The Swiss watch industry is back on track after two difficult years in 2015 and 2016. A recovery in global sales that started in the second half of last year will continue in 2018. That’s the consensus of more than two dozen Swiss watch industry executives and retailers who spoke with HODINKEE at the SIHH salon that ran from January 15th to 19th in Geneva.
SIHH offers the first opportunity to take the pulse of the all-important luxury segment of the Swiss watch industry. There, 35 luxury watch producers presented their latest creations to retailers, collectors, and press. The vast majority of the exhibitors sell watches priced at $5,000 and up.
The mood at the five-day show was decidedly upbeat. “The sentiment is very, very positive,” said Chris Grainger, CEO of IWC Schaffhausen. “We’re seeing good momentum in most of the key markets.”
“Every traffic light is more or less green,” said Karl-Friedrich Scheufele, CEO of the Chopard Group, whose Ferdinand Berthoud brand exhibited at the show. “For 2018, in general, we are quite upbeat.”
“You have an overall luxury momentum which has been pretty strong in 2017, which should continue,” said Jean-Christophe Babin, CEO of Bulgari. (Bulgari did not exhibit at SIHH, but was among several brands that met the press in luxury suites in hotels around Geneva throughout the week.)
Executives reported a year-end surge in demand for luxury watches that continued at SIHH and contributed to the good vibes. Among the anecdotal evidence: Jean-Marc Pontroué, CEO of Roger Dubuis, whose top market is Hong Kong and whose average retail price is $60,000, learned during SIHH that his brand had its single best sell-out month ever in December 2017. “That’s the best indication of what’s going to happen in the next 12 months,” a beaming Pontroué said. H. Moser & Cie sold out its 60-piece, $32,000, limited-edition Endeavour Flying Hours watch on the first day of the show, according to CEO Edouard Meylan. “That’s never happened to us,” he said.
SIHH opened against a background of an increasingly strong global economy and a recovery year for the industry in 2017. A robust Chinese market and improved business in two of the industry’s top, but most troubled, markets – Hong Kong and the U.S. – boosted spirits at the show. American retailers said they had the best holiday selling season in years, thanks to strong demand for watches priced at $10,000 and up. (That was not enough, however, to prevent a third consecutive down year in terms of Swiss watch exports to the U.S.)
Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, confirmed that the industry is in a recovery phase. Swiss exports were up 2.7% at the end of 2017, which is “better than expected,” according to Pasche. His “cautiously optimistic” forecast for 2018 is for watch exports to jump another 3%. Others think it will be higher – for example, Babin predicts an increase of 6%.
Pasche and brand CEOs cited a number of factors fueling the recovery. “China is doing well and Hong Kong has stabilized,” Pasche said, referring to the industry’s number three and number one markets. “The United Kingdom is still good.” Last year, the UK staged a surprising surge to become the top Swiss watch market in Europe, passing traditional European watch powers Italy and Germany to become the industry’s fourth largest market. The jump has come in the wake of Brexit, which weakened the British pound and turned the UK into a shopping Mecca for tourists.
“The price of oil is up,” Pontroué said, which helps Middle East markets. “All our Middle East friends are happy.”
Another good omen: Swiss watch companies are hiring again after two years of job cuts. “In 2015 and 2016, we lost 2,000 jobs,” Pasche said. “Now hiring is better.”
Even the overvalued Swiss franc, which for years has forced Swiss watch prices up and profits down around the globe, is offering some relief, particularly in Europe. The Euro strengthened against the Swiss franc in the second half of 2017, making Swiss watches more competitive in the eurozone. “I think this is behind us now,” Scheufele said, of the franc problem. “It took the better part of two years, but we’ve reached the stage where this is not an excuse anymore.”
Ladies Lend A Hand
Ladies’ watches are also a factor in the Swiss recovery. Data released by the Richemont Group four days before the opening of SIHH showed that Richemont’s jewelry maisons (Cartier and Van Cleef & Arpels) outperformed its Specialized Watchmakers division by far in Richemont’s third fiscal quarter, which ended in December. (Richemont anchors SIHH. It founded the exhibition 28 years ago, and its 11 watch and jewelry brands dominate the show’s main arena, which holds 18 brands. Another 17 brands, mostly smaller independents, exhibit in a separate section.)
Sales by Richemont’s Jewelry Maisons were up 11% for the quarter (versus 1% for the watch division). That’s due to both ladies’ jewelry and jewelry watches, executives say. Nicolas Bos, CEO of Van Cleef & Arpels and recently-appointed member of Richemont’s board of directors, says that jewelry watches performed well in 2017, particularly in Asian countries, but also in the U.S. This year, he says, “We see the same type of trends and potential; it should be a good year as well.”
Van Cleef is most famous as a jewelry house, but its watch business has grown in recent years. That’s due to the stronger jewelry- watch market and its Poetic Complication series of unique, limited-edition complicated watches, for men and women. Babin of Bulgari and Scheufele of Chopard, both strong jewelry brands, also testify to recent growth in the ladies’ watch segment. “Some brands are discovering the ladies’ [market] now. We have known that for a long time,” says Scheufele with a smile.
A Cleaner Pipeline
One sign of better times, executives say, is that global pipelines, which were swollen with inventory two years ago, particularly in Hong Kong, are returning to normal. Some Hong Kong buyers, who had skipped SIHH for the past two years because of their high inventories, were back this year, ready to buy.
Retailers say that Richemont’s efforts, announced last year, to do a better job matching supply and demand are real and are paying off. Richemont characterized the third-quarter sales of its Specialty Watchmakers division as “subdued.” In fact, that was a good thing, “reflecting,” as Richemont stated it, “the continued monitoring of sell-in versus sell-out in the wholesale channel.” Failing to match supply and demand hurt Richemont in 2016, when it had to buy back €249 million worth of excess watch inventory. It learned a hard lesson. “Richemont [management] is controlling supply so that the brands don’t shoot themselves in the foot,” a U.S.-based Richemont brand executive says.
Brands reportedly are doing a better job of monitoring the shipments. At IWC, the process starts the day a new watch is launched at SIHH, says IWC’s Grainger. IWC uses data from a variety of internal sources to make better decisions much sooner about which watches to produce, in what quantities, and for which markets.
Another sign of the times: retailers and collectors said that, in general, the new watch crop was more “commercial,” i.e., designed and priced to appeal to a wide audience. Retailers applauded the trend; collectors not so much.
In the same vein, more brands stressed the “value-for-money” proposition this year. It’s a message Montblanc has been preaching for a while, says CEO Nicolas Baretzki. “Four years ago, before the market was more difficult, we said that we believe that value for money is important,” Baretzki says. “That whatever the price segment, we believe that we need to deliver more value to the customers. That’s why we have completely repositioned all the price points at Montblanc. Now many brands seem to come in the same direction.”
Baretzki defines the value-for-money offer as a watch that “you say, not only ‘I cannot not have that piece,’ but ‘At that price, I would almost be stupid not to take it.'” That piece for Montblanc at SIHH was the Geosphere worldtimer, the leading model in the new 1858 collection. It has three sub-dials: a dual-time-zone indicator at nine o’clock and two complex hemispheres that show local times around the world simultaneously. The watch sells for $5,600 in a steel case.
Another brand focused on key price points is Baume & Mercier, which competes in a lower price segment than most of its Richemont sister brands. “It started when we introduced the My Classima collection exclusively to the U.S. market at $990 in November 2016,” says CEO Alain Zimmerman. “The strategy was not to lower the brand but to add the access segment.” Baume has done that again this year with the Clifton Baumatic. It’s a COSC-certified chronometer watch with a movement developed by Richemont, featuring a silicon balance spring, lever, and escape wheel, a five-day power reserve, and anti-magnetism to at least 1,500 gauss. Its retail price is $2,590.
For all bullish indicators in Geneva, there remains an undercurrent of uncertainty about the global political and economic environment. Things can change overnight, some CEOs warn. “We all know, one thing happens and, all of a sudden, all your forecasts are obsolete,” Montblanc’s Baretzki says.
“It’s a roller coaster,” says Baume & Mercier’s Zimmerman. “I am cautious about trends. Everything around us is highly volatile: the financial markets, the political situation, the threat of terrorism.”
A. Lange & Söhne’s Wilhelm Schmid agrees. He cites the example of “all these blockchain currencies. If all that money goes bust – I think it is about $140 billion – immediately a lot of purchasing power will just disappear.”
Another CEO, assessing global risks, says to me, with a smile, “Not to mention your president,” referring to the conflict between the U.S. and North Korea.
The FH’s Pasche puts the Swiss franc on the risk list too. He welcomes the weaker franc, “but it can change quickly” he says. “We are living with this uncertainty. We hope the world remains quiet.”
If it does, the Swiss expect a good watch year.