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The watch market polarises in 2019
Economy

The watch market polarises in 2019

Monday, 16 December 2019
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Christophe Roulet
Editor-in-chief, HH Journal

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4 min read

The gap continues to widen between luxury watches and entry-level, resulting in a slight increase in total export value alongside a drastic decline in volume. Suppliers suffer as the sector becomes increasingly consolidated.

Social inequality is a burning topic right now, as anyone living through the strikes and protests that have rocked France for months will tell you. In watchmaking too, the same gap can be observed between the top of the pyramid that’s in (pretty much) great shape and the bottom which is starting to show cracks. The late Nicolas G. Hayek said it many times over: the Swiss watch industry cannot get by without a solid industrial base. The saviour of Switzerland’s third largest export industry is best remembered as the genius behind the Swatch; less well-known but equally important are the efforts he deployed to maintain all-important production capability. By saving the jewels of a toppled crown, which in 1983 merged to become SMH – the future Swatch Group –, he put Swiss watchmaking on the road to recovery. The following decades would more than prove him right.

For the period to end October 2019, export volume for Swiss watches contracted by 13.1% to 17.1 million units.

It would seem Nicolas G. Hayek’s precepts are no longer heard. For more than a decade, Swiss watch production overall has been steadily shrinking in volume terms. Export figures – the only data available – confirm a drop in volume since 2010 in the region of eight million units. Closer analysis reveals that electronic watches at lower price points have been hard hit, having contracted by 11 million units over the period in review; a drop only partially offset by mechanical watches. This year is no exception as export volume to end October 2019 fell by 13.1% to 17.1 million units. This means around 2.5 million fewer watches were shipped. This decline in volume contrasts with a small upswing in the value of exports, which grew 2.7% to reach CHF 16.9 billion – a gain driven exclusively by high-end pieces.

Stormy weather

Put simply, over ten years Swiss watch production (based on export figures) has decreased by a third in volume terms (23.7 million units in 2018) but increased by a third in value (CHF 19.9 billion in 2018). Any drop in the number of quartz watches produced obviously means lower demand for external components (cases, dials, etc.) and therefore less work for suppliers. Interviewed in the Swiss press, Alain Marietta, manager of Metalem, a dial-making company in Le Locle, said orders were “stalling”. “We’re heading into fog,” he declared, “with no sign of any high pressure next year to clear it.” Some firms are already laying off staff in response to what many consider to be a bleak business environment. Many, but not all. For the industry’s luxury names, 2019 is turning out to be a great year. It’s been plain sailing for the likes of Kering, Hermès, Richemont and LVMH, which have recorded increases in sales in the region of 10% and sometimes considerably more; this despite uncertainty surrounding business and tension in Hong Kong. LVMH’s takeover of Tiffany for USD 16.2 billion is proof of the luxury giants’ insatiable appetite and of consolidation within the sector. This is most in evidence in the watch sector, where some 15 Swiss brands have cut themselves four-fifths of the global cake. With the exception of Tissot and partially Longines (both owned by Swatch Group), they are all active in the high-end mechanical segment.

What to say of the 28 million Apple Watches sold this year. That's more than all Swiss watchmakers put together.

The logical response is to ask how much of this is down to smartwatches. Granted, the decline in production volume started before smartwatches came onto the scene. But what to say of the 28 million Apple Watches that the Cupertino tech giant is expected to sell this year, according to IDC. That’s more than all Swiss watchmakers put together and almost half a market that finds itself in direct competition, with electronic watches proposed at the same price point. This certainly isn’t something Fine Watchmakers need lose any sleep over. These are different products with infinitely different lifespans and very different appeal. Indeed, figures show that high-end watches continue to sell well. But it’s a different story the further down the value scale we go, and it’s these steady losses that are picking holes in Switzerland’s industrial fabric. The question being: will Swatch Group come to the rescue again?

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