Watch Brands Looking for New in Era of 'Smart'
New York Times, March 17, 2016
Whether or not the Swiss watch industry is in the midst of a crisis depends on whom you ask.
The pessimists point to Swiss watch exports, which fell 3.3 percent in 2015 to $22.1 billion, the industry’s first full-year decline since 2009. Many believe that 2016 will not be any better: Total exports in January dropped 7.9 percent from the previous year, while exports to Hong Kong and the United States, the Swiss watch industry’s leading markets, plummeted 33.1 percent and 13.7 percent, respectively.
As the trade gathers in Switzerland this week for the Baselworld watch fair, the industry has been further rattled by reports of as many as 350 job cuts coming at Compagnie Financière Richemont — the Geneva-based luxury group that owns eight prestige watchmakers, including Cartier, IWC and Panerai. While the company refuses to say which of its brands will be affected, most, if not all, of the cuts are reported to be coming in Geneva, where the bulk of its watch brands are based.
The optimists, however, believe that growth is within reach for watchmakers who are willing to embrace new ideas, even those the industry tends to reject out of hand: smartwatches, for example.
“It’s all about continuing to drive newness,” said Efraim Grinberg, chief executive of the Movado Group, which unveiled a new collection last year, Movado Edge, designed by the San Francisco-based industrial designer Yves Béhar, and introduced its first two smartwatches, Movado Motion and Movado Bold Motion.
“I think Apple has brought interest to the category,” he said.
For proof, just look to the numbers. “Last year was very challenging,” said Fred Levin, president of NPD Luxury Practice, a company that tracks high-end watch sales in the United States. Timepiece sales in 2015 did drop by 2 percent, compared with 2014. “But if you include estimates for the Apple Watch — the number sold is somewhere between three million and six million in the States — even at that low number, our industry didn’t decline. It actually increased by over 30 percent.”
Multiple related challenges
A commitment to connected watches notwithstanding, everyone agrees on one thing: The Swiss watch business is facing a constellation of issues, none of which would be overwhelming on its own but which in combination have created the most difficult environment for luxury watch sales since the global financial crisis of 2007-9.
“The big difference between now and then was that the 2009 crisis was quite limited to more or less one problem, even though the whole world was concerned,” said Karl-Friedrich Scheufele, co-president of the Chopard Group.
From the soaring Swiss franc — which has troubled the industry since January 2015, when the Swiss National Bank abruptly removed the artificial cap that kept the franc pegged to the euro for three years — to falling oil prices, which have crippled the Russian economy and taken the steam out of the Middle East market, many issues are “somewhat interconnected,” Mr. Scheufele said.
The outlook for 2016 seems especially bad when compared with the double-digit growth of years past, before China’s economy softened and its government instituted strict anticorruption measures that curtailed high-end watch buying.
“Over time, we have become a little bit greedy, because — having growth of 15 to 17 percent every year for three, four, five years — it becomes a habit,” said Daniel Riedo, chief executive of the Swiss watchmaker Jaeger-LeCoultre. “So I prefer to say we’re not coming back to a crisis but to a new normal.”
Value Is a New Battle Cry
Disconcerting to many people in the industry is the inventory glut that now passes for normal among retailers around the world, and especially in the United States, where scores of Swiss watches are finding their way into the hands of unauthorized dealers. As a result, rampant discounting has become an acute problem.
A December study by San Francisco-based Blueshift Research found that luxury timepieces sold through unauthorized channels were subject to markdowns of as much as 50 percent.
“The dumping of goods is creating a lot of pressure on everyone,” said Pierre Halimi Lacharlotte, general manager of the brand F.P. Journe. “Even the gray market is suffering.”
Watchmakers have responded by reassessing prices. During the boom years, many brands aggressively increased prices, even for models aimed at entry-level buyers.
In January 2015, when the currency issues began, the TAG Heuer chief executive, Jean-Claude Biver, reduced the company’s prices by roughly 12 percent worldwide “to get back to our core business,” he said recently.
At Baselworld, the brand will introduce the TAG Heuer Carrera 02T, a chronograph featuring a tourbillon that will retail for $15,950. The company is touting the model as the most affordable Swiss-made tourbillon on the market.
“TAG Heuer must be the reference for accessible luxury,” Mr. Biver said. “So if we do a $3,000 watch, it must look like a $9,000 watch.
“When we do a $15,000 tourbillon, the perceived value must be $45,000,” he continued. “We must always be sure that the perceived value and quality is three times higher than the price.”
Even brands at the top of the watchmaking pyramid have acknowledged the need to introduce more affordable watches.
In January, for example, the prestige watchmaker Greubel Forsey rolled out its first steel watch for about $170,000 — a third of the cost of most of its timepieces.
In Basel, buyers also can expect to see more streamlined product offerings, as watchmakers place greater emphasis on proven sellers.
“New products will still be very important for the brands, but the novelties will be absolutely in line with the brand and its collections,” said Alexander Linz, founder of Watch-Insider.com. “We will see even more replicas of icons in the near future.”
In addition, more brands are expected to embrace Internet sales in an effort to fight the gray market.
Demand for e-commerce in the watch space “clearly exists,” Mr. Levin said, “and by doing that, they take some of the wind out of all the players who are trying to reach that consumer in an unauthorized fashion.”