For the second year running, Baselworld is taking place under a cloud. The blues that characterized the market last year haven’t lifted, despite some glimmers of recovering demand and the relatively positive note struck by watch brands showing at the Salon International de la Haute Horlogerie in January.
This story first appeared in the March 23, 2017 issue of WWD. Subscribe Today.
Swiss watch exports in January, the latest month available and the only industry data published, showed foreign sales continuing to fall, with a 6.4 percent monthly drop year on year to 1.43 billion Swiss francs, or $1.43 billion.
“After the worst downturn since the Japanese quartz crisis, the industry is slowly recovering from the hangover caused by the Chinese buying binge,” said Jon Cox, Swiss watch industry analyst at Kepler Cheuvreux in Zurich.
The financial repercussions are already evident. Net earnings at Swatch Group, the Western world’s biggest watchmaker, almost halved last year to 593 million Swiss francs, or $602 million, from 1.12 billion Swiss francs, or $1.16 billion, in 2015. Revenues fell by a much smaller 11 percent to 7.55 billion Swiss francs, or $7.66 billion, showing how the strong Swiss currency and the company’s refusal to shed staff in a downturn hit profit margins. Swatch Group’s closely watched operating margin fell from 17.2 percent in 2015 to 10.7 percent — its lowest level in 20 years. All dollar exchange rates are calculated at the average rate for the period in question.
The tough times have resulted in abrupt changes at various companies. Last month, rival Compagnie Financière Richemont, the world’s second-biggest luxury goods group, pushed two veteran brand bosses into early retirement — a move widely understood to have been triggered by their brands’ disappointing performance in the downturn, though Richemont declined to comment. The moves followed earlier job cuts and even the extraordinary step at some Richemont brands of buying back and destroying retailers’ surplus inventory.
“There is a realization that watchmakers priced up too much amid the surge in demand for bling-y mechanical luxury watches with complications. As a result, expect an ongoing trend to less fussy and more keenly priced models at Baselworld,” Cox added.
With its acres of halls and lavish two-story stands, Baselworld involves much more than watchmaking — though it covers every step in that process, from the milling of the tiniest screw to the final product, taking in all manner of paraphernalia, like precision computer controlled machine tools, on the way.
The event also covers jewelry and gemstones, where the mood seems distinctly better — though hard data is scarce because of the intensely fragmented nature of the industry. Richemont, which does not exhibit at Basel but at the competing Salon International that it helped launch, confirmed in January that its top jewelry brands Cartier and Van Cleef & Arpels had remained resilient in the crucial October to December trading period. Reporting “good” demand for pricey baubles, the group said jewelry sales rose by 9 percent to 1.75 billion euros, or $1.94 billion, in the three months to the end of December.
But even relatively bullish jewelers acknowledge the immense uncertainties facing their business. It takes only one terrorist outrage — such as the shootings in Paris — to dramatically curtail demand for discretionary items as tourist numbers plunge and domestic buyers sit on their hands.
Already, the geopolitical mood is relatively dark. There is the ongoing uncertainty surrounding the impact of the new Trump administration, not just on the U.S. but on the global economy, as well as the looming elections in France and Germany that have consumers there nervous, not to mention the question of what fallout there will be from Brexit as the U.K. begins to implement its exit from the European Union. China’s crackdown on corruption and lavish gift giving, along with a less welcoming mood in Hong Kong for Mainland buyers, has prompted a marked shift in sales. While experts say jewelry is much less susceptible to the corruption curb (as lavish gifts tend to be given by men to men) watch sales data illustrate a marked swing away from Hong Kong to mainland China and neighboring countries, such as South Korea. But that nation is in the midst of its own political crisis following the impeachment of its president, and is feeling the economic fallout from tensions with China over a plan to install a U.S. missile defense system. Chinese tourism to South Korea — a major contributor to the economy — has plunged as a result.
Some watch industry executives remain confident about 2017, noting gradually declining inventory overhangs at wholesalers and retailers in Hong Kong — still the Swiss watch industry’s single biggest market. Nick Hayek, Swatch Group’s ever upbeat chief executive officer, has predicted “healthy growth” this year based on very encouraging growth in watches and jewelry sales last November, December and January.
Most acknowledge the market will remain difficult — while predicting outperformance for their brands. Davide Traxler, head of watchmaker Corum, reckons the market will be flat this year before growing again in 2018 but that his brand will do better.
“I believe 2017 will be better than 2016 for Hublot as the market has been stabilized. Last year we achieved growth of 5 percent while the industry fell by 10 percent, showing that we are gaining market share,” said Ricardo Guadalupe, ceo of the brand, which is owned by LVMH Moët Hennessy Louis Vuitton. “The challenge will be similar to last year’s challenges. In this global geopolitical and economic environment, we will try really to continue gaining market share. This we will achieve thanks to our innovation, dynamism, creativity and also our marketing.”
Dampened expectations have not curbed watchmakers’ or jewelers’ creativity — just the opposite, if early embargoed news about the innovations and new models due to be introduced at Baselworld is anything to go by.
“The jury is still out on the impact of smartwatches and wearables, but more watchmakers are likely to hedge their bets with watches that have some sort of functionality,” Cox said.
Independently owned jeweler and watchmaker Chopard is unveiling its new For You collection, a series of what it calls “dainty” jewelry and watches inspired by “springtime cherry blossoms,” comprising floral-inspired watches and jewelry set with a bouquet of diamonds and emeralds. Male buyers may be tempted by the brand’s new platinum L.U.C Lunar One, a limited edition of 100 pieces with a deep blue sunray-patterned dial, a high-precision astronomical and chronometric movement and impressive finishing.
Citizen, the Japanese technological powerhouse, will be revealing its Eco-Drive Professional Diver 1000M, an addition to the Promaster collection launched in 1989 and since established as a popular choice for buyers seeking top endurance characteristics. Powered by any light, the addition, which goes on sale this summer, is due to retail for $2,300 before tax.
While creativity flourishes on the product front, brands have hardly been slouching on marketing either. Hublot, this month, named two new brand ambassadors taking their places alongside the brand’s sizable existing stable. Dustin Johnson, the highly regarded 32-year-old American golfer, fits the conventional bill. By contrast, Andreas Caminada is neither footballer nor screen idol, but a Swiss three-star Michelin chef. Were cooks not enough, the brand is hosting Depeche Mode at its stand to promote a new product dedicated to the legendary pop stars.
Music will also feature at Bulova, where the brand will showcase its new Grammy special-edition watches produced in partnership with The Recording Academy. Gallant, whose album “Ology” was nominated at the 2017 Grammys alongside stars Beyoncé and Rihanna in the Best Urban Contemporary Album category, will be on hand to provide the musical entertainment. Sadly, he didn’t win. But Baseworld’s visitors should appreciate him all the same.