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Sales to hit all-time high?
The watch industry is now safely out of the woods after the 2009 financial crisis. By CHUANG PECK MING
A GLORIOUS future lies ahead for the watch industry, still led and shaped by the Swiss. Yet caution is the watchword on the lips of many in a business that has just gone through its darkest hour since the quartz invasion in the 1980s. There is even uneasiness as sales pick up against the backdrop of a shaky recovery in the wider economy, with changing customer tastes and buying habits. The thought that's on the minds of many watch executives now is probably this: You can never tell.
For it was just three years ago, in 2008, that they were riding on a new high with the best sales ever. Then suddenly within a year, almost without warning, their world came crashing down when the Great Recession wiped out up to a third of sales.
However, business has returned with a promise of more to come. Shipments of Swiss timepieces bounced back last year (2010) at a 22.7 per cent clip from the year before to hit a near-record of SFr 16.2 billion (S$25.7 billion). The big turnout this year at the key SIHH and Baselworld watch shows in Geneva - Baselworld saw visitor numbers jump 10 per cent from 2009 - is further proof that the industry is out of the woods.
A happy Baselworld show director Sylvie Ritter declared that the watch business is back in 'full health'. Observers say there was a positive spirit at the annual fairs, with brands unafraid to offer big ticket items.
Sales growth of the Richemont Group, owner of names like Vacheron Constantine, IWC, Jaeger-LeCoultre and Cartier, rose 33 per cent to 6.9 billion euros (S$11.9 billion) for the year ending March 2011, while profits were up 63 per cent. The Swatch Group, which has in its stable Omega, Breguet, Glashutte, among others, reported that January 2011 was its best January on record and the fourth best month ever for sales.
The sentiment of many - both observers and those in the trade, including The Hour Glass' Michael Tay - is that this year is on course to set new sales records for timepieces. Analysts are seeing growth of at least 10 per cent, as Asian buying - the Chinese especially - stays strong.
Swiss watch shipments to China jumped 40 per cent in the first quarter, catapulting the Chinese market from 10th in 2010 to the third largest in the first three months of 2011 for Switzerland. Hong Kong, at No 2 last year, knocked off the United States to become the biggest market, while Singapore jumped from eighth to fifth biggest.
Wealthy Chinese are said to now own an average 4.4 luxury timepieces each. Some Swiss watch executives estimate that Chinese customers account for up to six of every 10 Swiss watches sold in the world. 'The Chinese market is only at the beginning,' Hublot boss Jean-Claude Biver told The Financial Times. 'We probably have another 20 years before we should worry.' But after that, he pointed out, there will be the South American market, the Indians, the Vietnamese and Indonesians.
In any case, Swiss export sales through March this year - up 14.7 per cent - have raced past those in the peak year of 2008 for the industry. And many, notably high-fashion names traditionally not in the watch business, are jumping into what they see as a business with still plenty of room to grow.
LVMH, the world's biggest luxury group, is expanding its watch line by snapping up smaller sized pushers. At the same time, it's pushing on in beefing up its Louis Vuitton timepieces, reinventing Zenith and raising the profile of TAG Heuer. Hermes is opening more watch boutiques and unveiling new models. Zegna, the Italian men's apparel house, has inked a 10-year deal with Girard Perregaux.
Still, the rosy picture in the early part of the year was tainted by the huge earthquake and tsunami in Japan and the political uprisings in the Middle East. These kept watch executives on edge, for the Japanese and Arab markets account for about 15 per cent of Swiss exports. Worse, the troubles in these markets could have derailed the unsteady global economic recovery on which the industry's fortunes hinge.
Longtime Rolex executive Jacques Duchene, chairman of Baselworld's Exhibitors' Committee, echoes the disquiet. 'Let us avoid the pitfall of being too certain of victory,' he was quoted as saying in WatchTime, a US bi-monthly watch magazine. 'Although the movement appears to be heading in the right direction, our uncertain geopolitical situation still makes it imperative for us to be cautious.'
A cloud of uncertainty still hangs over the industry as bankruptcy threatens America and parts of Europe, a threat if it turns out true will make the Lehman Brothers fallout look trifle by comparison.
Meanwhile, the crisis that Lehman's fall triggered has burnt the pockets of enough consumers to alter radically spending patterns. And this has been perhaps most marked in the purchase of luxury timepieces. People still buy watches, as the sales figures tell. But watch retailers say customers have become more discerning and are asking a lot more questions. They are taking longer to decide. And when they make up their minds, the tendency now is to splash on fewer but more expensive timepieces.
Says Caroline Scheufele, Chopard's vice-president: 'People are saying I would rather have one amazing piece. I know I have the value and the pleasure, rather than having lots of smaller things that come and go.'
Back to classic
Customers in the high-growth Asian market led by China are turning back to watches that look more like a watch - slim, classic with smaller cases. So virtually all the big names in the business like A Lange & Sohne, Audemars Piguet, Vacheron Constantin, Piaget, Cartier and Jaeger-LeCoultre have produced 'ultra-thin' or 'extra-thin' models for this year's watch shows in Geneva. Even independent Richard Mille, which has made its name in big, macho timepieces, has jumped on the bandwagon with an 'extra flat' watch.
The trend towards non-traditional case metals also stood out at SIHH and Baselworld this year, where there was an abundance of watches that featured ceramic, carbon fibre and coatings that included PVD (physical vapour deposition) and DLC (diamond-like carbon). Zenith unveiled its own exclusive house alloy called Alchron, a blend of steel and aluminium which has high resistance to corrosion. This is one of the attractions of the brand's new El Primero Stratos Flyback.
Another key trend is the big shift towards complications in ladies' timepieces - and this year's hot complication for both sexes seems to be the GMT and world-timer watches. Patek Philippe is encouraging the trend. Following its First Lady Chronograph 2010, the brand offered its first-ever ladies' world-time watch this year. Patek also introduced a ladies minute repeater and a ladies' split-second chronograph.
The greater appreciation of the inner beauty of timepieces among lady-watch lovers has not sounded the death knell for the bling-bling models that have come to symbolize the excesses and extravagance of the past decade. Diamond-watch demand remains strong - and even men have started to fall in love with them.
As demand shoots up and grows more complex, the industry is struggling to meet orders. And this doesn't help when there's a shortage in components and skilled craftsmen. Swatch is pumping SFr65 million (S$98.6 million) to nearly double production at Breguet and earmarking SFr85 million for a new Omega assembly line. It also plans to hire up to 1,500 workers - or 6 per cent of its workforce - in Switzerland alone.
Raw material prices, notably gold, have meanwhile soared. How hard this will hit the bottom line depends on how much the industry can pass on the price rises to consumers. A super stronger Swiss franc and a weaker US dollar help to cushion the spikes in precious metal and diamond prices which are mostly priced in dollars.
Still, many regard the strong currency, which reached a new high against the dollar in March, as the biggest threat to the industry in the near future.
Nicole Brandle, a Credit Suisse analyst who predicts strong sales for the Swiss watch trade in 2011, warns in WatchTime: 'The Swiss franc could spoil the party. If the franc remains so strong, pressure on exporters' margins will rise and they will be forced increasingly to cut costs.'
The Business of Time
Published August 26, 2011
Sales to hit all-time high?
The watch industry is now safely out of the woods after the 2009 financial crisis. By CHUANG PECK MING
A GLORIOUS future lies ahead for the watch industry, still led and shaped by the Swiss. Yet caution is the watchword on the lips of many in a business that has just gone through its darkest hour since the quartz invasion in the 1980s. There is even uneasiness as sales pick up against the backdrop of a shaky recovery in the wider economy, with changing customer tastes and buying habits. The thought that's on the minds of many watch executives now is probably this: You can never tell.
For it was just three years ago, in 2008, that they were riding on a new high with the best sales ever. Then suddenly within a year, almost without warning, their world came crashing down when the Great Recession wiped out up to a third of sales.
However, business has returned with a promise of more to come. Shipments of Swiss timepieces bounced back last year (2010) at a 22.7 per cent clip from the year before to hit a near-record of SFr 16.2 billion (S$25.7 billion). The big turnout this year at the key SIHH and Baselworld watch shows in Geneva - Baselworld saw visitor numbers jump 10 per cent from 2009 - is further proof that the industry is out of the woods.
A happy Baselworld show director Sylvie Ritter declared that the watch business is back in 'full health'. Observers say there was a positive spirit at the annual fairs, with brands unafraid to offer big ticket items.
Sales growth of the Richemont Group, owner of names like Vacheron Constantine, IWC, Jaeger-LeCoultre and Cartier, rose 33 per cent to 6.9 billion euros (S$11.9 billion) for the year ending March 2011, while profits were up 63 per cent. The Swatch Group, which has in its stable Omega, Breguet, Glashutte, among others, reported that January 2011 was its best January on record and the fourth best month ever for sales.
The sentiment of many - both observers and those in the trade, including The Hour Glass' Michael Tay - is that this year is on course to set new sales records for timepieces. Analysts are seeing growth of at least 10 per cent, as Asian buying - the Chinese especially - stays strong.
Swiss watch shipments to China jumped 40 per cent in the first quarter, catapulting the Chinese market from 10th in 2010 to the third largest in the first three months of 2011 for Switzerland. Hong Kong, at No 2 last year, knocked off the United States to become the biggest market, while Singapore jumped from eighth to fifth biggest.
Wealthy Chinese are said to now own an average 4.4 luxury timepieces each. Some Swiss watch executives estimate that Chinese customers account for up to six of every 10 Swiss watches sold in the world. 'The Chinese market is only at the beginning,' Hublot boss Jean-Claude Biver told The Financial Times. 'We probably have another 20 years before we should worry.' But after that, he pointed out, there will be the South American market, the Indians, the Vietnamese and Indonesians.
In any case, Swiss export sales through March this year - up 14.7 per cent - have raced past those in the peak year of 2008 for the industry. And many, notably high-fashion names traditionally not in the watch business, are jumping into what they see as a business with still plenty of room to grow.
LVMH, the world's biggest luxury group, is expanding its watch line by snapping up smaller sized pushers. At the same time, it's pushing on in beefing up its Louis Vuitton timepieces, reinventing Zenith and raising the profile of TAG Heuer. Hermes is opening more watch boutiques and unveiling new models. Zegna, the Italian men's apparel house, has inked a 10-year deal with Girard Perregaux.
Still, the rosy picture in the early part of the year was tainted by the huge earthquake and tsunami in Japan and the political uprisings in the Middle East. These kept watch executives on edge, for the Japanese and Arab markets account for about 15 per cent of Swiss exports. Worse, the troubles in these markets could have derailed the unsteady global economic recovery on which the industry's fortunes hinge.
Longtime Rolex executive Jacques Duchene, chairman of Baselworld's Exhibitors' Committee, echoes the disquiet. 'Let us avoid the pitfall of being too certain of victory,' he was quoted as saying in WatchTime, a US bi-monthly watch magazine. 'Although the movement appears to be heading in the right direction, our uncertain geopolitical situation still makes it imperative for us to be cautious.'
A cloud of uncertainty still hangs over the industry as bankruptcy threatens America and parts of Europe, a threat if it turns out true will make the Lehman Brothers fallout look trifle by comparison.
Meanwhile, the crisis that Lehman's fall triggered has burnt the pockets of enough consumers to alter radically spending patterns. And this has been perhaps most marked in the purchase of luxury timepieces. People still buy watches, as the sales figures tell. But watch retailers say customers have become more discerning and are asking a lot more questions. They are taking longer to decide. And when they make up their minds, the tendency now is to splash on fewer but more expensive timepieces.
Says Caroline Scheufele, Chopard's vice-president: 'People are saying I would rather have one amazing piece. I know I have the value and the pleasure, rather than having lots of smaller things that come and go.'
Back to classic
Customers in the high-growth Asian market led by China are turning back to watches that look more like a watch - slim, classic with smaller cases. So virtually all the big names in the business like A Lange & Sohne, Audemars Piguet, Vacheron Constantin, Piaget, Cartier and Jaeger-LeCoultre have produced 'ultra-thin' or 'extra-thin' models for this year's watch shows in Geneva. Even independent Richard Mille, which has made its name in big, macho timepieces, has jumped on the bandwagon with an 'extra flat' watch.
The trend towards non-traditional case metals also stood out at SIHH and Baselworld this year, where there was an abundance of watches that featured ceramic, carbon fibre and coatings that included PVD (physical vapour deposition) and DLC (diamond-like carbon). Zenith unveiled its own exclusive house alloy called Alchron, a blend of steel and aluminium which has high resistance to corrosion. This is one of the attractions of the brand's new El Primero Stratos Flyback.
Another key trend is the big shift towards complications in ladies' timepieces - and this year's hot complication for both sexes seems to be the GMT and world-timer watches. Patek Philippe is encouraging the trend. Following its First Lady Chronograph 2010, the brand offered its first-ever ladies' world-time watch this year. Patek also introduced a ladies minute repeater and a ladies' split-second chronograph.
The greater appreciation of the inner beauty of timepieces among lady-watch lovers has not sounded the death knell for the bling-bling models that have come to symbolize the excesses and extravagance of the past decade. Diamond-watch demand remains strong - and even men have started to fall in love with them.
As demand shoots up and grows more complex, the industry is struggling to meet orders. And this doesn't help when there's a shortage in components and skilled craftsmen. Swatch is pumping SFr65 million (S$98.6 million) to nearly double production at Breguet and earmarking SFr85 million for a new Omega assembly line. It also plans to hire up to 1,500 workers - or 6 per cent of its workforce - in Switzerland alone.
Raw material prices, notably gold, have meanwhile soared. How hard this will hit the bottom line depends on how much the industry can pass on the price rises to consumers. A super stronger Swiss franc and a weaker US dollar help to cushion the spikes in precious metal and diamond prices which are mostly priced in dollars.
Still, many regard the strong currency, which reached a new high against the dollar in March, as the biggest threat to the industry in the near future.
Nicole Brandle, a Credit Suisse analyst who predicts strong sales for the Swiss watch trade in 2011, warns in WatchTime: 'The Swiss franc could spoil the party. If the franc remains so strong, pressure on exporters' margins will rise and they will be forced increasingly to cut costs.'
The Business of Time
Published August 26, 2011
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