Japanese watchmaker Seiko is seeking to transform into a luxury brand by leaning on large-scale advertising and high-end products. With its share price jumping about sixfold over the past three years, the corporation's market value is now seen as comparable to that of LVMH.
In Apr., Seiko released a mechanical watch in collaboration with Ohtani Shohei, who plays in Major League Baseball (MLB). The product came in two designs and was limited to a total of 3,400 pieces. Despite a price tag of about 300,000 yen (about 2.8 million won), it quickly sold out in stores. While it varies by model, the price is high considering that entry-level Seiko watches generally cost under 500,000 won.
Seiko plans to leverage Ohtani's popularity to target overseas markets as well. Until now, ads featuring Ohtani aired only in Japan, but starting this fiscal year, which runs through Mar. next year, he has also appeared in overseas ads. Seiko also signed an advertising deal with Ohtani for its top-tier brand, "Grand Seiko."
Seiko Chief Financial Officer (CFO) Yoneyama Taku said, "We want to further elevate our brand value in the global market, powered by the Ohtani effect."
Seiko long carried the image of a popular, mid- to low-priced watchmaker. But in 2017, it fully set out to penetrate the luxury market by separating its high-end lineup, Grand Seiko, from the existing Seiko brand.
It also sharply increased ad spending. Seiko spent 25.8 billion yen (227,625,660,000 won) on advertising and promotions in the last fiscal year and plans to raise that by about 10% this year. CFO Yoneyama explained, "In the past, we didn't feel ads had an immediate effect, but now advertising is directly translating into sales."
Actual sales volume also increased. With watch sales rising in Japan and overseas, Seiko raised its full-year outlook three times in the last fiscal year.
The share of sales from expensive, high-margin products such as Grand Seiko and Prospex also grew. Compared with five years ago, the share of high value-added products rose by about 20 percentage points in Japan and about 15 percentage points overseas. Currently, high value-added products account for 75% of total sales both in Japan and overseas.
As brand value rises, expectations for improved profitability are also growing. Seiko's operating margin is forecast to climb from 9.2% last year to 9.4% this year.
Tsuruo Mitsunobu, senior analyst at SBI Securities, projected Seiko's operating margin could rise to about 15% over the medium to long term. "As Seiko's brand competitiveness strengthens, profits will increase faster than expenses invested in advertising and store openings," he analyzed.
The market is also giving high marks to Seiko's transformation. Seiko shares have risen about sixfold over the past three years. As of the 28th, Seiko's price-to-book ratio (PBR) was 3.46 times. That is well above Japanese rivals Citizen at 1.78 times and Casio at 1.65 times. Compared with global luxury companies, it surpassed LVMH's 3.4 times.
The Nihon Keizai Shimbun said, "Generally, the higher the figure, the more it means the market highly values the invisible assets such as a corporation's brand and growth potential," adding, "Japanese watchmaker Seiko Group is transforming into a luxury brand."
Seiko also plans to expand production capacity going forward, as supply has not kept pace with demand for some products. The company will add more directly operated stores, focusing on Europe. CFO Yoneyama said, "We will also consider mergers and acquisitions (M&A) that can strengthen our watch supply capability, from parts procurement to manufacturing and sales."