I usually toss the luxury watch supplement I sometimes receive when I purchase the New York Times International. I use my smartphone to keep time. Makes we wonder, who buys and more importantly, why buy a luxury watch. Status? A recent article piqued my interest – Small Brands at Risk.
The COVID-19 pandemic crisis has shaken the fault lines, thus the economic future of almost all commercial sectors. Add the Swiss watch industry to the list. By the numbers: After a decade of growth, analysts are projecting a 25 percent decline in 2020 exports. From January to April, exports were down 26.3 percent by value versus the same period in 2019. The top two markets, Hong Kong and the United States collapsed 83.2 and 86.4 percent respectively. China accounted for one-third of Swiss exports in April for a 16.1 percent decline versus YAG. Detailed below are the key reasons for the COVID-19 domino collapse of Swiss luxury watches:
- Retail store closures.
- Lost sales to top-end brands like Rolex, Patek Phillipe, etc. These brands benefit from solid financing and distribution where they eliminated wholesalers (vertical integration). Top-end brands also have been growing their sales via e-commerce.
- Strong competition from smartwatches.
- The top-brands have resumed their manufacturing returning to normal leaving the smaller brands desperately trying to catch-up to replenish their supply pipeline by summer’s end.
- Reduced travel! Two examples: A.) Analysts project the Chinese will travel less. Consequently, there will be a shift from their spending excessively during foreign travel, to spending their money on domestic purchases with weighty import duties; and B.) The shortfall in Europe’s tourism will result in reduced sales. Note: Think about the COVID-19 domino collapse across the board as a result of reduced global travel.
- Cancellation and the uncertain future of the Baselworld fair, the oldest (103-year-old) and largest global watch show.
How much time will the Swiss watch industry need to rebound?