Keeping up with fads can mean millions in turnover for InterMax's Tom Farnen
When it came to getting started, the adage of who you know, not what you know, worked for Connecticut-born entrepreneur Tom Farnen.
The managing director of watch company InterMax gives his father William credit for persuading him to caddy at a prestigious golf club as a means of meeting influential business people.
It worked and at 15 the young Tom Farnen was encouraged to distract senior member Jack Schechter with questions about his joint venture in China.
Mr Schechter was happy to fire the teenager's imagination with tales of business in the Far East. 'He was the forerunner of the watch industry in China with his factory in Xiamen,' Mr Farnen explains.
Some years later, in 1989, as a despondent and unemployed graduate he took a stop-gap job as a waiter in an Italian restaurant. One night he found himself serving his old friend from the golf club.
'How about Tom for Hong Kong?' suggested Mr Schechter's wife. Her husband thought for a moment. 'I ain't running no travel agency. You'd have to work your butt off,' he barked.
Mr Farnen pronounced himself ready, willing and able for whatever was proposed and next thing was marvelling as he landed between the Kowloon tower blocks at Kai Tak airport. It was June 5, his 23rd birthday, and his job was to beef up the fledgling marketing department of the large American watch company, AWC USA. It had three local staff.
Mr Farnen recalls: 'I was the 90-day wonder, the snot-nosed college kid supposed to take charge - and that's how I was treated. Then I got my ground and figured out how to do the business.'
Being an expatriate gave him an advantage in establishing rapport with international customers. 'We knew exactly what they needed, Jack Schechter was right to send someone like me. We grew the business from nothing to tens of millions of dollars in just a few years.'
He was selling watches from America to Zimbabwe for companies from Adidas to Timex, manufacturing and designing for named brands. As their connections grew, so did their OEM (original equipment manufacturer) and ODM (original design manufacturer) business 'where we excelled with a big design team'.
The growing company was sold, going from a family to a corporate structure. 'I became a small fish in a big pond,' says Mr Farnen.
Preferring the reverse, he heeded the advice of his wife Wendy Yue Mang-sim, who runs her own fine jewellery business, Diamond Tree, and decided to go it alone. After scanning his 10 years of accumulated contacts, in 2003 he teamed up with Kerry Moore, Australia's largest watch importer, and Mark Winter, who had the biggest time centre business in Britain.
The partnership, a three-way split, has him running the manufacturing and exporting at the Hong Kong end. 'They're very supportive but it's a win-win situation for them - they get a factory in China.' He handles the time centre business in the Far East. There was no investment as such, he explains, with the business driven and funded by orders and profits ploughed back into building a factory near Guangzhou.
'In three years we've been very successful, with a hi-tech factory with 150 staff and 20 office people here.' Turnover reached US$10 million for 2004-2005, only his second year in business, with US$12 million forecast for this year.
Watches are made for both the Australian and New Zealand and British markets, with offices in South Africa and Canada.
The time centre concept involves distributing watches to mass merchants such as Wal-Mart who apply in-house branding and sell using a specific display. For giants such as Wal-Mart, with its 100 million US footfall per week, watches are their best gross margin return on square footage.
But that presents its own problems: at busy times such as Christmas crowds five deep thronged sales counters. So a display tower which allowed the watches to drop down automatically was devised. These proved a huge success and have evolved to stationery stands.
The advent of cheap Japanese movements revolutionised the market. 'They used to cost US$4 or US$5 each, now it's just 80 or 90 cents and are extremely reliable.'
With a wholesale price of US$2 each, watches have become disposable products. 'Now you're buying a great piece of technology with a cheap wrapper.'
Mass market watches, typically retailing for US$10, are precisely targeted for today's impulse buyer. Most women own eight to 10 and are the firm's best customers.
But supplying high-volume superstores means Mr Farnen cannot relax for a moment. 'The old retail adage still applies: 20 per cent of your products are doing 80 per cent of your business,' he says.
This means monitoring the ever-emptying retail watch stands to make sure they are fully stocked. 'We don't just manufacture - we need to monitor to make sure everything is in stock.'
In five countries this means up to 100 staff, depending on the season, touring and checking displays. 'A stand with 800 watches on it can look like a dog's breakfast on Monday morning.'
Dealing with low-margin, high-turnover retailers is a stressful activity. 'If you don't produce the numbers, you're booted out, they insist on year-on-year growth. You must be on trend with the right product but it's not just Wal-Mart, all the companies are demanding. Their investment is space and no guaranteed sales - nothing on a string as we say.'
The time centre system is now well established with few competitors, he says. The Guangzhou factory makes four million pieces per year, producing in-house brands.
He thinks the time centre concept has a bright future and plans to double business in the next few years. 'I'd like to have time centres in 2,000 doors. As we're going into other countries and they see the data, it's an easy sell.'
But the industry is constantly changing, with the latest trend to trade up to timepieces costing US$5-$35.
Mr Farnen is ready for the next fad. 'We just moved into new 10,000 square foot offices in Kwai Chung. For the first time I don't have to go up in a works elevator. I feel I've almost made it!'