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Is this the end of Swiss entry-level watches?

Is this the end of Swiss entry-level watches?

Monday, 03 February 2020
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Fabrice Eschmann
Freelance journalist

“Don't believe all the quotes you read online!”

“In life as in watchmaking, it takes many encounters to make a story.”

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3 min read

Recently published statistics reveal a curious state of affairs: volume sales of Swiss watches are falling, but value and employment are increasing. In other words, the higher the price, the better the business.

The figures were released just a few days apart. For the second consecutive year, the number of jobs in the micromechanics and watchmaking segment in Switzerland increased, gaining 2.2% to 59,103 at end September 2019. That’s 4,200 more since 2017. At the same time, we learned that exports of Swiss watches had fallen in volume terms to 20.6 million units, losing 3.1 million units (-13%) in 2019 and 7.5 million since 2015. All this as the industry gains 3% in revenue. In other words, Swiss watchmakers are producing less but earning more and taking on new staff. How do we explain what looks like a dual paradox?

First discordance

Ever since the financial crisis of 2009, monitoring of the Swiss watch industry has revealed a cause and effect relationship between exports and employment: any rise or fall in sales was matched by a corresponding movement in the number of jobs. Until 2017, when the number of exports fell by 1.1 million units while revenue grew by CHF 500 million year-on-year. “I don’t think this is a new phenomenon,” says Jean-Daniel Pasche, President of the Federation of the Swiss Watch Industry (FH), “but it is the first time I’ve seen it happen since joining the Federation in 1993.”

The main reason volume sales haven’t picked up lies with quartz watches, which struggled that year (and still are) to win customer dollars against competition from Chinese-made fashion watches, smartwatches, but also products in other sectors such as leather goods or electronics. Add to this the impact of the new Swiss-Made criteria that came into effect on January 1, 2017. According to Pasche, some entry-level Swiss brands chose to drop the label, which effectively took them out of statistics.

Second paradox

A second paradox followed in 2018, when volume sales continued to contract (-600,000 units) but the sector started hiring again (+2,900 jobs). A repeat performance in 2019 raised legitimate questions. “This yo-yo effect isn’t new,” comments François Matile, secretary-general of the Convention Patronale de l’Industrie Horlogère (CP), an organisation of employers in the sector. “The number of jobs has tended to vary by 4% to 8%. What we are noticing are much closer, shorter cycles. It all goes much faster today.” Entry-level is relatively unaffected by these fluctuations, as Jean-Daniel Pasche explains: “This segment is already highly automated. Positive or negative, the impact on employment is therefore minimal.”

Swiss watchmaking is in the throes of a quiet revolution. For the past three years, growth in export value has come from watches with an ex-works price above CHF 3,000 (CHF 7,500 at retail). “The higher up the price scale you go, the more sales increase, and the further down the price scale you go, the more sales decrease,” confirms Pasche. As a result, hiring is almost exclusively linked to high-end production. If the situation continues, we could witness a paradigm shift: the foundations of the Swiss watch industry, historically made up of entry-level products such as the Swatch, could disappear – or at the very least considerably shrink in size. Does this mean the future lies with luxury? “It’s where 90% of revenue is made,” says Jean-Daniel Pasche. “But if the industry wants to remain the global leader, conserve its image and cover every market, entry-level has to stay. Then it’s a matter of finding people who are prepared to give it a go.”

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