Yesterday, Watches of Switzerland revealed that it was pantsed by Coronageddon. Today, Richemont – the world’s third largest luxury goods conglomerate – reported their progress. How goes the battle for A. Lange & Söhne, BAUME, Baume & Mercier, Cartier, Van Cleef & Arpels, IWC Schaffhausen, Jaeger Le-Coultre, Panerai, Piaget, Roger Dubuis, Vacheron Constantin, Montblanc and Watchfinder & Co.? There are two key takeaways . . .
Sales were down 18 percent for the quarter (Jan-Feb-Mar)
That’s not good. What makes it worse: most of the lockdowns in the U.S. and Europe didn’t start until mid-March. Richemont’s 18 percent drop is the very beginning of the enormous swan dive depicted above, courtesy German-based market researchers GfK.
Seventy percent of Richemont’s sales come from watches and jewelry. Coronageddon closed down all of their U.K. real world retail. Their fate in the Land of Hope and Glory’s is instructive.
For the quarter, London’s retail sales tumbled a staggering 98.1 percent, falling by 96.1 percent in the rest of Great Britain. There’s no way around it: the next quarter will be a bloodbath.
Online sales didn’t even come close to replacing lost brick-and-mortar
Taken as whole, Richemont only picked up up a couple of points of sell-through share at the same time in-person sales were hemorrhaging.
This is perhaps the most important finding from the reports coming into TTAW HQ: eCommerce is not the deus ex machina everyone’s praying for. While Watches of Switzerland and others are happy trumpeting their “explosive” online sales growth, it’s all relative.
A forty percent growth in online sales is only impressive if, say, 40 percent of your sales are made online. We don’t have exact stats to play with, but I’d be surprised if 10 percent of Richmont’s luxury watch sales were online before Coronageddon. A forty percent increase of 10 percent is an additional four percent.
It’s safe to say that bricks-and-mortar was, is and will be the luxury watch brands’ cash pipeline. High-priced watches are one of those conspicuous consumption goods (not an investment) that most buyers prefer to see, touch, try on and haggle over in person. Why else would brands and dealers pour so much money into creating an upmarket “showroom experience”?
You could speculate that online luxury watch sales will diminish now that consumers are being gradually released from captivity, as jewelry/watch dealers reopen.
Will customers return to watch dealers? How many and how quickly?
There is no COVID-19 treatment. There is no COVID-19 vaccine. Social distancing is still in play. How many consumers are ready to browse for a watch in an enclosed environment, regardless of occupancy restrictions and masks?
While watch dealers can and will sanitize their products, there’s also bound to be some psychological resistance to slipping a watch over your wrist.
Meanwhile the real economy continues to tank. The entire world is going into recession. Luxury goods are projected to decline 35 percent this year. No wonder Cartier Chairman Johann Rupert warned of up to three years of “grave economic consequences.”
Will watches be exempt from this? Yes – if you believe in magical thinking. Or maybe if you stick your head in the sand long enough, HoDinkee-style. But for the luxury watch industry here on planet Earth, the pain is just beginning.
A financial site I follow (wolfstreet.com – I have no affiliation) recently listed specific consumer categories suffering deep losses that also have a bleak sales outlook. Oddly enough, the site listed watches, which is the first time I’ve ever noticed them list the category.
Today while at Costco, I noticed a number of mid to higher end watches on display – more than normal. After looking at them, for a while I might add, I realized that I had been the only person there the entire time, a first for me.
Well-known economists Nouriel Roubini and Mohamad El-Eriad, among others, are very bearish on the economy with Roubini calling a depression within the next 10 years.
… This is not going to end well.
Agreed. I think people are spending a lot of time looking at the equity markets, which are flying, but 1) they’re being held up mostly by big tech names, and 2) the bond markets are flash red-red-red (all USG debt is basically yielding nothing; meanwhile Germany and France – France! – are negative).
The fact is, that we haven’t had a downturn since the late 80s (maybe earlier) where luxury goods haven’t take a hit. They’re 100% consumption goods so tend to move pretty much in high-beta lockstep with the real economy. Expecting them to just sail through what’s going on is magical thinking.