The profound metamorphosis of Swiss watchmaking
Like most industries, Swiss watchmaking took some heavy hits from the pandemic, but the sector was already in the midst of a profound transformation. And according to Deloitte’s 2020 Industry Study, it looks set to come through it stronger.
By Cristina D’Agostino26 octobre 2020
watch exports (in value) in September 2020
watch exports (in volume) in September 2020
watch sales in China in September 2020
The COVID-19 pandemic has shaken the Swiss watchmaking industry to the core. It was a tidal wave that had been brewing for some time, and it has become a powerful catalyst for structural change that will shape a new landscape for the sector as a whole. As the second phase of the current pandemic sweeps through, it looks to be only consolidating the new topography of an evolving business. But how far-reaching are these changes?
Deloitte’s Swiss Watch Industry Study 2020. An Accelerated Transformation, which Luxury Tribune was able to obtain an exclusive look at, takes stock of the situation through a detailed analysis of the trends that emerged among the watch industry’s decision-makers and thousands of consumers around the world from mid-August to mid-September.
The state of Swiss watchmaking in late September
As in recent years, high-end mechanical watches should be the driving force behind the recovery of the Swiss watch industry
Karine Szegedi , Partner Deloitte
In general, watch exports generally saw a steep decline, dropping 81% in April 2020 (CHF 329 million) compared to April 2019 (CHF 1.759 billion) - a direct consequence of the temporary closures of factories. When the factories reopened, the numbers began a slow crawl back (-34%, corresponding to CHF 1.143 billion), clawing their way to -12% (CHF 1.605 billion) by September. In terms of volume, exports remained low, with September of this year showing -25% and 1.331 million pieces compared to 1.779 million in September 2019. At the height of the lockdown (April 2020), the overall volume of exported Swiss watches was a mere 338,000 units.
While these figures include all segments of watches, from entry-level units under 200 francs to high-end pieces clocking in at 3,000 francs and up, "the high-end mechanical segment was the least affected this year, and in August export sales rebounded to 2019 volumes. As in recent years, high-end mechanical watches should be the driving force behind the recovery of the Swiss watch industry," says Karine Szegedi , Partner Deloitte
Is a recovery already afoot?
Apart from in China, recovery has yet to materialize for watch brands. In August, watch exports were still lagging at -16% in Hong Kong, -27% in Japan, -23% in Europe, and -14% in the United States. China has been known as the pole of attraction for luxury goods for several years now, but looking at watches in the wake of the pandemic crisis brings this phenomenon into stark relief: "In June 2020, watch sales in China increased by no less than 48% compared to the previous year," the study notes. The figure even rose to +59% in July, and reached +79% in September compared to the same period in 2019. This trend is not likely to extend to other countries, at least not until intercontinental flights return to normal and shopping tourism resumes. The increase in sales in the Chinese domestic market also benefited from a modification of the duty-free purchasing policy in the Hainan free trade zone, which now allows an annual purchase limit of USD 14,000 instead of the USD 400 that was in place until now.
The affordable Swiss watches segment continues to slow down
The trend in exports of entry-level Swiss quartz watches is downward. It averaged -41% from January to September 2020.
Karine Szegedi , Partner Deloitte
The mounting wave that has been transforming the Swiss watchmaking industry for decades has now crystallized: today the industry is driven only by luxury watchmaking and supported by a weak base of entry-level watches. These, however, accounted for such large volumes that they were, in fact, the actual backbone of the industry. The figures speak for themselves: according to Deloitte, "Since 2011, the trend in exports of entry-level quartz watches has been downward. This trend became more pronounced in 2019, when export volumes were 10 million units lower than in 2011”. This decline was further accelerated in 2020 by COVID-19, with a decline of approximately 41% in the first half of the year. For more than 60% of those surveyed, this is the major concern: "Respondents fear that a continued decline in sales of entry-level quartz watches and low- to mid-range mechanical watches, which are not performing as well as in the past, could weaken the industry in Switzerland. This would inevitably have a ripple effect on prices, job losses and loss of know-how.” The top performers in this segment? Fashion watches manufactured in China and smart watches.
Smart watches, the big winners
The growth in global demand for smart watches has continued despite the considerable headwinds caused by COVID-19
Karine Szegedi , Partner Deloitte
In figures, smart watches posted a 20% increase in the first quarter of 2020 compared to the same period in 2019, with a volume of 13.7 million units, while Swiss watchmaking clocked in a 23% decrease in the same period with export volumes at 3.8 million units. According to Deloitte, "In the first quarter of 2020, 7.6 million Apple watches were shipped worldwide, up 23% compared to the first quarter of 2019, which shows that the growth in global demand for smart watches has continued despite the considerable headwinds caused by COVID-19. With more than 55% of the global market share, Apple remains the undisputed leader in the industry, ahead of Samsung and Garmin.”
In its study, Deloitte breaks down preferences for smart versus traditional watches based on geography and age. For example, 42% of Swiss customers wear a mechanical or quartz watch, 17% wear a smart watch, 14% wear both and 27% do not wear any. In China, 43% wear a traditional watch, 21% wear a smart watch, 26% wear both and only 10% do not wear one at all. Hong Kong has the highest percentage of smart watches (36%). As for age, the traditional watches category is unsurprisingly dominated by baby boomers (54%) while smart watches are mainly worn by Millennials and Generation Zers (52%). However, when asked about how they would invest a budget of 5,000 Swiss francs, respondents across all age groups and nationalities showed little to no hesitation in opting for the traditional luxury watch.
While the Swiss watchmaking industry can still count on its credibility as a major asset, relying solely on high-end watches, Asia and wearables to advertise their craftsmanship would not be the smart way to go.
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