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The latest study carried out by the Mainfirst banking institute, published in April 2016 and entitled “Hard luxury goods: Short-term pain, long-term gain” began with a quote from Philippe Peverelli (ex- Tudor):
“We all felt rich for a few years while watches were selling well everywhere, but now we are back in the real world and every brand is going to have to look in the mirror and recognise its own true value.”
In the opinion of the Mainfirst analysts, this quotation sums up in itself the dilemma with which the Swiss watchmaking industry is faced. On the back of record years, confronted at the same time by an increase in geo-strategic risks, the resilience of the economic crisis and the decrease or stagnation of their most promising markets (China, USA, Russia…), Swiss watchmakers effectively have no other choice than to come back down to earth in order to take a good look in the mirror. But whereas some continue to act like the queen in Snow White demanding of the mirror to show an idealistic reflection (“Mirror, mirror on the wall, who’s the fairest of them all”), others, undoubtedly more realistic, are trying to discover their true reflection. The truth is this image has slightly faded over time, the gold and gems with which it is adorned have lost some of their sparkle and the engineering splendour of which they were so proud is losing its lustre. What happened?
FROM PRESTIGE TO MASSTIGE
Without doubt we did not pay enough attention to several clear indicators of a progressive ebb in consumer interest. Slowly but surely, and without us seeing it coming, the high-end watch sector has become, in some countries, one of the most distinctive signs of the corruption encountered in the leading and elite classes: Russian oil tycoons, Chinese high officials, Mexican drug barons, American rap-gangsters, tax fraudsters, corrupt politicians… all of whom have been seen for their excessive taste for luxury goods (and social networks have played a key role in worldwide publication of these facts).
Bit by bit, the extremely costly Swiss watchmakers have seen their image seriously tarnished by this excess and, as Philippe Peverelli said, it’s time to come back down to earth.
SIHH 2016 already announced a step back or maybe just a return to reality which appears to have been clearly confirmed at Baselworld. As a blatant example of this new, more moderate approach of the watchmaking industry, Europa Star met with and interviewed Jean-Claude Biver, TAG Heuer, who is offering a tourbillon at less than 15,000 CHF, and Peter Stas, Frederique Constant, who launched his Perpetual Calendar watch at less than 8,000 euros. [Read Jean-Claude Biver and Peter Stas interviews ]
But this is only the most spectacular point of a more general reduction, or stagnation of prices. We have moved slowly but surely from the domination of “prestige” to “masstige”. A democratisation (which is still relative as paying 8,000 euros for a watch remains the privilege of a small proportion of the world’s population).
THE VINTAGE TREND AND THE CONNECTED WATCH
Two other phenomena have greatly contributed to this back-step of the high-end watchmakers: the vintage trend and the rise in power of the connected watch. Vintage has been greatly commended by the younger generation. All those questioned in relation to this point gave a similar response: watches from the 50’s, 60’s or 70’s “reassure”, “comfort”, come across as more “human” and “warmer”, with a size which is “normal” and relatively “discreet”. They have a true “history” and therefore a “deeper” meaning as opposed to the more recent hightech watches. The fact that most vintage fans are relatively young, urban, well-educated and working in the creative sectors should ring a few warning bells for all brands concerned as this “class” most certainly exercises an influence on the choice of consumers far beyond the limited group of true vintage fans. Proof of this is the Daniel Wellington phenomenon. With a range of extremely affordable, pure, simple and classic watches, Daniel Wellington has risen to great heights without anyone taking any notice of this new phenomenon [read more].
Another phenomenon, in the beginning largely underestimated by the watchmaking establishment, is the connected watch. According to numerous analysts, including the Vontobel bank in a recent study, if we include connected watches and bracelets, the watchmaking market is now dominated, in value, in the following order 1/ Rolex, 2/ Apple, 3/ Omega, 4/ Cartier and 5/ Fitbit! Food for thought.
STAGNATION… AT BEST
The spectacular announcements of the likes of TAG Heuer or Frederique Constant should nevertheless not conceal the more notable fact: a general stagnation of prices. According to the aforementioned study carried out by Mainfirst, the prices of Rolex and Cartier have not increased between 2015 and 2016, following a slight reduction in price in 2015 compared to 2013. Another example: Patek Philippe has increased its range of steel or bi-metallic watches by 11% in 2016, which illustrates that even this most prestigious brand has not ignored the downward trend in terms of pricing.
Based on the latest statistical results of the Watchmakers’ Federation, the downward trend recorded in the month of March has reached 16.1% compared to last year. “This is the lowest month of March since 2011,” commented FH, stipulating that “all watch casing materials have been affected by this downward trend and this price reduction has been particularly influenced by timepieces made of precious metals or steel.” Further proof that the high-end market is in decline is the fact that watches of more than 3,000 CHF (export price) have dropped by around 20%, in the same way as low-end watches. The medium range, i.e. watches between 500 and 3,000 CHF have fared the best with a drop in value of “only” 7.1%.
These figures, unfortunately, only confirm the general stagnation, a state of stagnation which may persist according to all prognoses.
DIVERGENT STRATEGIES
The views of René Weber, Vontobel
in an interview with Serge Maillard
"If we consider the reaction to the strong franc in 2015, one notes that there were two strategies: on the one hand, Rolex and the Swatch Group were content to simply increase their prices in euros; whereas on the other hand, most other brands, including Richemont and Patek Philippe, increased their prices in euros while at the same time reducing their prices in dollars and Swiss francs. Rolex and the Swatch Group did however encounter certain problems as it was still cheaper to buy a watch in Germany rather than Switzerland for example; they therefore tended to increase their prices in euros in order to reduce the gap. This is what Rolex did in February. As for TAG Heuer, they applied a more aggressive price cutting policy, around 10%, in the second half of last year in order to gain in competitivity. In general, Rolex and the Swatch Group both have a policy of not lowering their prices as opposed to Richemont, LVMH and Patek Philippe. I think the price differences have now been corrected: what we noted at Baselworld was primarily brands launching new, cheaper models and concentrating more on their low-end product range. TAG Heuer and Frederique Constant are good examples of brands which presented complications with reduced prices.
Another good example is Montblanc. At the same time, even if Patek Philippe complained about the tourbillon introduced by TAG Heuer, one cannot really compare the manual production of the first with the automated, highly industrialised production of the second. It is thanks to the industrialisation process that TAG Heuer is able to attain these prices for the tourbillon; it’s a completely different story for Patek Philippe... Another example: Maurice Lacroix will launch the quartz model “Aikon”, which will be positioned at the entry price level for the brand. In 2015, I noted a difference in performance between brands that I had never witnessed before. Normally, whether the sector is doing well, or not, everybody tends to pull in roughly the same direction. But here we see considerable differences.
For example, Rolex has increased its market share, whereas Omega was rather flat and Cartier has lost share compared to Omega. This may partly be explained by its limited exposure to the Chinese market which has considerably slowed down. Today, Cartier has a problem with excess stock, dependency on Hong Kong and high prices, even more so than the two other brands. For the retailer Hengdeli (no. 1 in China, no. 2 in HK) 70% of its sales in mainland China are of Swatch Group brands, whereas in HK 60% with Richemont brands. They decided to reduce their stock level, but at the same time sales have decreased and the unbalanced situation persists... Hong Kong has enough stock for 300 days! They are also shutting down outlets due to exorbitant rental prices and the drop in demand, but in some cases their rental contracts do not allow them to close down an outlet quickly”.
