Crisis takes its toll on the industry’s suppliers

Launched in 2002 with 92 exhibitors, the Professional Watchmaking-Jewellery Environment Show (EPHJ), joined three years ago by the Professional Microtechnology Environment Show (EPMT), is entirely given over to the industry’s all-important suppliers. This year’s show ended on a high note. With 360 exhibitors, including over 30 first-timers, it was a full house for the watchmaking side of the show. Microtechnology companies were also out in force, taking the total number of exhibitors to 515. As for visitors, 12.8% more people came to this year’s show – after a 27.5% increase in attendance last year – taking the total number of visitors to 11,500. “There were some cancellations in the watchmaking section, but these were immediately offset,” commented André Colard, president of the EPHJ committee. “Companies are well aware that in the current climate, they need to be seen by watchmakers who are constantly on the lookout for new ideas, and the kind of innovation that suppliers are often the first to provide.”

"The only option is to streamline the market"

And yet behind this rosy picture lies a very different story. “While the watchmaking houses are facing a difficult situation, their export volumes having dropped by over 25%, this is all the more true for their suppliers,” observed Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, in his opening address. “Sales of watches continue but stocks remain high. The only option is to streamline the market. This means cutting back production which in turn implies a drop in orders for components and, consequently, growing difficulties for suppliers. And yet Swiss brands need the skills their contractors provide. Remember that Swiss watchmaking remains in good health, having lost none of its market share, and should therefore be able to bounce back.”

Were exhibitors buoyed by this message of hope? Possibly not. Business already seems jeopardised for 2009 and suppliers’ main concern now is to salvage what they can. Behind the scenes at the show, there was talk of a drop in orders of 30% or more. Knowing that a group such as Franck Muller recently announced it was making 200 of its 428 staff redundant in the cantons of Vaud and Geneva, it’s easy to imagine this is only the tip of the iceberg. “That’s the problem,” explained Eric Thévenaz, regional secretary for Neuchâtel for the trade union Unia. “Suppliers have been busy these past few months, but if the brand they work for has pushed ahead with redundancies, they’ll be on the lookout for new openings. While there are some exceptions to the rule – one firm recently had to work Sundays to deliver prototypes in time for Basel – the fact remains that suppliers aren’t as financially sound as a brand. Their cashflow could dry up or banks may limit their line of credit. They might also face renewed pressure to produce at lower costs. Not to mention that brands don’t always take a responsible attitude. If they can bring work back under their roof, they do so to the detriment of their suppliers.”

"Suppliers have been hardest-hit"

The Geneva Chamber of Commerce has reached an identical conclusion, based on the findings of its latest economic survey, published last month. “The crisis hit the watchmaking sector relatively hard as of late 2008. However, this downturn must be seen from the perspective of the industry’s exceptional results in 2007. Independent brands, mid-range products and suppliers have been hardest-hit. In contrast, the effects of this crisis have had less of an impact on the very high end of the fine watchmaking sector. It posted an increase in revenues and profitability in 2008. However, the tendency in 2009 is for a reverse in these trends, exacerbated by job losses.”

With exports dropping 25% over the first four months of 2009, the watch industry is indeed struggling, particularly in countries such as the United States (-42.3% in April) and Japan (-34.8%), two of the main export markets. In this context, there could be a great deal more streamlining to come.