Swiss Watch Executives Worried About the Future

Leading execs voiced fears about the Swiss franc, the gray market, and counterfeits

Eighty-two percent of Swiss watch executives forecast a gloomy outlook for their business, according to the 2016 Deloitte Swiss Watch Industry study.

In 2015, just 41 percent—half of this year’s number—voiced concerns about the future.

“Weak foreign demand” was perceived as the greatest risk, followed by the strength of the Swiss franc and weak domestic demand.

Swiss watch exports have fallen for the last 13 months, and most executives expect the declines to continue. Still, 22 percent of watch execs cited the United States as a possible growth market, up from 13 percent in 2015. Some see the United States soon becoming the leading watch export market.

For the first time since the survey debuted in 2012, counterfeiting ranked among the top five perceived risks. Online is making distribution of fake timepieces easier, the survey says.  

The gray market has also turned into a significant problem: More than 50 percent of executives (an increase of 18 points from last year) consider it a significant reputational risk.

Online is also growing as a watch sales channel. Half of the executives surveyed plan more emphasis on online resellers over the next year, up from 19 percent last year. Another 25 percent say online boutiques will became their most important sales channel.  

In another change emphasizing the newfound importance of digital, social media was now cited as the most important element of a company’s marketing strategy, followed by blogs.

The report notes that in the fourth quarter of 2015, more smartwatches were shipped than Swiss watches, though the latter still reigns in terms of value. But despite the growth of the smartwatch sales, it is still “unclear” if they present a threat to Switzerland, the report says, noting most of the current export decline has been fueled by decreased sales from Hong Kong and China and the strong Swiss franc. Smartwatches were ranked as the number four perceived risk, the survey says.

JCK News Director

  • Tom Byelick

    I find it a little late to be pulling the fire alarm for the Swiss Watch Industry at this point. The problems they have today are the same problems they had dating back to the last century, but like any other cancer, if you ignore it, it will grow. Not one of the major producers would be immune in a finger-pointing session as a contributor to the problem.

    There is a myriad of reasons the industry has truly been in decline for many years, but outsiders have been kept in the dark. Some Simple answers are that there are no new designs or meaningful technological improvements, but I can also argue that a Swiss watch produced today will outlive its owner. While counterfeits were cited in the article, I still do not believe that a Swiss Watch customer is the same customer for counterfeits.

    On-line watch sales have been problematic for over ten years now. Most retailers are at best reluctant to carry any brand because of the eroding margins from the internet. Even the most current models are available on line at a discount.

    The true problem comes directly from each of the brands and their respective parent company. The manufacturers sell what they can to their official retailers, and the excess production gets sold directly to the gray market. Yes, we can argue that retailers sell-off slow-moving or discontinued models, but the true culprit is the brand itself. When I attended the Basel Fair, I was in the company of US retailers, and gray-market operations that would brag to me about their purchases of both current and discontinued stock from some of the most notable trademarks in the industry.

    The problem truly manifests itself because each year, there is more supply than demand. Like any other business, the budget for the following year is greater than the former, and even more watches will need homes making the problem unbearable after a decade. The over-production problem coupled with the decline in Asia, may put the Swiss Watch industry at a breaking point. The over-abundance of watches has also certainly diluted the value because there is no exclusivity or rarity anymore.

    The big question is whether the watch companies can own up to their faults, swallow the hard pill of over-production and begin manufacturing according to the true demand of the watch. Cleaning up their act will be a tough act because budgets will need to be greatly reduced which is a hard sell to any CEO or President.

    • Lance Link

      Apple has surpassed Rolex as the largest watch manufacturer in the world (in dollar AND unit volume), and its still unclear whether smartwatches are a ‘threat’ to the Swiss watch industry? By the time the geniuses at LVMH, Richmond, Rolex, Swatch, etc. figure it out, it will be game over. This is a perfect example of the arrogance and denial that exists in the Swiss watch industry. The industry needs a real house cleaning with younger hearts and more creative minds driving the respective holding companies’ luxury brands. And it’s not just the low end of the market that’s getting hit by smartwatches. Check out this year’s Swiss Watch Federations stats. The industry is getting pummeled on the low end (i.e. steel) and the high-end (i.e. precious metals). It’s a brave new watch world…

      • Tom Byelick

        Before the Swiss Watch Industry contends with sales, they will have to deal with the Swiss government to clean up the verification issues of “what is Swiss Made”, and there will be substantial fines to be paid. The industry has been undervaluing the components made in China, and overvaluing the components made in Switzerland. Summed up, a Swiss watch could in reality be 80-90% Chinese and still carry the “Swiss Made” hallmark. The government is fed up, has changed the laws, and this will end; at a substantial cost to the trademark (the manufacturer could be in China). By the way, everyone is using Chinese parts. No one is immune.

        The active word that best describes the long propped-up model in the Swiss watch industry is hubris. The Swiss watch execs received their bonuses based off of getting watches out the door with no scrutiny of where they were going. The practice has been going on so long that many of the originators of the business model are long retired at this point.

        Each year, production increased based off of budgets, and pricing increased based off of the conversion of the Swiss Franc to the US dollar (that is the way they determine pricing at Rolex), but I have never heard anyone arguing an increase in demand which meant a larger gray market. We have come to a point where a stainless steel watch can have a suggested retail price of $10,000, and the public has voted no.

        I do believe the Swiss watch market will survive, but in all likelihood it will be a shadow of its original size. The cornerstones will be honesty, luxury, and exclusivity. Like today, in the 1970’s, the Swiss watch market was on the verge of collapse due to the introduction of the digital watch. Nicolas Hyack who was an accountant by trade was brought in to disassemble the industry. However, he believed he could raise if from the dead, and the no deceased former CEO of Swatch Group gave the Swiss watch industry another breath of life.

  • John Keil

    Very well said Tom.

    Overproduction, blindness to forecasting, and the inability to admit that they can’t sell all of the pieces they are making through traditional channels is 100% the fault of Swiss watch brands. I’ve been in the industry for 17 years, and for the first time, I’m thinking about getting out.

    Here in the US, there is more gray market product on the streets than legitimate product. What the industry abroad tries to contend is that it is coming in from other markets’ distributors and retailers. This is not the case at all. That is a lie to try to save face & reputation. It is coming directly from the brands.

    How can a brand in good conscience walk into a retailer, ask for 4-6 feet of case space, and investment of many thousands of dollars at 40-45% off of retail, when that same retailer can go online and source watches as needed at 50-60-70% off?!? Never going to happen!

    That is like a husband cheating on his wife for years and when she serves him with divorce papers, he’s like “what? why????” with his hands in the air! Retailers are only going to invest time and money into brands who have been true to traditional channels and to the retailers the most, such as Rolex and Patek.

    As you noted Tom, unless the brands decide to face some really harsh realities and endure a few difficult years of production cuts, layoffs, and yes, much lower budgets, they may not weather the storm.

    It is a very sad state that the Swiss watch industry has put itself in, and again, they’ve done it to themselves. I am also very sad to think I may be exiting an industry that I’ve loved for so many years.

  • Shiv C

    I agree with most things people have said below. Swiss watch industry leaders, due to their laziness & neglect like Blackberry lost their edge a long time ago and a huge percentage of their watches are now made and assembled in China. Hence will not hold the value.

    Their greed has got the best of their skills they had and this industry will shrink at a growing rate.

    I personally feel the watch industry has been killing itself. Now best buy is selling most watches like Omega, Baume and Mercier, Breitling, Tissot, Raymond veil, Bulova, Tag Heuer….. on its website. It does not stock them, does not ship them.

    Best buy has turned the tables and using show rooming to watch dealers. Say you like an Omega, & find it at a good discounted price on best buy website. you go in and best buy staff will locate you the closest Omega dealer in town & write the model number. Tell you go see the watch, try it & ask the dealer all the questions if you like it come to buy it from best buy as Bestbuy can sell it to you for 20% maybe 40% off. Look it up.

    With growing costs and shrinking margins with fine swiss watches, Like most independent fine jewelery stores, I have decided to slowly fade the watches away and increase one of a kind fine jewelery pieces in my showcases.