In the realm of consumer goods, watches continue to play a multi-dimensional role. Of course they tell the time, but they also indicate the wearer’s affluence. And for financial analysts, timepieces are essential barometers of the state of the luxury market.
Undoubtedly, the recent recession heavily impacted the growth of luxury watchmaking; a situation that arose in the last quarter of 2008, following five years of excellent growth. In 2009, Swiss manufacturers – who account for approximately 99% of all high-end timepieces produced worldwide – exported 4.4 million pieces worth around Sfr13.2 billion. However, the downturn was such that revenue in 2009 decreased to Sfr3.8 billion – 22.3% lower than in 2008.
A particularly interesting development is the decrease in volume against the value of sales, where watchmakers sell to local watch dealers and the latter – in order to reduce the 2009 losses, clear stocks and pay back bank loans – make substantial discounts of up to 40% off the normal retail price.
This sudden downturn inevitably led to lay-offs and company restructuring.. However some brands, such as Pequignet, were prompted to invest in further development, and only a few brands – including Universal Genève – completely disappeared. Overall the market has seemingly stabilised, and there are even strong signs of growth among the most powerful brands.
Even if the younger or most original brands have survived the hit, the core values that epitomised luxury between 2001 and 2008 have changed dramatically. Before the crisis it was all about the future, with brands such as Richard Mille, Urwerk, and Hautlence highly visible in the media.
However, as a result of the crisis, consumers have reverted to classic values and traditional watchmaking, with Patek Philippe, Bréguet and Jaeger-LeCoultre all returning to their historical markets.
Vintage is king
Today, watch manufacturing is no longer about vanguard machines, but being inspired by the past. Rolex has just launched its Oyster Perpetual Explorer II, a timepiece dedicated to adventurers whose predecessor was first released in 1971A positive reason to look to the past is that the consumers who entered the market ten years ago have matured, along with their tastes and situations.
The future is here
While there is no doubt the financial crisis has had a strong impact on the world of high-end watchmaking, it has actually forced companies to make much-needed strategic decisions . Several brands have developed their own movements or taken on new partners to supply key components. This situation is not new, but brands need to become less dependent on the Swatch Group, which controls most of the subcontracting companies producing movements and mechanical components.
The development of new distribution networks and the launch of wholly owned boutiques has improved efficiency and new products in new markets, resulting in Asia buying a 52.6% share of Swiss watchmaking exports in 2010. Indeed, average growth in 2010 was 20% year-on-year, with total exports reaching Sfr16.2 billion.
Crisis? What crisis?
Yet in spite of this massive rebound, the prevailing feeling is one of tough times ahead, especially in the European market. Many who could afford high-end timepieces have had to deal with other financial priorities, which is why only the manufacturers offering products with adjusted, or lowered, prices are likely to perform well on the old Continent. It is said that brands have, on average, transferred at least 25% of their communication budgets towards the BRICs, a sure sign of where they feel the future lies.
As far as profits are concerned, renewed growth has made 2011 the new year of reference in luxury watchmaking. The marketplace has reached near maximum development in most continents, apart from Africa. Luckily, watches remain both a tool and an object of identification as much as an object of desire.
Yet, there could well be another slump in the next few years resulting from market saturation. The industry could, however, recover by clearing stock at discounted prices in order to re-supply dealers and boutiques with new models. This has been the lifecycle of Swiss watchmaking for more than a century and there is no reason for it to change now – or in the future. Ã¢Â–Â
French watch specialist, Vincent Daveau trained in watchmaking in the mid-1990s. A master watchmaker, photographer and sailing fan, he is the chief editor of L’Express watch supplement and La Revue des Montres, and he regularly contributes to French publications such as Les Echos, L’Express, L’Expansion, L’Equipe and Le Monde, as well as the Swiss daily Le Temps.