As exports plummet, there was little chance of the Deloitte study* uncovering unplumbed optimism within the industry. Shipments of Swiss watches have hit a major bump in the road, having lost 11.3% in volume and 10.6% in value during the first half of 2016. This is their lowest level since 2009, and one that is in large part due to collapsing sales to Hong Kong. As the study notes, “in Q4 2011, Swiss watch exports to Hong Kong peaked at CHF 1.3 billion, but in Q2 2016 they dropped to CHF 592 billion, a decline of 54%. In July 2016, the US overtook Hong Kong as the number one market [for Swiss watches].” The vast majority of executives surveyed (82%) expect the downward trend observed over fifteen consecutive months to spill over into next year. The number of executives who are pessimistic about the outlook for the industry has therefore doubled since 2015.
Unsurprisingly, Hong Kong remains the industry’s bête noire: 57% of watch executives are bracing themselves for a decline in demand for Swiss watches in the region over the next 12 months. Europe offers little opportunity for light relief, given the drop in tourist numbers and the likely consequences of the Brexit. With Hong Kong and Europe out of the picture, this leaves North America as the most highly rated market, although the number of respondents who expect demand for Swiss watches to grow has fallen from 91% in 2015 to 49% in 2016. It should be noted that exports to the United States are down by almost 9% for the first nine months of 2016. Despite this, the study points out that “Swiss watch brands continue to believe in the short-term potential of this market. For example, Tag Heuer recently became an official timekeeper for Major League Soccer and Roger Dubuis opened its first retail shop in New York and is planning to open shops in other US cities. Other Swiss watch brands, which had focused on Asia over the past four years, are now also planning to expand in the US.”
The threat from the grey market
Among the challenges and risks facing the industry, the Deloitte study points to weaker foreign demand, ahead of the strong Swiss franc and smartwatches. One response to the first two concerns has been for brands to lower prices, as seen at IWC and Baume & Mercier in their mid-level collections; Blancpain has also lowered prices for some steel models. According to Deloitte, “the decision to cut prices seems to reflect the view that above inflation price increases are no longer sustainable, even for high-end brands. Time will tell if this is a good strategy or not.” Other causes for concern are counterfeiting and discount sales on the grey market, a consequence of surplus stock in some regions. This overproduction is driving the grey market, says the survey, and constitutes the biggest reputational risk according to 50% of the executives surveyed.
What strategies should the industry adopt in these stormy waters? For the vast majority of those surveyed (69%), new products are the best response. On the production side, 64% say they have already used 3D printing as a concept tool or to create prototypes. From a distribution perspective, digital sales channels are gaining ground. For the first time since 2012, the year the first study was published, over half the respondents viewed online resellers as the most important channel, while a quarter said their own e-boutique will be their priority channel. The survey reports, for example, that Tag Heuer is to launch a global e-commerce platform selling as many products as possible. In a similar vein, digital media are now a key part of marketing campaigns, with social media coming first followed by internet blogs.
What threat, if any, do smartwatches pose? The Deloitte survey leaves no room for doubt: “There is no sign at this stage that sales of Swiss wristwatches have been impacted by smartwatches especially since the entire Swiss watch industry is currently suffering, regardless of the price range.”
*The study is based on an online survey and discussions with executives, and a consumer survey which was conducted among 3,000 people in China, Germany, Italy, Japan, Switzerland and the US by the data collection provider Research Now. The online survey with executives was conducted between May and July 2016. A total of more than 50 watch executives participated.