Emily Garside

9th August 2018

How Smart Investment is Saving the Watch Industry

With the likes of Apple hot on their heels, are the world’s leading watch manufacturers finally entering the 21st century?

As the watch industry has seen in recent years, not even luxury is irreplaceable in today’s market. Apple famously outsold the entire Swiss watch industry in the last quarter of 2017; this coupled with the success of cheaper ‘fashion’ watches from companies such as Fossil Group, came as a blow to the luxury end of the watch industry worldwide.

Many companies had to resort to extreme measures, which impacted profitability. Compagnie Financière Richemont, owner of luxury brands including Cartier, Jaeger-LeCoultre and Vacheron Constantin, were forced to buy back high numbers of designer timepieces last year in order to maintain the exclusivity of their brands, in an industry which is particularly susceptible to the damaging effects of unsold inventory flooding the market.

The road to recovery

However, the first half of 2018 has seen significant improvement for the watch manufacturing industry. Analysis from business intelligence provider Plimsoll Publishing has found that market size is up by 11.7% year on year and over 50% of companies in the watch and clock industry worldwide have been given a financial health rating of ‘Strong’.

Individual success stories have contributed to this outcome, for example the Swatch Group Ltd have recently reported a 70% increase in sales for the first half of 2018, reportedly due to increased demand from China. The diversity of the Swiss giant’s catalogue has also arguably helped in this growth, as has an increased interest in luxury models among younger audiences.

But the fragility of the Chinese market should not be ignored; geopolitical factors could prove hugely detrimental to long-term growth. Companies need a good digital strategy in order to counterbalance this risk, and also to secure the next generation of ‘digital native’ consumers.

Companies at the luxury end of the market have been accused of being sluggish to react to digital trends, perhaps relying too heavily on the historic prestige of their brands. But the onslaught of fashion watches has caused high-end manufacturers to wake up to not only the necessity of investing in ecommerce and social media, but the potential for growth that comes with it.

Richemont, for example has recently inaugurated a new “affordable luxury” brand of watches under the Baume label. Customisable, Instagram-friendly and environmentally responsible, they are also squarely aimed at millennial consumers: the prime market for both smart and fashion watches.

Investing in Ecommerce

The Swiss company has also made two significant acquisitions, both of successful ecommerce platforms. Their takeover of Watchfinder&Co, a second hand trading platform, marks an important step in the industry’s evolution.

Where luxury watch companies have traditionally been reluctant to acknowledge the importance of the second-hand market, the growing influence of the so-called “grey market” – the legal but often unauthorised trade of used watches – along with the use of sites such as eBay to market used timepieces, is becoming too big to ignore. Another thing the second-hand market can offer is to reinforce the notion of traditional watches as high-quality investment pieces; the exact opposite of the transient Apple Watch. Playing on this advantage could be a useful weapon against other, more trend-driven options.

Richemont’s other acquisition, of Italy-based Yoox Net-a-Porter Group, which comprises four successful luxury ecommerce websites, is equally smart. In order to make serious claims about expansion into markets such as China, the industry leaders need to back these up with the ability to reach these consumers even in difficult periods. Doing deals with businesses which can work alongside watch brands to provide technology enabling expansion into the most powerful future markets could be what helps traditional watch manufacturers stand the test of time.