The Truth About Watches has been accused of harboring a doom-and-gloom view of the Swiss watch industry. That’s understandable. Who else has been running a coronavirus-related deathwatch since early March? That doesn’t mean we take pleasure in news of Swiss watch consolidation/bankruptcies. Just the opposite . . .
The luxury watch consumer is best served by a vibrant group of manufacturers building great products appealing to all sorts of customers. However, we have to acknowledge the industry’s unprecedented challenges, from the smartwatch crisis to Coronageddon to plummeting GDP. Unlike monochrome.com – “we refrain from discussing the COVID-19 situation” – TTAW is dedicated to confronting the reality of the industry, warts and all.
Back in May, WatchPro reported that a dozen watchmakers may be close to filing for bankruptcy. The editors didn’t name names. The fact that they could get this general information from the famously secretive Swiss watch industry is amazing. The fact that they felt comfortable publishing it speaks to the serious nature of this crisis. And it’s not just the manufacturers who’re under the gun (e.g., watch retailer William & Son calls in administrators).
Here at TTAW world headquarters, we’re watching this crisis unfold with a deep sense of foreboding. We’ve seen this movie before. We know how it ends. Coronageddon is looking less and less like a one-off shock and more of an acceleration of forces that have been gathering since the Great Financial Crisis of 2008-09.
The cell phone struck the first blow in recent history. Having a phone in your pocket at all times removed the need to wear a watch on your wrist. The Swiss responded to this trend – accelerated by the rise of smartphones around 2010 – by ignoring it.
The birth of the smartwatch “solved” the problem of non-watch wearers, luring them with an enormous amount of cell-phone like utility. At a stroke, smartwatches brought smartphone users back into the watch-wearing fold. Unfortunately for the Swiss, the smartwatch also made the traditional analogue wristwatch look like a horological buggy whip.
Watches, always riding the rough edge between functionality and jewelry, moved closer to the latter. An emphasis on design, heritage and complications – signaling mechanisms rather than signifiers of intrinsic value – became more prominent. As a result, the watch market has gradually skewed towards more “luxurious” timepieces.
The Swiss watch industry clocked the rise of the smartwatch at the low end of the market – and continued raising their prices. (Seiko increased the average price of their watches and re-launched the Grand Seiko brand internationally.)
Price hikes are the Swiss luxury watch industry’s go-to marketing strategy (if you want to call it that). This July 2014 chart from ABlogToWatch is instructive. You can see the price increases accelerating right around the time of the financial crisis.
As watches have become more expensive, the space for creativity and idiosyncrasy has grown smaller. Buyers who spend, in real terms, five times what a Submariner cost 40 years ago are going to be fewer and fewer and, crucially, more and more conservative about their purchase decisions.
The cost of making a mistake – whether that’s ending up with a watch that one falls out of love with or that doesn’t garner the recognition that one craves – is higher. One has to be either extremely confident or extremely eccentric to splash out on something that’s different from the rest of the crowd.
[The alternative explanation: the watch collecting world is populated by idiots. How else do you explain 96 people buying Hodinkee’s asinine $5900 travel clock?]
You can see this behavior everywhere. Why are cars painted boring colors? Because cars last 2-4x longer than they did in the 70’s or 80’s and represent a significantly higher share of income. Why are the interior of high-end houses boring white boxes? Because it’s easier to sell and the average price of a house has tripled in the last 20 years.
A truism: you should never have to need an explanation to sell something, Fifteen grand for a Rolex doesn’t need an explanation; spending $15k on a Romain Jerome absolutely does. Who wants that?
The timing of this trend couldn’t have been worse. In January 2020, Coronageddon slammed the brakes on the traditional watch industry, shuttering the bricks and mortar stores needed to move the metal. At the same time, lockdown floored the accelerator on the smartwatch industry, sold through Amazon and other direct-to-consumer channels.
One driving factor is fewer people spending their afternoons out shopping — especially tourists. Global luxury sales are forecast to drop roughly 29% in 2020, falling anywhere between $85 billion and $120 billion from a year ago, amid the decline in tourism, according to a report from the Boston Consulting Group . . .
Researchers at Harvard that have been tracking consumer spending also have found that consumption by high-income households remains far below pre-Covid levels, likely eating into luxury retailers’ sales.
The industry went dramatically upmarket just before the market disappeared. It’s back, but a shadow of its former self. Watchmakers are left with smaller markets supporting fewer manufacturers, creating great pressure for industry consolidation.
Some manufacturers can thrive on a small but dedicated clientele. But there’s a great middle-class of firms who need a minimum volume to survive. They can adjust as their market share slowly shrinks, but Coronageddon is pushing five years of shrinkage into six months. Companies with diverse income streams are going to hold out, but many of the smaller players are doomed.
Swiss watch manufacturers have backed themselves into this corner. They’ve been chasing too many dollars from too few consumers with too many products that cost too much. The bankruptcies predicted by analyst Oliver Müller back in May – “Between 30 and 60 ‘Swiss Made’ watch brands out of a total 350 will not survive” – remain inevitable.
“By my count,” Müller said, “a dozen watchmaking companies have already filed for bankruptcy since the beginning of the crisis.” So [unnamed] Swiss watchmakers are already operating under bankruptcy protection.
In one sense this is sad. We’re going to lose some of the vibrancy and creativity of the market. On the other hand, the decline will strengthen the hands of the remaining brands, saving the luxury watch industry from complete oblivion.