Does anybody really know what time it is?
Swiss luxury watchmakers are struggling to keep time
Not long ago, Apple CEO Tim Cook remarked that Apple now sells more Apple Watches than the entire Swiss watch industry combined. Checking email, calling home, finding out your standing heart rate are just a few of the abilities models from Rolex and Omega tend to struggle with. And based on that the multifunction capabilities of technology seem to have taken their toll on the luxury watch market.
Or so you’d think.
But the trends suggest that the dwindling sales of marques such as Breitling and Panerai, et al., have less to do with smartwatches and more to do with the Swiss makers inability to adapt its marketing to reach buyers. Globalization, the Internet and social media have changed the game and caught the Swiss flat-footed — for more than a decade.
Watchers of the luxury market say that the business structure utilized by the industry has created a depression, as desire to capture emerging regions such as Russia, India, China, etc., has glutted the field. But interestingly enough, smartwatches don’t seem to be the problem at all. Over the last few years, some of the best-selling watches have been dress watches with no tech ability whatsoever.
Manufacturers such as MVMT, Filippo Loreti, and Daniel Wellington, operating at a price point of mostly under $300, have outperformed well-established legacy brands thanks in large part to paid social media marketing. Internet celebrities and social media influencers have played a huge role in the success of these newcomer brands. Imaging, once the darling of luxury Swiss timepieces, is being perfectly crafted by grassroots startups. Lifestyle marketing is how things work in the 21st century and luxury watchmakers are still operating in a 19th century model.
The colonization that was keeping the industry afloat, specifically in China, took a major hit in 2015 as that nation’s buyers scaled back spending. That exposed the industry’s complete lack of connection with Western clientele. Swiss watch exports globally fell 13% between 2014 and 2016. Last year, exports rose 2.7%, but still lagged well behind the luxury sector as a whole.
The decline has led watchmakers to lay off hundreds of workers and buy back thousands of expensive, unsold watches, prying off their jewels and melting down their metal components. In 2016, Compagnie Financiere Richemon SA (Cartier, Vacheron Constantin) spent more than $240 million buying back unsold watches.
“It’s not only a crisis,” Antonio Calce, chief executive of Girard Perregaux, a watchmaker based in La Chaux-de-Fonds, Switzerland told The Wall Street Journal. “We must rethink the existing business model.”
But time has not exactly run out for the Swiss watchmakers. Swiss watchmaking executive Jean-Claude Biver of luxury conglomerate LVMH Moët Hennessy Louis Vuitton(TAG Heuer, Hublot), is on a mission to get younger buyers interested in watches before it’s too late.
“It’s the first time we have young people not buying watches,” says Biver. “Time is everywhere. Why should these kids buy something for the wrists that tells them the same thing they get everywhere?”
Why indeed. But that’s exactly what the industry has done since its creation. There’s always been lesser-priced competition, and yet the thought of buying a watch that costs as much as a car was somehow made acceptable. They were symbols of success — aspirational. To that end Biver has relentlessly targeted younger buyers. Recently LVMH’s brands have signed Jay-Z and other celebrities as brand ambassadors. In 2011, Hublot developed a watch with the rapper called the Shawn Carter (his real name). With a run of 350 watches priced between $17,900 and $33,900, the lot sold out. Biver can also be credited for signing British model/actress Cara Delevingne as an ambassador for TAG Heuer. Other ambassadors include Kobe Bryant, Dwayne Wade and Bella Hadid.
A 2017 YPulse survey discovered that just 29 percent of Americans under 34 years of age owned a traditional watch. Worse yet, just 3 percent were planning to buy one in the next year. And when younger buyers do consider watches, they often consider newer brands, such as the aforementioned MVMT and Shinola (manufactured in the U.S.) and Daniel Wellington (Sweden). Those brands have sold in the millions by keeping prices generally under $1,000 and utilizing social media influencers to create lifestyle campaigns that were once the specialty of luxury watchmakers.
While the American market continues to slump despite favorable economic conditions, the U.S. is slow to recover its love affair with luxury products. Though an interesting side note is that the vintage watch market is booming. Thank you, hipsters.
But it’s not all doom and gloom. The end of 2017 also saw some momentum gain in the Asia markets, leading to speculation that the worst might be over, and that the Swiss might have time to figure things out in the West. China and Hong Kong are powering the current recovery, but other Asian markets are also growing. Singapore, the seventh largest market for Swiss watches, was up 8.5 percent last year. Exports to South Korea (#11) jumped 5.6 percent; Thailand (#17) was up 5.4 percent. Even Malaysia (#30) was up 17.4 percent. The only markets in the region that did not grow last year were #5 Japan and #14 Taiwan.
So does anybody really know what time it is for Swiss watchmakers? The uptick in Asia is likely to have saved the Swiss brands from themselves and given them the time to copy the grassroots campaigns of smaller, newer, more nimble competitors and reclaim the mantle of true luxury in the personal markets.