By  on January 27, 2012

GENEVA — While technology blogs buzz about the impending release of Sony’s SmartWatch, watch aficionados gathered here to celebrate mechanical timepieces using ancestral know-how that is worth millions to serious collectors.

The Salon International de la Haute Horlogerie, or SIHH, which ran Jan. 16 to 20, is a top showcase for luxury watches, a category that is expected to defy economic turbulence and continue thriving in 2012, thanks to booming demand not only from Asia but other emerging economies like Russia and Brazil.

Compagnie Financière Richemont, parent company to most brands exhibiting at SIHH, revealed on the opening day of the fair that its sales rose 24 percent in the three months ended Dec. 31, with its specialist watchmakers division posting a 28 percent leap in revenues.

“Watchmaking is one of the rare professions that requires you to be rigorous mathematically, physically and mechanically, and at the same time to create a spectacle and emotions. There is no way you can experience that with electronic watches,” said Dominique Loiseau, the legendary watchmaker who recently joined Swiss brand Girard-Perregaux.

Loiseau is helping Girard-Perregaux, which is majority-owned by PPR, to develop a superwatch that he compared to a V-12, the 12-cylinder engine used in sports cars. To be launched in late 2012, the timepiece will feature multiple complications — features such as chronographs, minute repeaters and moon phases — and its design will trickle down into all the brand’s product lines.

Richard Mille, meanwhile, unveiled his RM056 Felipe Massa sapphire, a tourbillon split seconds chronograph set in a case cut and milled from solid blocks of sapphire, in a process that required more than 1,000 hours of machining. Only five will be available worldwide, with a price tag of $1.7 million.

Mille, who is chief executive officer of his brand, said sales were up by 12 percent last year and he is confident of beating that in 2012.

“If you draw a parallel with cars, it’s a bit like saying, ‘Why buy a 600-horsepower car to drive at 70 miles an hour?’ But in fact, that demand is not slowing. Why? Because of the magic of the products,” Mille said.

For the second edition of its TimeWriter project, Montblanc unveiled a chronograph that can measure elapsed intervals to the nearest 1,000th of a second. It will be manufactured in a limited edition of 36, priced around $400,000 each.

“The excitement of watchmaking, in particular in our world of modern electronics and the digital age, comes from bringing innovation into traditional methods,” said Montblanc ceo Lutz Bethge. “I believe personally that within the next five years, watches have the opportunity even to outgrow the writing instruments business, which is our roots.”

Limited editions are especially prized by collectors, because they are bound to maintain or increase their value over time. The investment value of exceptional timepieces has become an even bigger selling point in light of the global economic downturn that decimated Swiss watch sales in 2009.

Van Cleef & Arpels will shine a light on its heritage via two major exhibitions in 2012, following its show at the Smithsonian’s Cooper-Hewitt National Design Museum in New York last year, which drew a record 278,000 visitors.

“The Art of Beauty” is set to open at the Museum of Contemporary Art in Shanghai in May, while “Van Cleef & Arpels. L’art de la haute joaillerie” will go on show at the Musée des Arts Décoratifs in Paris in September.

The brand is also planning to open a school on Feb. 14 at its headquarters on Place Vendôme in Paris, where neophytes can learn about the history of jewelry and even watch craftsmen polishing and setting precious stones.

“There is a revelation effect,” said Stanislas de Quercize, ceo of Van Cleef & Arpels.

“Things that are meaningful, things that have value, are handed down from generation to generation, and that is reassuring in a world where people are looking for reference points,” he added.

Auctions are another indicator of a brand’s longevity. At a sale of vintage Jaeger-LeCoultre pieces by Artcurial in Paris last November, prices were so high that the brand was able to purchase only half as many pieces for its archives as it had originally intended, said Jaeger-LeCoultre ceo Jérôme Lambert.

“The increase in the multiples paid over auction estimates for our pieces is certainly one of the biggest [on the market] in the last five years,” he said, noting that vintage Reversos with colored dials routinely fetch more than 30,000 euros, or close to $40,000 at current exchange.

The quest for timeless products is also filtering through into watch design. One example is Piaget, whose launches include the Altiplano Automatic Skeleton, billed as the world’s thinnest automatic skeleton watch, with a case thickness of just 5.34 millimeters.

“We feel that when you pay the sort of price you pay for those products, you want, and you should make sure, that the product will remain very attractive down the road, so this is one of our design philosophies,” said Philippe Léopold-Metzger, ceo of Piaget.

Cartier — the powerhouse brand of the Richemont group — is introducing a new version of its iconic Tank watch, the Tank Anglaise. The brand is set to enjoy another strong year despite increased uncertainty about near-term prospects, according to ceo Bernard Fornas.

“We have invested a lot in countries and in regions where we were weak during the last decade, to ensure that our sales are well distributed all over the world,” he said. “The next three months are going to be critical to see which direction the trend is going in. There’s a little bit of a fog today.”

The 2009 crisis has resulted in widespread restructuring on the retail front, with many brands reducing their total number of points-of-sale in order to focus on high-growth areas.

One example is Baume & Mercier, which has undergone a thorough overhaul since the appointment of ceo Alain Zimmermann in September 2009. He has pared down collections to four key lines, introduced a new visual identity for the brand and cut points of sale to around 1,600 from 3,000 previously.

Zimmermann said he relies on wholesale for the bulk of his sales, but has started opening stand-alone stores with partners in select locations. The first opened in Dubai Mall in October in partnership with Ahmed Seddiqi & Sons, and Baume & Mercier expects to add 10 spaces over the next two years in tier-one and tier-two cities in China, starting with Chongqing in February.

“The more space you have, the stronger you are in the eyes of Chinese consumers,” Zimmermann explained. “However, everyone else is following the same logic, so as you can imagine, it’s becoming increasingly difficult to secure the right locations.”

Competition is fiercest in Shanghai, Beijing and Hong Kong, a key destination for Chinese travelers.

Also chasing the Far Eastern watch consumer is Ralph Lauren, which plans to open a dedicated watch and jewelry store in the Prince’s Building in Hong Kong next fall, said Guy Chatillon, ceo of Ralph Lauren’s watch and jewelry division.

The brand launched its watches in 2009 and began by introducing them to its own flagship stores. In the last year, it has opened up wholesale distribution in the U.S., Europe and Japan, and recently appointed Arnaud Vidal as vice president of international sales and distribution. “We have doubled distribution in the last year,” said Chatillon. The brand is introducing products aimed at Asian consumers, including new versions of its Art Deco-inspired 867 watch with diamond-set bezels.

Others have strengthened their own distribution networks to make themselves less reliant on independent retailers.

Last year alone, Parmigiani Fleurier opened subsidiaries in Russia, the U.S., Hong Kong, Italy and Germany, and plans to add Brazil and the U.K. soon. As a result, the brand fell short of its target of turning a profit in 2011, despite a 20 percent sales bump, according to ceo Jean-Marc Jacot.

“Last year was a very good year, but a year of heavy investment. If you want to be a respected brand, an international brand, then you have no choice,” he said.

In the increasingly complex watch business, brands have to juggle factors including rising labor and raw materials costs, volatile exchange rates and supply shortages, noted Wilhelm Schmid, ceo of A. Lange & Söhne. “In the past, you could focus on one challenge, and if you handled that one challenge, you got away with it. Today, if you neglect any one of these things, it will kill you and it will go fast,” he said.

One of the biggest constraints facing Lange and other brands is a lack of skilled labor and key parts. “Our production capacity is the limiting factor within our business,” Schmid said.

The shortage in parts has become even more acute since Jan. 1, when Swatch Group, the world’s leading supplier, implemented a court ruling allowing it to reduce deliveries of components until Swiss competition authorities determine whether it can permanently cut back supply.

As a result, many brands are taking steps to become more self-sufficient. High-end Italian watchmaker Officine Panerai is building a new production facility in Neuchâtel, Switzerland, that will allow it to double its workforce to 300 within the next three years, ceo Angelo Bonati revealed.

“Today, if you don’t invest in production in the watch industry, you cannot survive,” he argued. “People want quality, they want to be assured that you are a serious ‘manufacture’ and not someone who is just putting a label on a product.”

IWC will add 215,000 square feet to its production site in Schaffhausen, Switzerland, by 2014. “The real problem for us is how to increase our production capacities in a reasonable and intelligent way, in a context of economic and social instability,” said IWC ceo Georges Kern.

Philippe Merk, ceo of Audemars Piguet, said the brand has been struggling to secure dials and technical materials like ceramics as it prepares to celebrate the 40th anniversary of its iconic Royal Oak.

“Our relationship with the Swatch Group is very good. We look forward to a continued good relationship, whatever the outcome of the ruling by the competition authorities, but at the same time, we are investing in activities that will allow us a bigger degree of independence,” he said.

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