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Watchmakers are looking to keep up the momentum.
This story first appeared in the November 29, 2010 issue of WWD. Subscribe Today.
Luxury watches were particularly hard hit at the start of the global financial crisis two years ago. But with the U.S. stock market up more than 7 percent this year, compensation rebounding among high earners in the financial services industry and pent-up demand bred by consumer austerity, the forecasts of brand executives are positive.
The watch sector at Christian Dior, whose timepieces retail from $1,000 to $500,000, is among the encouraging indicators of strength in the luxury sector.
Sidney Toledano, president and chief executive officer of Christian Dior, said the company’s watch business “is developing extremely well,” having picked up sharply since the beginning of the year. “It’s one of the key categories developing in the first nine months. We’re dedicating even more space [to watches] in our stores.”
Toledano cited robust sales of Dior’s Christal range, and of limited edition watches and unique pieces carrying prices of as much as 200,000 euros, or $266,000 at current exchange rates.
Demand for watches across Asia, and particularly in China, is “very, very strong,” Toledano said.
Philippe Pascal, president of LVMH’s watch and jewelry group, indicated that the luxury sector will be propelled into 2011 following a year of growth.
“After a very dynamic nine months, up 29 percent versus last year, we started the [holiday] season with significantly increased marketing investments on key brands in key markets, including in the U.S.A., to support Tag Heuer, Hublot and Zenith.
“Retail assortments are improving for our brands and, in fact, we are out of stock on some of our bestsellers due to demand,” he said. “So we are expecting a good holiday season across the world and for Chinese New Year [early February].”
The company reported a sales increase on watches and jewelry of 29 percent in the nine months ended Sept. 30.
The outlook dovetails with the resurgence of luxury overall, which is being fueled by accessories.
Seeking to boost its profile in a fast-growing market, Bulgari SpA said last week that it has signed a five-year agreement with Hengdeli Holdings Ltd. to distribute high-end watches through more than 50 multibrand watch stores in China. Hengdeli will be the sole distributor of Bulgari watches in the country.
Bulgari ceo Francesco Trapani said the deal was “very important” because it helps “to even more effectively cover the watch market, in an area with a huge potential, such as mainland China.”
Omega, the upscale Swiss watch brand, also has expansion on tap — in the U.S. Omega said this month that it plans to have a total of 30 stores in operation in the U.S. by the end of 2011.
“We believe in the U.S.,” president Stephen Urquhart said. “The time is right for us to get a foothold here.”
Although the global economy remains volatile, Andrew Block, head of marketing for Tourneau, said the luxury buyer appears to be undeterred.
“High-end brands, priced $10,000…I see that price category being somewhat recession-proof into next year,” Block said. “For us, the higher the price point, the better the product sells.…We haven’t hit it [a price ceiling] yet.”
After five years of growth, the watch industry experienced a collapse in 2008 amid the deepening economic crisis, and retailers stopped replenishing their inventories. In 2009, exports of Swiss watches fell 22.3 percent, according to the Federation of the Swiss Watch Industry. But after a 2.7 percent increase in exports to start the year, those numbers have continued to grow. In October, Swiss watch exports rose another 18 percent year-over-year, and are up a total of 20.6 percent since January.
Marshal Cohen, chief industry analyst for research firm The NPD Group, said consumers who scaled back spending as the global economy went into a spiral have “frugal fatigue.
“The consumer has gotten so practical, and there’s pride in practicality. As a reward, you’re now buying a nice watch for yourself rather than just a watch,” he explained.
For many outside the exclusively priced tier, one of the watch business’ most formidable tasks is proving the worth of traditional timepieces.
“One of the biggest challenges in the watch business is, how do they continually compete against other products consumers are using to tell time?” Cohen said. “The cell phone industry really put a damper on the [watch] industry. Then coupled with the economic setback… it created a lot of momentum loss for the timepiece business….If you want to grow a business, you have to have innovation and technology as part of the equation. If you think you’re going to be able to sell the same old thing, over and over, you’re wrong. Basics maintain sales, but innovation drives growth.”
Timex president Adam Gurian said that for moderate-price watch brands, fast-moving advances in technology also pose an opportunity.
“Technology is coming to the wrist,” he said. “We introduced a new product at the $300 price point that we can’t keep on shelf. It has GPS technology; it’s called the Timex Iron Man.…We will start to see more and more technology, as the whole world of GPS and connectivity develops.…[We’ll] be able to have your watch talk directly to your computer, using Bluetooth technology.”
Tourneau is also incorporating technology, but on the retail end.
“We want to make sure the next generation of consumers is engaged….And we’re [doing this through] the digital world,” said Block, the brand’s marketing chief. “We have a Facebook fan page, we tweet.…We’re doing an increased amount of digital communication via e-mail…and introducing iPads into our stores for sales professionals to use,” said Block.
In addition to innovation, the consumer continues to seek style. Particularly in the more moderately priced sector — $600 and under — customers react positively to the idea of incorporated color, with watches functioning as accessories more than timepieces.
“In all price points and categories, pieces that’ve been successful are watches that can be used as an opportunity to make an accessories statement,” said Timex’s Gurian. “Looking towards next year, there is a lot of vision of color….Color can be brought in with bright palettes.”
Barbara McGraw, merchandise manager for The Doneger Group, a trend forecasting firm, also cited the importance of fashion.
“It’s all about fashion, and giving them something new to buy,” she said. “Color is playing a big part of what’s happening…as are watches where you can change the face. You can wear it every day of the week. It’s color-driven but also fun.”
Fendi stepped into the luxury watch sector this June with the introduction of its Crazy Carats Watch. It has a rolling mechanism that allows the wearer to shift the colors of the semiprecious stones on the watch’s face. The technology behind Crazy Carats was created and patented by Fendi. The watches retail from $2,400 to $15,000 and can be personalized.
TechnoMarine, which has timepieces that retail for $325 to $10,000, specializes in colorful, adjustable watch offerings.
“We’re all about color,” said ceo Steve Cohen. “It’s not necessarily someone’s only watch, they’ll own multiples…[priced] under $800….We want to stay at a price point where the decision to buy this watch is not a group decision, it’s a self-purchase.”
Lower price points and added value like TechnoMarine’s personalizing options (via transferable band and face colors) are important, said NPD’s Cohen.
“The consumer is still really damaged from what happened in the economy,” he said. “This [upcoming] season, the really high end will do really well, moderates will do really well….People are still damaged from what happened, but they’re also sick of not spending money.…I think that people will always be affected by what happened, at least this generation.”
McGraw agreed, adding that the consumer must be made to feel that their purchase has added value.
“When the economy is shaky, consumers tend towards brands with heritage and multidimensional purchases….The color thing adds an element of fun and feels good,” she said.
Even as the watch category gains traction, the jewelry industry is confronted with challenges caused by the rising prices of precious metals, especially gold. The price of gold has risen almost 25 percent this year. It closed at $1,365 on Friday. That compares with $1,271.68 on Sept. 30. Five years ago, the price was near $456.
The surge in gold has forced jewelers to turn to lower-cost metals such as brass and copper, adjust with designs that require less of the precious metal and expand the use of cheaper mixed materials such as a combination of gold and sterling silver called “gilver.”
“The watch business is traditionally a separate business than jewelry, but coming out of the recession, they’re in competition with one another,” said NPD’s Cohen. “It’s about figuring out how to get consumers.…You’re not only competing against fine jewelry, but also in every other category where they spend.…They have to reach the emotional chords, ‘If I’m going to take my money out of my pocket and buy…it better be really something that’s worth my while.’”
Laurent Lapipe, statistics controller for Société 5, which each month collates data on jewelry and timepiece sales from 1,600 department stores and independent retailers in France, said that, from January to October, the rising price of gold helped lessen the impact of a decline in unit sales on 18-karat gold jewelry pieces in stores, to a “relatively stable” 2-percent drop in sales year-on-year.
The same period saw a 5-percent increase in average prices for 18-karat gold jewelry, with a drop in unit sales of 7 percent. Sales of other jewelry (spanning silver, gold-plated, steel and costume jewelry) rose by 10 percent over the same period.
Mike Josypenko, international services manager for the British Jewellers’ Association, said that while the holiday season outlook remains uncertain, Britain’s planned value-added tax (VAT) increase may encourage consumers to buy jewelry before the VAT rises to 20 percent from 17.5 percent on Jan. 4. Josypenko also said a growing number of jewelers were experimenting with alternatives to gold to bring down prices.
Richard Martin, assistant director and artistic director of Paris jewelry salon Eclat de Mode–Bijorhca, said silver jewelry and small precious items, such as gold chains with stones, were showing strong growth, with several established costume jewelry companies adding on silver divisions. Martin cited Feidt and Vanessa Tugendhaft among brands tapping into the “small precious” jewelry trend.