Who could keep up with all the watches released during Watches and Wonders? HoDinkee! Editorially enabled by an online shop pimping 29 watch brands. Here on the one-man-band side of things, the horological Niagara left me bleary eyed, a bit bored and confused. How is this a good idea? The CEO of Hermès’ watches agrees that it isn’t, and provided bloomberg.com with an explanation for the Swiss watch glut . . .
After Switzerland exported more than 1 billion watches over the past four decades, luxury watchmakers are struggling with the paradox that they need to sell more yet make their products even more exclusive.
Some Swiss watchmakers reward sales managers too much for pushing too many products out into the market, according to Hermes’s watch chief.
“This remains a key illness of that business,” [Hermès watch unit CEO Laurent] Dordet said. “It may be less now, but as long as you have commercial people incentivized by key performance indicators, you will have overstock on the market.”
This is pretty much the same practice that helped GM on its long march to bankruptcy: channel stuffing.
When a watch leaves the factory, the watchmaker’s sales managers get a bonus – before the watch is sold. If the watch isn’t sold or ends up on the gray market, it’s no skin off the sales manager’s nose. There’s no reason for managers to want limited production, and every reason to lobby for increased production.
This is hardly the only factor driving the current Swiss luxury watch glut. The Bloomberg article also flags the COVID-19 pandemic’s obvious demand dampening effect and the rise and rise of the smartwatch. But the over-abundance issue is also a cultural problem; one that’s not so easily solved.
Driven by fear, Swiss watchmakers (and their competitors) are engaged in an endless (literal) arms race. If we don’t produce a constant stream of new watches the media will ignore us! We’ll disappear off the consumers’ radar! Besides, it’s all about choice. The more different models we make, the greater the chances of selling someone a watch. We’re on top of it!
As regular readers know, I don’t buy it. I reckon cutting the number of products and increasing the remaining watches’ profitability, marketing and sales is the best long term play. Avoid overchoice. Keep the brand tight! Of course, that assumes the big Swiss watch conglomerates could convince shareholders to think long-term. LOL. Meanwhile . . .
Swiss watch exports are still bumping along at the bottom, compared to 2020. Which wasn’t the industry’s best year. The industry’s convinced that a post-pandemic worldwide economic recovery will unleash a new “roaring 20’s” consumer spending binge that will restore it to its former glory. Yes, well, Rolex and Patek excepted, Swiss watchmakers are busy producing watches for a market that doesn’t yet exist.
Even if it a reinvigorated market soaks-up the Swiss watch glut, and then some, there’s still the problem of too many brands with too many models chasing a limited pool of consumers – that will continue to shrink as smart watches decimate low-end watch sales.
In short, unless the Swiss watch “bright shiny object” culture subsides, the Swiss watch glut is a systemic problem that will only be “fixed” when brands go belly-up.
It is hard to justify paying $200 for a quartz watch when a decent smart watch can be purchased for $100. I know nothing about the high end, but I know at the lower end, Orient, Seiko, Citizen, Undone, and even Invicta make very nice watches, but if Parnis or Bliger are honest and using Seiko or Citizen movements as advertised, I’d rather buy a sterile submariner homage from ebay for $80 than pay $120-$300 for a Seiko or Undone that was probably made at the same factory as the Parnis or Bliger.
Majority of Swiss luxery watch brans likely go belly up in some time (around next recession in 2-3 years). Only ones who well understand high end jewellery business have a chance to survive. They should cut production numbers and concentrate on very limited number of models but they should be innovating as well and not to produce same boring designs with outdated movements.
With all this glut, where are the lower prices?
Our man Adams is writing an article on this issue. Keep an eye out for it (not like Sammy Davis Jr.).
No problem, I come daily and leave the snark at Hodinkee. Ha! (3/4 comments end up being deleted and they’re not even close to offensive).
Indeed. Got a pile of bookmarked watches I’d love love looooove to buy at post-meltdown, masses-crying, flippers-broke, prices.
Not Rolex either. A nice Overseas maybe, or one of the countless other things currently in nutsey land price territory.
So the manufacturer’s customer is the dealer/distributor and not the end user? Why are the dealer/distributors overstocking? Is this merely a case of seeking to offer the most inventory or are there other incentives for the dealers?
As usually believed, the more watches they (dealers/distributors) order the lower is the price they get them for. The lower that price is the bigger margin they can count on once they dump those watches into the market. I’m sure that most of those retailers are hoping (praying..) the market will get into the much anticipated (Bloomberg News…) “V” market recovery and the shopping spree. Although, we all know what’s coming behind the next corner, INSANE inflation of a dollar. Good luck to the retailers and manufacturers. To us too…
I believe the overproduction story. And most everything else in the article.
But where are the resulting pricing meltdowns? Where are the crying masses of huddled dealers, begging us to buy these things are reduced prices? Even totally fringe VC models are pumped up to silly prices currently, and anything remotely not in full dog territory is being offered at top-of-market prices.
Who is buying all of these watches? Is it all the free money? Where is this cliff we keep hearing about, and waiting for them all to fall off?
Wait. From the linked post:
“The top three direct markets for Swiss watch exports saw significant increases in February. The United States (+8.8%) reported their first growth in eleven months, despite a basis for comparison that was already high in February 2020. China (+161.0%) suffered one of its biggest drops last year and saw its figures halved. It more than doubled its results last month and is already 25% higher than its 2019 benchmark”
Soooooo. Not really doom and gloom?
Check out the chart. The recovery still puts Swiss watch exports – not sales – well below historic, pre-pandemic numbers.