Watchmaking: a psychological warfare
The last quarter of 2020 will be the watchmaking brands’ main challenge, as they try to get back on track. Without any mid-term visibility, some signals will help foresee growth potential for 2021. In our radar: Hainan, latest Chinese duty-free mecca, and an under-estimated power of the brand community.
By Cristina D’Agostino20 septembre 2020
While most brands are starting off the last quarter of 2020 hoping to compensate the dramatic losses of the second quarter with end-of-year sales and unsold inventory, only few brands have dared to launch new products and increase their brand’s desirability.
Orders cancelled or postponed to 2021 reach 23%
Pierre Dubois, general manager of Dubois Dépraz,
The result: Suppliers are now first in line and orders are being cancelled or postponed. Pierre Dubois, general manager of Dubois Dépraz, one of the big movement and watchmaking component suppliers, reveals that “orders cancelled or postponed to 2021 reach 23%. Of course, these cancellations/postpones can vary a lot according to the client brands. It is without surprise that brands with high awareness are less impacted than less visible brands. Postponed orders, first to 2021, have sometimes been rescheduled to the end of 2020. This is marginal yet encouraging!”. This period has in fact pushed some suppliers such as Dubois Dépraz to create new components, to imagine new production techniques and therefore to remain competitive during recovery times.
Local clientele as business leverage.
Yet today still, business projections don’t exceed a 24-hour timeline. Panerai CEO Jean-Marc Pontroué confirms: « To manage a watch brand nowadays is like driving on a highway 200 kilometers/hour, in a fog, with a 50-meter visibility.” He admits to only trust one valuable compass during these unprecedented times: common sense, an indicator which encourages to slow down, in order to make direct contact with markets. Nevertheless, some indicators followed by market leaders have improved sale statistics
To manage a watch brand nowadays is like driving on a highway 200 kilometers/hour, in a fog, with a 50-meter visibility
Panerai CEO Jean-Marc Pontroué
Jean-Marc Pontroué goes on: “The current instability we are going through worldwide has created a fragile balance, whereas paradoxically, the financial marketplace has never been this high. This leads me to believe that clients still have the means to fulfill their desires. Last June still, moderate pessimism was the general state of mind, however end of August, the feeling leaned towards careful optimism. Panerai’s luck lies in being able to count on a strong local client base. In Switzerland, it’s 60% local, 40% international. In other countries, the scale is rather identical.
The reason is our 30’000-Paneristi community has been present for a long time in 25 countries, and not only in Asia. We will most certainly benefit from the recovery happening in China, as would any other brand, where growth is reaching three digits. In the United States, it’s the opposite problem. We are suffering from the sanitary crisis and the riots happening in the scope of the «Black Lives Matter» movement, which have led to damages in some of our boutiques. It will remain complicated as long as the elections have not happened.”
Connecting with our community
The brands’ challenge today is reinforcing their local client base and the fan community. Stéphane Waser, CEO of Maurice Lacroix for six years confirms: “Germany is our first market and the local clientele is strong. Generally speaking, our business market is less dependent on travel retail. The stores Christ and Galeria Kaufhof sell high volumes and we are one of their bestsellers. In spite of closures, some sales have been transformed online and our business has not stopped.
In July and August, we have recorded higher results than last year. I don’t know if this is the recovery effect or real engagement. Our plan is in place whatsoever, as well as our 2021 budget. We know where we want to go.” The fanbase is currently one of luxury’s biggest challenges, and watchmaking is no exception. For Maximilian Büsser, founder of the brand MB&F, they even play a key role in sellout and the way of addressing them is truly essential. According to him, “the lockdown has been a creativity catalyst for the team and myself, for our products as well as in terms of communicating.
When you are able to gather two different fan communities, that’s amazing leverage. The double collaboration with the brand H. Moser is a perfect example
Maximilian Büsser, founder of the brand MB&F
We need to feed the MB&F fanbase, to enrich it and share experiences that are not motivated by sales. Since we cannot see each other, we have created several actions on social media to keep the relationship going. We have started conversations on Instagram Live, organized Zoom cocktails with our clients thanks to local retailers. I know that, indirectly, the sellout that followed happened thanks to them. And when you are able to gather two different fan communities, that’s amazing leverage. The double collaboration with the brand H. Moser is a perfect example. Their community added to ours created a phenomenal wave which allowed us to sell the 60 watches created by MF&F by Moser in only four days! On their side, the sale of 75 tourbillons Moser by MB&F experienced the same success. Thanks to this combined action and to the desirability of the brand, MB&F has recorded a sellout of more than 40% year to date, even though I am observing a decrease of 10% in terms of invoicing. I won’t recover from the sales lost because of boutique closures, but I will end the year by breaking even.”
Markets less dependent on tourism
On the North American market, the decrease reached 53% in May, considering the boutiques were closed, however in June, they weren’t more than 3% and in July, +27%, showing the US had already recovered
René Weber, general manager and analyst at Vontobel
Which markets allow to activate a stronger local clientele? René Weber, general manager and analyst at Vontobel explains: “The sellout has never been this polarized as it is today between brands which show huge differences. Niche brands with a watch production of high craftsmanship are doing better with positive sales figures. The same trend appears in the watch export figures over the month of July, during which cheaper watches have decreased, whereas timekeepers worth 3,000 francs or more have resisted with a decrease of 11%. Again, discrepancies between markets are very important. Watches of Switzerland, the first watch retailer in the UK, second in the US, shared its figures from May to July. On the North American market, the decrease reached 53% in May, considering the boutiques were closed, however in June, they weren’t more than 3% and in July, +27%, showing the US had already recovered. However, this is an exception as the American market is generally dependent on the domestic market. In Europe however, figures vary. In the UK, the month of May dropped dramatically to -87% but in June and July, the sellout showed +1% which would mean the local client base is strong and the market resilient compared to the 20 to 25% loss linked to tourism. In Switzerland, sellout is dependent up to 50% on tourism, and retailers such as Bucherer are still more impacted when they are located in Luzern or Interlaken, with a drop reaching 90% in July. There were no foreign tourists.”
Hainan, the new Chinese Eldorado
The third big trend comes from China. Boosted by a three-digit growth of most big watch brands present in China, it also relies on the new Chinese duty free policy profiling the Hainan island south of the country, as the new mecca of duty free, pulling the Hong Kong business already strongly impacted, towards this new shopping Eldorado.
René Weber adds: « if you want to buy a Swiss watch that costs less than CHF 15,000, you don’t need to go to Hong Kong anymore, you can stay in China, fly to Hainan, where the duty-free legislation has changed. It seems obvious China wants to keep its citizens inside the country. Hainan will be the new Hong Kong. I am sure we will very soon see China appear as the first country for Swiss watch exports.”
Indeed, according to the local media HiNews.cn, all of the duty-free boutique sales in Hainan have increased significantly by +221.9% in July and August, vs 2019, to reach 5.85 billion RMB (about 816 million US dollars). The reason? A strengthened policy of offshore duty-free boutiques introduced on July 1st by China on the Hainan island. And according to “The Moody Davitt Report”, daily average sales have exceeded 100 million RMB (14.5 million US dollars), whereas the number of buyers reached 740,000, an increase of +70% vs previous year. These statistics clearly indicate a huge increase in client spending, due to the diversification of the product line, the suppression of the 8,000 RMB (1,158 USD) limit for individual articles and due to the fact that the annual rights franchise allocation has more than tripled.
A positioning in this region of the world will be crucial in 2021.
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