If you have followed the watch industry only a little bit in the past months, you have noticed the disappointing half-year results from the large groups such as the Richemont and Swatch Group. Both groups take different decisions on how to recover. Where Richemont restructured and said goodbye to a couple of hundred people, Swatch…
If you have followed the watch industry only a little bit in the past months, you have noticed the disappointing half-year results from the large groups such as the Richemont and Swatch Group. Both groups take different decisions on how to recover. Where Richemont restructured and said goodbye to a couple of hundred people, Swatch Group refuses to lay-off people and trust that the market’s pressure will make them come up with great innovative ideas and products to regain the consumer’s trust.
But what exactly happened that these billion dollar companies are suddenly in rough weather? Let’s take Swatch Group as an example. In 2016, profits declined by 47%, but still [had] a net income of CHF 593 million, equivalent to a net margin of 7.9%. In 2015, Swatch Group reported a net income of CHF 1 119 million.
One reason could be the foreign exchange losses, but more important we think: the consumers have gone back to normal. Where it used to be quite normal to spend your hard-earned cash on luxury, like watches, travelling etc. People turned it down a notch since the crisis. Although the economy is slowly recovering and shows good numbers in some countries, people did not forget what happened during the crisis. In the meanwhile, since the approach of many watch brands (and groups) is just to follow the markets where there is still money, they kept increasing the prices of their watches every year. Some even with +10% on an annual basis.
Also, interesting to witness is that tourists from China and Russia for example, are not spending in Europe or other places they visit outside their own countries.
It seems that the watch industry has shot itself in the foot by overcharging for their products, while their loyal customers from the past could hardly keep their head above the water during the crisis. It used to be ‘normal’ to buy a watch or two per year if you had a nice bonus, people now think twice before they spend their hard-earned money (or savings) on luxury items like a watch. They rather keep it aside just in case. They still feel the pain of what happened to large parts of the world during the crisis.
It seems that people’s spending habits have gone back to basics – a total reset. As a watch manufacturer, you have to do more effort to convince people you need (another) luxury timepieces. Some brands stay out of the heat, like Rolex. A Rolex is like currency, so a brand that you can easily turn to in difficult times as you know you won’t lose much if you need to sell it. Even better, with the annual price increases, the value of pre-owned Rolex watches develops in a nicer way than the current interest rate on your savings account.
Adjusting prices is not the only necessary measurement that needs to be taken (some brands already did, as we’ve seen at the Salon de Haute Horlogerie in Geneva. A watch brand needs to come up with a better proposition than that. Consumers want to be taken seriously and not feel like ‘just another customer’ to a luxury watch brands. For too long, brands just took customers money and didn’t even say thank you. Things have changed, and now they have to say thank you and for some brands, that is a very difficult thing to do it seems.
A watch brand needs to offer more bang for the buck. An annual price increase just for the sake of it won’t work anymore. We want to see more innovation, an updated movement for example, or more accessories that will come with the watch. Or simply to be taken seriously as a client and be part of the experience (e.g. a manufacture’s visit or to be a guest at these champagne events). Some retailers understand this better than the brands they are selling, they know how to treat clients. Give an accessory to persuade a customer, or to offer the first service (after three years) for free or special credit terms.
Let’s see what will happen in the rest of this year, have the brands understood their customers and come up with better propositions or did they stick to what they always did best? Slight modifications and charging a premium for it? The plus side, the preowned market has been very buoyant this year- offering customers more watch for the money. See our selection below.