Watchmaker Daniel Wellington's Business Model

Watches are so 20 years ago, right? It was looking that way during the financial crisis when watch sales plunged. It was looking that way when smartphones became mainstream and people stared at the time as they spent hours each day staring at their devices. And it was looking that way when Apple, a company with a history of killing off industries, released the Apple Watch. (See Apple Watch: Upcoming Success or Clear Failure?)

But improbably enough, the traditional watch has made a comeback. According to industry data, analog quartz watch sales in the U.S. alone rebounded from 2009’s 33 million unit sales to more than 40 million in 2014. Other data indicate that year-over-year sales fell 2.5% from December of 2013 to December of 2014 but many see that as the normal ebb and flow of any industry. 

Watchmaker Daniel Wellington isn’t as well known as Rolex or Fossil but in the watch industry, the company has successfully disrupted the high-end business model.

The company's namesake isn't exactly an entrepreneur. He’s a British man whom company founder Filip Tysander met while backpacking through Australia. According to the company’s website, Tysander was taken with Wellington's “inspiring ability to be genteel but still relaxed and unpretentious. He had an impeccable style and loved to wear his watches on old weathered NATO straps.” 

Tysander named his company after Wellington and began producing watches that matched those worn by Wellington. They’re affordable, minimal in design, and when worn, fade into the background.

In 2014, more than 1 million Wellington watches worth $70 million found their way onto people's wrists. In 2015, the company projects sales of $220 million. Compare that to higher-end brands like Rolex and TAG Heuer that aim for one-million-unit years as a sign of success. A 214% year-over-year increase in revenue means the company is doing something right – in fact, many things. What are they?

Impressive sales numbers are meaningless, of course, if the company doesn't turn a profit. Daniel Wellington watches use easy-to-find parts that come mainly from China. The custom components are also made and assembled in China. Sending the manufacturing and supply chain out of the home country is the core strategy for some of the largest companies in the world, including Apple. Daniel Wellington is capitalizing on that trend.

The Millennial generation isn’t exactly swimming in money. Studies show that Millennials earn between $31,000 and $35,000 per year on average – around $2,000 less than their parents earned in 1980, adjusted for inflation. Creating the next $5,000 Rolex or $1,300 TAG Heuer wasn’t a winning strategy; the way to drive sales was to create an “everyperson’s brand.” Daniel Wellington did that without making the watches look cheap. Prices start at $149 and top out at $299. (Read Who Are Millennials and Why Do They Matter?)

Go where your customers are. Daniel Wellington follows this basic rule. That’s why the company does no traditional advertising but instead markets on social media. (In the apparel business, social media is a key driver of business.) The company gives free watches to key influencers in exchange for pictures and mentions on their websites and social media pages. And it’s no small effort: The company works with thousands of influencers, including celebrities. Does this strategy work? The company’s Instagram account alone has gained more than a million followers, almost quadruple its competitors' numbers. 

While Daniel Wellington isn’t a household name, it has become a major player in the watch world. By building around its target market, the company has built a following that has seen explosive growth. The company's strategy is simple and easily replicated by any small business owner: Identify your target market, research that market and go after it.