Coronavirus Watch 15 – Bankruptcies Begin

In the biggest “no duh” moment of this whole Coronavirus watch series, our shills friends at Watchpro.com bring us the news that the slump in demand (which of course couldn’t possibly affect secondary market and grail watch pricing, nosireebob) is set to drop Swiss industry sales to the lowest levels since 1945. We’re talking about a slump of . . . 

twenty-five percent year over year. (Here’s where our esteemed editor will point out that Apple Watch sales are doing quite nicely, thank you very much)

The fallout from all this? We can’t put it better than Olivier Mueller, quoted in the article: “Between 30 and 60 ‘Swiss Made’ watch brands – of a total 350 – will not survive.”

Chew on that for a while. Dozens of manufacturers will likely go under in the very near future. And while most of them will likely be ones that you haven’t heard of and Hodinkee doesn’t report on because they’re too small to – ahem – “partner,” we reckon that there will be at least a few that will be a real, genuine loss for horology fans. (Coronavirus watch this space.)

The sad reality is that Coronageddon is just the next phase of a crisis that was started by ubiquitous cellphones and then accelerated by the smartwatch. There are simply too many manufacturers chasing too few consumers at this point to support everyone in the industry. These currents, combined with massive real-economy pain means the industry in 2022 will look very different from the one in 2018. 

How so? 

First, it will be much smaller. While some demand will come back, the industry is losing its chance to get first time, younger customers who will decide a $400 smartwatch or no watch at all is preferable to spending a couple of thousand on an entry level luxury watch.

We’ve seen this trend with suiting, as trends have moved more casual over the last five years, and watches will be no exception – why would you pair a Breitling with a Patagonia, especially when your boss/portfolio manager/VC is wearing an Apple Watch?

Second, the industry will be more consolidated. Some brands will go under, never to return, but several will be bought by the big players during the inevitable fire sale that’s on its way.

One thing that the past few months has taught the business world: having ready access to capital and a strong balance sheet is imperative, not only to survive an exogenous shock like Coronageddon, but also to take advantage of your competitors’ pain. It’s happening in tech, it’s happening in travel and it will happen here too.

Finally, there will be even more of a focus on the high end. A smartwatch (or no watch at all) is a competitor to a Bell & Ross, or a Tank, or a Tag, true; however there will always be a market for a statement watch. (“Statement” here can mean a lot of things including “I have more money than brains, taste, or things to do with it; the operative phrase here is I have more money”).

High end products have higher margins, lower volumes, and a more secure customer base; this is why every industry in trouble inevitably focuses on their “whales” and retrenches upwards. 

These trends will take a few years to play out; we’re still in the first overs right now. But the shakeout is starting; however it ends, things will never be the same again. The second Golden Age of the traditional wrist watch is over. And the Coronavirus watch continues . . .