BASELWORLD, a giant watch fair that ended last week, usually
runs like clockwork. Companies show off new products and higher sales follow.
However, something seems to have jammed. Exports of Swiss watches sank by a
tenth in 2016, the worst performance since the financial crisis. Swatch, the
world’s biggest watch company, saw profits plunge by 47%. In February exports
were 10% lower than they had been a year earlier.
Swiss watchmakers have been around for long enough not to
panic: Blancpain, owned by Swatch, dates back to 1735; Vacheron Constantin,
owned by Richemont, a Swiss luxury conglomerate and Swatch’s closest rival, was
founded 20 years later. In La Chaux-de-Fonds, a watch-manufacturing hub,
workers toil much as they always have, at chin-high desks, using slim
instruments to assemble springs, wheels, jewels and other tiny parts. But
swings in demand have of late been particularly extreme.
The period from around 2004 to 2012 saw high growth. Chinese
shoppers accounted for about half of Swiss watch sales during that time,
reckons Thomas Chauvet of Citi. Manufacturers introduced pricier products and
raised the cost of existing ones. The financial crisis was a blip. Chinese
demand for watches, as for handbags and fashion, has since waned. Fewer Chinese
are buying watches in Europe, due to higher import duties and fears of
terrorism. Sales in Hong Kong, the industry’s most important market, remain
depressed.
In the longer term, the worry in the industry concerns the
young. Apple now claims to be the world’s second-largest watch brand, after
Rolex. “Will they consider the watch as a possible status symbol or as an
information-tool or as a design product?” asks Jean-Claude Biver, who runs the
watch business at LVMH, a luxury-goods conglomerate. “Who knows?”
Watchmakers are often slow to recognise changes in demand;
many firms are only now starting to track which models sell to which consumers,
where. Even for watchmakers with better data, the meticulous nature of making
and assembling components means they will find it hard to build a flexible
supply chain.
Firms’ responses to the challenges have varied. Swatch is
mostly carrying on as usual. As for Richemont, last year it bought back older
inventory from the stores it distributes to in order to clear shelf space for
new models.
At LVMH, Mr Biver is also trying hard to hook millennials:
about two-fifths of advertisements are directed at those who cannot yet afford
his firm’s watches. Last year its TAG Heuer brand introduced a connected watch
developed with Google and Intel, which sold well. Other brands seem set to
follow its lead: next month Richemont’s Montblanc will start selling a
smartwatch with a heart-rate sensor and a built-in microphone, among other
features. But the smartwatch category itself is far from established. In
trendsetting Silicon Valley and elsewhere, the status timepiece of choice is
often a smartphone.
edited from The Economist
