For so long, economic news has been pretty bleak. Though there have been reports, and positive signs, of the beginning of an end to the recession, we here at Europa Star decided to get the information straight from the horse’s mouth, so to speak. We went to the movers and shakers of the watch industry in the United States, both retailers and brands, to get a sense of where things are.

CAUTIOUSLY OPTIMISTIC
John Shmerler, Partner, Radcliffe Jewelers: “Since May of 2009 business has been flat relative to 2008, but it is still down approximately 25-35 per cent from the height of the industry. Currently, the past three months of June, July and August have been modestly ahead in comparison to 2008.
“The category leaders of product which are selling are bridal and mid-range Swiss watches. In bridal, the focus is larger diamonds and for watches the successful brands have been steel Cartier watches, Breitling and TAG Heuer.
“We are cautiously optimistic for the upcoming holiday season and anticipating a flat season versus 2008 which was off 35 per cent to our numbers in 2007. We have noticed a jump in traffic and interest throughout our locations. I think it will be 24 months until the economy can be considered ‘recovered’. We are in a deep rooted consumer recession and there will be more pain before we will see improvements. The consumers need to feel as if they are in a better position to purchase from the luxury sector once again.
“I think the timing is currently ideal for brands, as well as independent retailers, to purchase media. Also, the luxury industry of jewellery and watches as a whole needs to create the desire and the awareness for their product in order to spur the consumer to purchase.”

BRANDS MUST INVEST
Andrew J. Block, Executive Vice President, Tourneau, LLC: “The business environment for luxury watches is still challenging. We predict that the holiday season will be promotionally driven due to the large number of retailer liquidations currently going on. Given that, we still expect to see a sales lift over last year’s holiday season. The current softness in demand is likely to persist for another 12-18 months as current owners delay repeat purchases and fewer new consumers enter the category.
“We haven’t seen a dramatic decrease in traffic for most of our stores are mall based and the others are well positioned in major tourist areas. The consumer is still buying, but spending less on each purchase. Our studies have shown us that when repeat buyers do return to the category that they will spend an equal or greater amount on their next watch purchase; a truly encouraging sign.
“Our investment in our company and the category has actually increased during these economically challenging times. The brands must invest as well to keep the category relevant to the consumer. We all need to act now to influence holiday sales as consumers typically start thinking about a new watch 3-4 months before they buy it.”

THE SKY IS NO LONGER FALLING
Paul Ziff, President, Zenith North America: “It's a very challenging time but the good news is I think we have already seen the bottom and are starting to climb out. There are some signs of life. Business is a bit better now. The big scare seems to be over and now retailers can realistically plan for the future. The sky is no longer falling. People wanted some predictability and I think they feel better about having that. The stock market recovery is also encouraging.
“All ranges are selling, just in lower volume than before. I think that people are also returning to the classics and want to buy watches that they feel will remain current, not too trendy or ‘over the top.’ I think that the era of buying only to show off is over. People want to know that they are making smart purchases with lasting value. They want items that have substance not just marketing hype. The price also has to make sense.
“I'm an optimist at heart. We have a large untapped market for fine Swiss watches in America and there is still plenty of disposable income around. People will always want beautiful things, whether art, automobiles or fine watches. Dealers are calling more frequently for special orders and to check availability and there is excitement in the shops about our new products.
“I don't know that we will ever see a return to the way it was two to three years ago but I think that this Christmas could be better than anticipated and that the beginning of the recovery will start this fall if it hasn't already begun.
“We all need to build awareness to our products. Watches are not a necessity so without advertising the demand will diminish.”

FOCUSED ON THE LONG TERM
Larry Pettinelli, President, Patek Philippe USA: “Business is challenging but steady despite the very difficult financial crisis. The limited supply of Patek Philippe timepieces in the market helps in keeping consumer interest high. Our retailers certainly feel the concern overall due to the economic times but are hopeful that this is a temporary situation. The degrees of severity differ from one region to another within the landscape of the US.
“As noted by our retail owners, traffic has begun to increase. The mood of consumers has started to stabilize and clients are much more interested in looking forward rather than backwards.
“At this point in time, individuals who have been waiting six to eight months for timepiece deliveries are still anxious for the pieces. Patek Philippe watches have never been an impulse buy. From a consumer stand point, there is a great deal of research that is conducted prior to purchase and individuals are therefore less deterred by market fluctuations.
“We find that during an economic downturn, people return to brands they have long-term confidence in. They realize that Patek Philippe has been in existence for the past 170 years and has survived many market cycles along the way.
“Complications and the traditionally most sought after pieces remain strong. The Nautilus Collection continues momentum generated by the 2006 re-launch and subsequent ladies launch at BaselWorld in 2009. The iconic Twenty 4 Collection continues with resounding success in the marketplace.
“There are positive indicators regarding the future from various sectors. On a worldwide level, a few markets have managed to resist the down turn. In general, Patek Philippe worldwide remains strong. It is possible to have a good fourth quarter and strong holiday season with recovery gaining traction. It will likely be mid-next year until recovery occurs.
“We have never taken a step back from advertising and promoting a consistent brand mess-age to consumers. The Stern family’s vision has always been focused on the long term.”

CLOSE TO THE BOTTOM
Les Perry, Executive Vice President, Seiko North America: “We are at the one year anniversary of the time the world fell apart, and I still think it will be very challenging for quite some time. People are not spending beyond their means. People who do have money are being very cautious about what they buy – it’s not politically correct to be extravagant. It’s in fashion to buy only what you need and to be very conservative. I don’t think luxury is gone, it’s just going to be more realistic in its appeal and accessibility. There has been a shakeout of retailers and brands, and people are much more value conscious, which is good for us. That’s why we are doing OK and making our numbers. Now, after a year, our base is different, it’s against a year ago. I think we are close to the bottom, but I don’t think there will be a major up tick, because of the way people are approaching their spending. The businesses who are really challenged are the ones depending on discretionary spending.”

READY FOR THE RECOVERY
Andy Laats, President and CEO, Nixon: “We’re doing well. In our last fiscal year, which ended June 30, we performed well in North America, showed strong growth in Europe, and experienced good growth in Australasia.
“Business is better in the sense that there is less unknown now than at the beginning. We are seeing retailers rediscovering their optimism and looking for good news. At the start there was a general sense of everybody looking for bad news.
“We’re having a good response to our larger sized product and the pieces in the line that are the most adventurous with colour. The future looks good: we haven’t slowed down our pace of new product development and we’re excited to continue to bring new things to our customers. We are ready for the recovery to begin.
“Some of our larger customers have their financial footing more secured and have started to increase their inventories. For our more boutique customers, and I’m not sure this is a sign of improvement as much as an indication of survival, but our more boutique customers are still around and if they’re still here, they’re going to be around for a long time, which is great.
“I subscribe to the thinking that we’ve recovered when people start feeling like their personal balance sheets have been repaired. Our customers are young with relatively fresh balance sheets to begin with, so we expect to see them back a bit sooner than others. We are hopeful that this holiday will be as much of a positive shock as last year’s was a shock in the other direction.
“When the customers wake up one morning and decide it’s time for a new watch, they need to see new, fresh product wherever they look.”

LOOKING FOR VALUE
Jimmy Olmes, President, Reactor Watch Company: “The watch and jewellery industries in the states are down anywhere between 25 per cent and 45 per cent off in retail sales. Our biggest customers are reducing inventories on a major scale and this certainly hurts our numbers; with this being said we are being told daily that Reactor is one of the few watch brands selling and we have opened over 50 new accounts in the past five months, so all in all we are holding our own very well and taking market share from other brands.
“Our more conservative products are selling the best: US$250 to US$500 retail price points. Within this range, price does not seem to matter. It comes down to styling and value. Our Gamma at US$400 retail is our number one selling SKU (Stockkeeping unit) and our Trident collection is doing very well at US$350 to US$500. Consumers are not looking for cheap, they are looking for value and Reactor delivers this better than anyone in the market.
“Our long term future looks terrific. By taking market share during the down times, we should really explode as the economy re-covers. Our biggest challenge today is getting re-orders when product sells and then getting paid. The jewellery industry is very spoiled on terms as many diamond dealers put their entire inventory in on memo.
“To be honest we have not seen many signs of recovery. We do believe that if the holiday is ‘reasonable’ that we will have a pretty good Spring as everyone’s inventories are depleted. We continue to monitor our full retail pricing so we continue to make our dealers money and they really appreciate our unique position in the market.
“Because jewellery in general is a luxury purchase I see the recovery trailing not leading. I am very hopeful that Christmas 2010 will be back to 2004/2005 levels. Due to our sport styling, great value offering and high water resistance we should see some recovery by Spring/Summer 2010.
“I think only the highly profitable watch companies can afford the high level of advertising they have been used to. Since people are not buying in general, spending money on advertising today is an investment in long term branding and there are not many companies that have the financial strength to do this. We have kept the Reactor name out in our core markets through advertising and PR but we have pulled back on non-core markets and have not considered any new markets.”

THE FUTURE LOOKS GOOD
Jeffrey P. Hess, Retailer and President of Ball Watch North America: “Business is excellent. June was our best watch sales month in four years. For us, entry level and expensive watches are selling - Breitling and Ball are strong, and GlashÜtte Original is steady. The future looks good for us. We are opening a second store.
“I think the economy will be partially re-covered by the end of the fourth quarter and fully recovered in three to five years. It is definitely time for retailers and brands to advertise again. We’d be silly not to.”

These are the times that try retailers’ and brands’ souls. Signs may be pointing to a slight recovery, but by most accounts, it may be quite some time before things return to ‘normal’. Let’s all keep our fingers crossed that the light at the end of the tunnel isn’t an approaching train!


Source: Europa Star October-November 2009 Magazine Issue
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