Higher Values, Lower Volumes: The New Shape of the Watch Sector

Is the clock ticking for the Swiss watch industry? That depends on how you read the figures.

Judged by its revenues, it’s booming. According to the Federation of the Swiss Watch Industry (FH), in 2022 Swiss watch companies exported watches with a value of 24.8 billion Swiss francs ($27.6 billion), an all-time record and a year-on-year jump of 11.4 percent.

But at the same time, the industry is haemorrhaging volumes. In 2015, Switzerland exported 28.1 million watches, a figure the FH said had fallen to just 15.8 million last year.

Some analysts say the industry will never recover lost volumes, and that the current figure is propped up by a shrinking pool of groups and brands, particularly Rolex and the Swatch Group.

In March, Morgan Stanley released a report that estimated Rolex and the Swatch Group — which owns Omega, Longines and Tissot, among others — accounted for around 80 percent of Swiss watch exports by volume. That included a million of Swatch Group’s MoonSwatch, a $260 mash-up between Swatch and Omega that caused a buying frenzy on launch last March.

“We have lost half of the volume of the Swiss watch industry in only 20 years,” said Oliver Müller, founder of the Swiss consultancy LuxeConsult and one of the Morgan Stanley report’s authors. “Those volumes are gone forever.”

Recently, most of the pain has been absorbed by the lower end of the market. The FH’s 2022 figures indicate that watches with an export value (roughly half the retail price) of between 200 and 500 Swiss francs took the brunt of the impact, falling 24 percent in value and 22.2 percent in volume last year.

It now appears there’s no escaping that Apple’s Watch, which arrived in 2015, has decimated that end of the Swiss market. Some estimates suggest Apple now shifts more than 50 million units a year, more than three times the Swiss watch industry’s total output by volume.

Not that everyone’s worried. “It’s no concern for our part of the market,” said Cartier’s chief executive Cyrille Vigneron at a press conference during the recent Watches and Wonders Geneva fair. “The market above 3,000 Swiss francs [at export] is not plummeting at all. The Swiss watch market is not about volume.”

He had a point. The FH’s 2022 report showed watches with an export value above 3,000 Swiss francs climbed in value by 15.6 percent that year. And the trend has continued. In February, the category grew by a further 13.7 percent compared to the same month last year.

Other brand bosses have expressed concern, though. “I feel more comfortable when we [Swiss watchmakers] have big volumes,” said Julien Tornare, chief executive of LVMH’s Zenith brand. “Someone affording a less expensive watch might get the virus, enjoy wearing a watch and buy more expensive watches later. It’s feeding the industry.”

One explanation is that the watch industry is simply reflecting global luxury trends, concentrating around fewer brands and higher-end products. “You see this worldwide premiumisation of society in fashion, in wine, in art, in cars,” said Jean-Marc Pontroué, chief executive of Richemont’s Panerai brand.

Pontroué said over the past five years he had introduced low-volume, high-priced watches with unique VIP experiences attached to them (such as Arctic adventures or training with the Italian special forces) in order to raise the average price point of his watches. “We have seen the value [of our watches] has increased two to three times more than the volume,” he said. Richemont does not break out results by brand.

The shift up in price has created a void down below. Brands such as Omega and TAG Heuer were once considered a “first luxury watch,” but with everyday sports watches such as the Speedmaster and the Carrera now costing around $6,500, younger, first-time buyers of Swiss watches are often priced out.

Smartphones have killed the camera industry, but smartwatches have not killed the watch industry.

Guillaume Laidet is the chief executive of the recently revived heritage brand Nivada Grenchen. The company’s Swiss-made mechanical watches start from $750. “The big groups have abandoned the below $2,000 category and we’re taking the space they’re leaving,” he said. “This gives us a niche to exploit and a big opportunity to grow our business, because people still like to have something mechanical on the wrist. For a big occasion, you don’t want to have a smartwatch like everyone else.”

Laidet said his most recent watch, the F77, had driven revenues of half a million dollars during a 77-hour sales window that doubled as a launch stunt earlier this month. The stainless steel sports watch costs $1,150 and is sold out, according to the brand’s website. “There is a market, but the big groups want maximum profit in the short term,” said the Frenchman, who was previously employed at LVMH and Richemont.

Tornare said he felt it was important the Swiss watch industry maintained a foothold in the lower-price segment. “It’s healthy to have a wide base, which we have less and less,” he said. “At some point, we need to work as an industry to make people appreciate mechanical watches even when it’s at an entrance price.”

But Pontroué argued that the industry’s repositioning and recent resilience were proof it was on the right track. “Smartphones have killed the camera industry, but smartwatches have not killed the watch industry,” he said. “This country continues to export billions of Swiss francs worth of watches every year. The difference is we are now associated to the luxury world.”

Müller, however, said there would be casualties. “The worries are not for the verticalised groups and brands such as Swatch Group, Richemont and Rolex, but for literally all the others,” he said. “In the long run, the groups will largely over-perform the market and polarise it. An industry without volumes can’t provide innovation and sustainable production prices.”