarity on its strategic direction for the next decade.
Disclaimer: Please note that the following takeaways represent my interpretations and summaries from the AGM. They are not verbatim accounts and may contain inadvertent omissions or errors. Readers are encouraged to refer to the official AGM minutes, typically released three to four weeks post-meeting, for precise details and correspondence.
Normalised Sales and Margin
Group Managing Director Michael Tay advised shareholders not to over-interpret the improved sales in the second half of Financial Year 2025 compared to the first half as a sign of broad recovery in the watch industry.
He clarified that THG has a small business segment on wholesale jewellery which was significantly impacted in 1H 2025. Its recovery in the second half, alongside the watch business, contributed to the stronger performance.
He further noted that the broader luxury watch industry continues to grapple with sales declines, as evidenced by recent figures from industry giants like SWATCH and LVMH.
With regards to gross margin, Michael sees that current margin of around 30% as the norm. The company does not break down margins by individual brands, as its key partners, being private companies, prefer greater discretion.
On the surface, this normalisation of margin might seem disappointing.
However, this consistent margin is now being achieved on a significantly larger revenue base than the pre-pandemic period.
This means the revenue boost experienced during the Covid-19 pandemic has largely been sustained, positioning THG for continued profitability growth from a higher base, even with modest future revenue increases.
The Way Forward: Boutique Networks
You might be wondering why THG can grow its revenue despite the industry slow down.
The answer lies in its strategic pivot towards boutique networks, driven by its symbiotic relationship with two key partners: Patek Philippe and Rolex.
Timepieces from these key partners are still highly sought after, providing stability to THG.
This also explains why the company is pivoting from multi-brand stores to stand-alone boutiques.
These key partners firmly believe that stand-alone boutiques significantly enhance the customer experience and reinforce their exclusive brand identities.
From THG’s perspective, this strategic shift means greater operational efficiency; fewer stores will be required to generate the same sales volumes over the coming decade.
Furthermore, cultivating deep relationships with its key partners and maintaining an impeccable reputation as a distributor are critical to THG’s business model.
For instance, while Patek Philippe is implementing a global restructuring that will reduce its retail distribution network by approximately 30%, THG’s Patek network will see a comparatively smaller reduction of only 15%, allowing it to outperform other retailers in a consolidating market.
Strategic Acquisitions and Property Investment
This strategic emphasis on boutique networks also partly explains THG’s recent acquisitions, particularly in Australia.
As early as 2014, THG had already recognised Australia’s potential for significant growth by 2020.
However, realising this potential required strategic real estate acquisition, ensuring the company was ready to establish partnerships even without immediate signed contracts.
This involved exhibiting strategic patience, waiting for its partners to align with this vision.
Consequently, from 2020 to the present, THG has added 12 new boutiques to its original three multi-brand stores in Australia.
This impressive execution took five years, but it was underpinned by seven years of planning.
With a presence now established in all five main Australian cities, THG can now be considered a national luxury watch retailer.
Additionally, in New Zealand, THG is set to open a flagship store in Auckland next year.
East Asia
Looking towards East Asia, THG continues to see substantial long-term potential.
The company is not observing any contraction in Hong Kong, but it will be consolidating two stores into one.
In Japan, THG holds the exclusive dealership for Patek Philippe in both Tokyo and Ginza.
Finally, THG successfully acquired Thailand’s oldest Rolex partner after a persistent 15-year effort.
Michael also shared an insightful anecdote on Thailand. The pandemic revealed that domestic demand for luxury watches was double that of overseas purchases. Crucially, this trend of strong domestic buying has persisted post-pandemic.
It’s important to note that THG’s business model primarily focuses on domestic sales; when setting up a store in a country, its main aim is to serve local residents rather than tourists.
Beyond the Numbers
I found Michael’s insights on property purchases particularly insightful.
He shared that when THG acquires properties, the decision isn’t based solely on financial metrics; there’s also an emotional element tied to it.
While he didn’t elaborate, I believe this encompasses considering their partners’ preferences, anticipating future potential, and recognising intangible brand value.
These aspects often can’t be captured by numbers.
This emotional component, often unquantifiable by numbers, finds a clear parallel to investing and personal finance, where decisions aren’t solely data-driven.
I know this sounds less objective, but we cannot deny that our emotions inevitably influence our decisions and future actions.
Holding Firm on My Shares
It’s clear that The Hour Glass is strategically deepening its relationships with its two key partners, Patek Philippe and Rolex.
While this alignment is highly likely to have a positive long-term impact, it also means that THG’s performance will be more directly correlated with the fortunes of these cornerstone brands.
For the moment, I remain confident in this strategy and will be holding on to my existing shares.
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