For the Swiss watchmaking industry, 2016 is undoubtedly a difficult year. This is not a secret, but a fact that everyone knows. On December 20, the Swiss Watch Industry Federation (FH) released customs statistics. In November, Swiss watch exports were 1.86 billion Swiss francs, a decrease of 5.6% compared to the same period in 2015. So far, Swiss watch exports in the first 11 months of 2016 were 17.7 billion Swiss francs, a year-on-year decrease of 10.4% (Note: unless otherwise specified, the data in this article are for the first 11 months of 2016).
Difficulties facing the Swiss watchmaking industry
Swiss (mechanical and electronic) watch and movement export data for the first 11 months of 2016
Among them, the export value of finished watches was 16.7 billion Swiss francs, accounting for about 94.3% of the total export value, a decrease of 10.2% compared with the same period last year; the export volume was 23 million pieces, a total decrease of 2.77 million pieces, a 10.8% year-on-year decrease. In contrast, the decline in the export value of the movement (190 million) and the export volume (4.27 million) is even higher (-13.3% and -19.9% respectively). Among finished watches, mechanical watches and electronic watches accounted for 80% and 20% of exports respectively, and mechanical watches and electronic watches accounted for 27% and 73% of exports respectively. ?
The proportion and corresponding changes of the Swiss watch market by continent in the first 11 months of 2016
Asia is the most important market for Swiss watchmakers, accounting for nearly one-half (49%) of Swiss watch exports, but actual exports have fallen compared to the same period in 2015 (-12.0%). The European market and the American market accounted for one-third (34%) and 15% of Swiss watch exports, respectively, and the actual export value decreased by 8.6% and 9.9% year-on-year, respectively.
Export data of the world’s top 30 markets in the first 11 months of 2016
In terms of national and regional market segments, the Hong Kong market has recorded a decline for the 22nd consecutive month. Although it still holds the position of the largest export market for Swiss watches, the actual export value of 2.17 billion Swiss francs has fallen by 25.9% year-on-year, compared with the same period in 2014. Compared with that, it plunged 43.0%, and the steep decline was only comparable to the Russian market. The United States, Japan, and China’s mainland markets also declined to varying degrees. Of the world’s top ten export markets for Swiss watches and clocks, only the United Kingdom bucked the trend. The actual export volume increased by 4.8% and 24.2% year-on-year compared with 2015 and 2014.
Export data of Swiss watches in different price bands in 2016
In terms of materials, precious metal watches and stainless steel watches accounted for 39% and 37% of exports, precious metal watches and stainless steel watches accounted for 2% and 54% of exports, respectively. Exports accounted for 14% and 5%, respectively. Among them, precious metal watches mainly affect exports, while stainless steel watches set the tone for the decline in export volume. In contrast, the decline in exports and exports was mainly affected by high-priced products and low- and medium-priced products, respectively.
Swatch Group’s first half of 2016 net profit fell 52.0% year-on-year
The financial reports released by the major watchmaking groups, especially Richemont and Swatch, also prove that the downturn in the entire industry will not end immediately. On November 4, Richemont Group released its financial report. In the first six months ended September 30 this year, Richemont Group’s profit was 540 million euros, a sharp drop of 51% year-on-year; sales were 5.09 billion euros, a year-on-year decrease. 13%. In addition to the significant decline in sales of Richemont Group, when the Swatch Group released its semi-annual financial report on July 21 this year, it also showed a worrying performance, and its net profit in the first half of the year fell by 52% year-on-year.
Swiss watch export data from 2010 to 2016
On the whole, from around 2014, Swiss watch export data began to fluctuate, from extreme growth to slow growth, and negative growth in 2015. What I have to admit now is that the ‘Wolf Is Coming’ Qiren worry has evolved into a gloomy cloud covering the entire industry. The good times have waved goodbye. Even the two major events recognized in the watch industry, the SIHH in Geneva and the Baselworld 2016 (Baselworld 2016), the Group’s brand promotion is not as strong as ever. ‘Clocks and Miracles’ Asia’s Haute Horlogerie Exhibition has changed from an annual to a biennial.
Tracing the source and exploring the reasons
So, we cannot help asking, why? On the economic front, the global economy continues to slump, and international crude oil prices have plummeted. Specific to the Chinese market, the overall economy is slowing down, and the stock market is chaotic. Capital is neither invested in industry nor used for consumption, but instead bets on the property market and fuels the bubble.
Politically, the Chinese government has vigorously rectified the administration of officials, the US presidential election is full of uncertainties, the shadow of terrorist attacks has been shrouded in France, and the situation in Hong Kong and France is different, but tourism sales have been deeply affected.
On the currency front, the Swiss franc is strong (the Swiss National Bank announced in January that it had abandoned its exchange rate ceiling, the Swiss franc has appreciated significantly, and the cost of watchmaking brands mostly in Switzerland has risen). In 2015 and 2014, year-on-year decreases of 18.7% and 46.0% respectively, and the devaluation of the RMB (also bad for Swiss watch imports). Among the top ten export markets of Swiss watches and clocks, the only British market that bucked the trend, benefited from the tourism sales bonus brought by the devaluation of the pound after the Brexit referendum.
The impact of smart wearables, especially the Apple Watch. Although Swiss watch brands don’t take it seriously, it is undeniable that the Apple Watch attracts young consumers who are keen on fashion and intelligence. Apple Watch was officially launched in April 2015. In May 2015, Swiss watch exports began to grow negatively, which is a coincidence.
The secondary market is booming, but the entire watchmaking industry is suffering. The secondary market is full of second-hand watches and high-discount new products. Well-maintained second-hand watches are extremely aggressive and competitive. Other authorized dealers are dumping new products at high discounts at nearly cost prices. Retail sales are getting worse.
Response measures, outlook
The entire watchmaking industry is in trouble. According to Bloomberg, about 1.3 billion Swiss francs (8.9 billion yuan) worth of watch products were returned to Switzerland in 2016. Luxury watch sales have slowed down and there is an oversupply in the retail channel. Swiss watchmakers have to repurchase slow-selling inventory from retail partners, but this is tantamount to quenching thirst.
In terms of major groups, Richemont Group responded quickly and announced the reorganization of senior management. Chief executive Richard Lepeu and chief financial officer Gary Saage are about to leave. Brand leaders such as Van Cleef & Arpels, IWC and Montblanc have risen to the board of directors, demonstrating their determination to change, and the company’s stock price has risen.
Because the watch business occupies a considerable proportion of the entire group’s business, the Swatch Group is deeply affected by the downturn in the industry. Not long ago, the Competition Commission (Comco) rejected the Swatch Group’s request for all third-party customers to provide and sell unpurchased ETA movements, which said that ETA would have to consider significantly increasing the price of movements. In this way, the price increase of watches using ETA movements has almost become inevitable.
In the first half of 2016, the endogenous revenue of the LVMH Group’s watch and jewellery segment increased by 4%, and the profit from continuing operations remained stable. It stood out, and Hublot and Tag Heuer achieved double-digit sales growth. Taking Tag Heuer as an example, it readjusted its brand positioning, actively carried out cross-border cooperation, and even tested water smart watches. The development strategy of youth, fashion and nationalization was a great success. Jean-Claude Biver once said: ‘In a mature but crisis-prone market, creative innovation is the only way to restore growth.’ Hublot and TAG Heuer, at his helm, have achieved innovative technological and marketing development.
Zenith has lowered the price of 14 models of the El Primero and Elite series
For brands, the introduction of antique replicas and entry-level mechanical models is relatively secure. Whether the replicas have been recognized by the market, or the introduction of affordable entry-level mechanical models, it is easy to reach more consumers. In addition, reasonable adjustment of product prices is also an option. In March of this year, Zenith reduced production and cut prices for a total of 14 models in the El Primero and Elite series.
TAG Heuer Connected Smart Watch
Apple released Apple Watch, Swiss watch brands can also launch smart watches to grab the market. The Breitling Outer Space Chronograph B55 and Frederique Constant Horological Smartwatch are both useful attempts. In particular, the Connected smart watch launched by Tag Heuer in cooperation with Google and Intel has been warmly welcomed by consumers. It is reported that this watch will further increase production and enter the market next year.
In general, those who can make their own movements, dials and cases have an advantage over brands that do not have this ability, because the former is obviously easier to adjust and change the steering direction in the face of a rapidly changing market. Moving towards vertical integration is not a short-term shortcut and more test of strength, but it is a fundamental choice about development strategy. Independent family watchmaking companies such as Patek Philippe and Chopard benefit from it.
Export data of major Swiss watch markets in November 2016
According to data released by the Swiss Watch Industry Federation, the export value of Swiss watches to the Hong Kong market in November 2016 fell by only 0.7% year-on-year, which seems to have bottomed out. As for the mainland China market, the government encourages consumption to promote economic growth and severely cracks down on overseas purchasing. Related brands are also actively responding and readjusting prices. It is reported that in October 2016, the sales of Cartier and Van Cleef & Arpels under the Richemont Group have increased significantly. The Swiss watchmaking industry has a long and prosperous road to rejuvenation, but after two years of gloomy dark tunnels, the end has shimmered. Of course, this depends on and thanks to the perseverance and efforts of every practitioner and consumer.
Finally, a few words. In the past few years, the luxury watchmaking industry has flourished and even grown savagely. Some brands have enjoyed high profits but ignored the follow-up and improved service quality. You are welcome to say that when it comes to luxury products, customer experience is paramount. If the watchmaking brand is despised when the economy is booming in the buyer’s market, how can consumers rely on feelings to maintain bonds when the economy is down and their wallets are over?