The real problems with the Swiss watch industry, as explained by the Economist.

LA CHAUX-DE-FONDS, SWITZERLAND — On the back of the Baselworld watch expo late last month, The Economist reported on the current funk the Swiss watch industry now finds itself in. Here’s a quick rundown of the problems plaguing the industry — and what it’s doing to fix things — just to make the narrative a little more clearer for you.

The numbers for context.

“Exports of Swiss watches sank by a tenth in 2016, the worst performance since the financial crisis. Swatch, the world’s biggest watch company, saw profits plunge by 47%. In February exports were 10% lower than they had been a year earlier.”

They relied too much on China for growth.

“The period from around 2004 to 2012 saw high growth. Chinese shoppers accounted for about half of Swiss watch sales during that time, reckons Thomas Chauvet of Citi, a bank. Manufacturers introduced pricier products and raised the cost of existing ones. The financial crisis was a blip. Chinese demand for watches, as for handbags and fashion, has since waned. Nor has it helped that many companies were slow to adjust to a changing market, continuing to push products onto fragmented wholesalers around the world that had little power to resist big brands’ terms.

The immediate question is whether this source of demand will recover. The fact that exports to mainland China have recently risen slightly may simply reflect the fact that fewer Chinese are buying watches in Europe, due to higher import duties and fears of terrorism. Sales in Hong Kong, the industry’s most important market, remain depressed.”

Young shoppers and Apple troubles.

“In the longer term, the worry in the industry concerns the young. Apple now claims to be the world’s second-largest watch brand, after Rolex. ‘Will they consider the watch as a possible status symbol or as an information-tool or as a design product’” asks Jean-Claude Biver, who runs the watch business at LVMH, a luxury-goods conglomerate. ‘Who knows?’”

They’re hampered by supply chain inflexibility.

“Even for watchmakers with better data, the meticulous nature of making and assembling components means they will find it hard to build a flexible supply chain.”

How they’re combating Apple — and hoping to entice young shoppers.

Smartwatches. But again, just like with China, that’s not without its own risks and challenges: “The smartwatch category itself is far from established. In trendsetting Silicon Valley and elsewhere, the status timepiece of choice is often a smartphone.”

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