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From Switzerland with Love
Economy

From Switzerland with Love

Wednesday, 24 September 2014
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Christophe Roulet
Editor-in-chief, HH Journal

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4 min read

As connected watches arrive in droves on the market, Swiss watchmaking continues to lay the groundwork for future conquests, with one major “practical” consideration: movement production. Mechanical, of course.

No sooner had the likes of LG and Samsung taken IFA – the global trade show for consumer electronics in Berlin – by storm with their connected watches than technophiles were already gearing up for the launch of Apple’s own smartwatch. Around the same time, in early September, Vincent Perriard, who after stints at TechnoMarine and Concord coined HYT (Hydro Mechanical Horologists), announced the arrival of Dominique Renaud, concept watch specialist and, alongside Giulio Papi, a former half of the watchmaking entity that is now part of Audemars Piguet. Both events registered on the horological radar, but with nothing like the same intensity as the announcement, late July, that Ulysse Nardin had been bought by Kering for an estimated CHF 800 million: four times turnover and thirteen times operating profit.

Switzerland is in trouble.
Swatch sleeps easy

How, apart from their common denominator of watchmaking, might these three news items interest us? First, and by no means least given the California firm’s track record for products that revolutionise our lifestyle, is the response to the Apple Watch. Months ahead of the unveiling, the internet was buzzing with speculation among technogeeks, all desperate to get their mouse into some solid information. Certain quarters are already predicting a slow and painful death for Swiss watchmaking: Apple’s chief designer is said to have expressed his belief that “Switzerland is in trouble” in no uncertain terms. But not everyone buys into this gloomy prediction. How else can we explain Kering’s advances in the watch and jewellery segment these past two years. The French multinational is clearly set on making a name for itself in the sector, and is willing to pay the price through acquisitions such as Pomellato, Girard-Perregaux, and now Ulysse Nardin.

In an interview to Swiss magazine L’Hebdo, Swatch Chief Executive Nick Hayek showed himself to be completely unfazed by this potential threat. “If the only reason to wear a watch was to know the time, the watch industry would have disappeared long ago,” he declared. “I remember when the first mobile phones came out. Journalists were coming to us and asking would we still be able to sell watches now that these devices gave the time much more accurately. The market for watches has done nothing but grow ever since, especially mechanical watches! New products are a fabulous opportunity to reach the millions of people who don’t wear a watch.” The message is clear.

Swiss mechanical watches represent 0.6% of the sector.
A drop in the ocean

The collaboration between HYT and Dominique Renaud says much the same thing. The brand may take a highly original approach to time, based on an alliance of fine watchmaking and fluid technology, its roots are no less mechanical; the same gears and wheels that continue to enthral across all five continents. According to figures published by the Federation of the Swiss Watch Industry, Swiss mechanical watch production amounted to 7.4 million pieces in 2013. While this may represent an almost 75% increase over five years, it should still be viewed within the wider perspective of global figures, with 1.2 billion watches produced worldwide last year. In other words, on international markets, Swiss mechanical watches represent 0.6% of the sector.

Taking this reflection a step further, International Data Corporation (IDC) forecasts 1.25 billion smartphone shipments this year. Assuming, in a more or less near future, a similar number of connected watches, will they really be a threat to the mechanical watch, still with its less than 1% market share? Notwithstanding the respect Apple may inspire, we could have expected its marketing argument to at least be as smart as its phones. In this particular instance, a new battle of David against Goliath seems highly unlikely as David’s watch, and perhaps Goliath’s too, stands no comparison in its field. One certainly won’t try and steal the other’s thunder. It’s a simple question of “each to its own”.

The focus: movement production.
Other challenges

The continued manoeuvring within the sector is proof patent that watchmakers aren’t holing up behind barricades. The Ulysse Nardin takeover is one example. Independent brands are all potential targets for multinationals’ voracious appetite, but only a handful of them remain. And when financial conditions are those which prevailed over the acquisition of Ulysse Nardin, we enter a stratosphere of mergers and acquisitions. Already, in early 2013, Swatch Group paid out CHF 900 million to take over the king of diamonds, Harry Winston. And this is nothing compared with the CHF 2.8 billion it would take to pocket an Audemars Piguet, or the more than CHF 3 billion for a Chopard. As Swiss business magazine Bilan points out, in this little game of speculation, Franck Muller and Breitling would go for CHF 1.2 and 1.4 billion respectively, and Richard Mille for CHF 550 million. If, that is, these brands were prepared to put a price on their independence, which is anything but sure.

In such an exiguous market, the focus has shifted onto what will certainly be one of the biggest challenges the profession will have to face in the coming years: movement production. Another reason Nick Hayek can appear so serene is that the 18 brands under his stewardship can count on Swatch Group’s world-class industrial resources for their movement supply. Furthermore, as the group phases out delivery of calibres and parts to third-party brands, as the Swiss competition watchdog Comco has authorised, additional capacity will become available for its own needs. Given that only a rare few Swiss watchmakers have the means to bypass the multinational for all or part of their calibres, movement supply is a very real threat and a far more serious one than connected watches. Alternative solutions are springing up, but will they be sufficient?

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