Is the luxury watch industry in trouble?
With grey market dealers offering substantial discounts on luxury brands, coronavirus temporarily stopping trading and general stagnation in the economy, the coming years in the luxury watch industry look bleak.
We take a look at some of the reasons behind the current slump in sales worldwide.
Sales of Smartwatches
According to Strategic Analytics’ report, Apple shipped 30.7 million units of smart watches globally last year compared to 21.1 million as a total for every Swiss watch brand.
The Federation of the Swiss Watch Industry indicates that Swiss watch exports have been on the rise, but simply can not compare to the huge numbers of smartwatch sales. The industry does obviously attract higher value, thanks to the luxury end of the Swiss watch market.
But clearly, any drop in the number of luxury watches produced obviously means lower demand for external components such as cases and dials, and therefore less work for suppliers.
Baselworld and the coronavirus
Baselworld, the annual major trade show for watchmakers, continues to suffer decreases in exhibitor numbers with the absence of Swatch Group being very noticeable.
Bulgari is the latest brand to pull out of the 2020 show but have cited international travel restrictions due to the deadly coronavirus and a great show at LVMH Watch week as its reasons.
Watchmaking is already facing a challenging environment so this global pandemic is very significant as factories are shutting temporarily and trading slowing.
More than 50% of Swatch Group sales are by Chinese consumers so the impact is going to be pretty harsh. The company’s share prices have already gone down significantly since the outbreak.
More profit from fewer sales
It would appear that the industry’s leaders are working hard to get more profit out of fewer sales.
As noted in a recent tweet by The Business of Fashion, ‘Cartier’s latest addition to its watch stable isn’t a shiny new diamond-encrusted model meant to woo top-spending customers. Instead it’s a souped-up service for watches they already own.”
The online news service refers to Cartier Care, which offers support that is arguably ‘expected’, for things such as strap changes, maintenance and personalisation as well as watch buy-back offers and even the chance to borrow timepieces as if they were from a library.
As sales of luxury watches continue to be challenged across the globe, is it hoped that extra effort for such support services will result in longer-lasting relationships with customers?
Stagnation in the economy
Another challenge the watch industry struggles to overcome is the stagnation in the economy. People don’t make nearly as much money as they should, workers are rarely given pay rises in line with inflation and indeed fewer people are becoming rich enough to be able to afford luxury watches.
Those who are wealthy enough to purchase new timepieces are a finite group of individuals, which means the most likely customers for the future are those who are already established buyers.
Those who have made several expensive purchases must reach the point where retailers have less persuasion over their next Rolex purchase.
An ongoing fall in exports
Watchmakers are still struggling with Hong Kong as since the start of the pro-democracy protests. Exports nose-dived by almost a third in October 2019 and the same again the following month. Could China soon be overtaken by the USA as the main destination for Swiss watches?
And with Brexit finally here, it’s likely brands will think twice about exporting to the UK. For e-commerce, goods moving from the UK to the EU won’t be sold in the internal market, but from a third country to the EU. Customs duties could therefore apply, making EU trade more expensive for UK retailers, especially for those in fashion who have succeeded in selling to EU countries.
Only time will tell how the industry will be affected as a whole. This year may bring new independent brands to the market, making existing brands rethink how they do business.
Despite a gloomy-looking economy, demand for luxury timepieces is still fighting the good fight and given that watch collectors always have an eye open for their next watch, it may indeed be time for watch brands like Cartier, to form or improve relationships with their buyers.