BASEL, Switzerland — Paging new customers.
This story first appeared in the April 14, 2014 issue of WWD. Subscribe Today.
At the Baselworld watch and jewelry fair here, watchmakers introduced a plethora of new products aimed at diversifying their client base as the industry gears for another year of measured growth following a sharp slowdown in exports to Mainland China and Hong Kong.
Swiss watch exports rose 7 percent in February, confirming the rebound posted in January, according to figures released by the Federation of the Swiss Watch Industry on the opening day of the fair. However, most executives are only banking on midsingle-digit growth in 2014 as a whole, after a 1.9 percent rise the previous year.
Reflecting the more subdued outlook, the number of buyers attending the fair fell 4 percent to 117,000.
Michele Sofisti, chief executive officer of Sowind Group — the parent company of Swiss luxury watch brands Girard-Perregaux and JeanRichard — said the first two months of the year had been sluggish and he expected little improvement.
“There is a kind of a generic slowdown worldwide, which is driven by the economic and political situation around us,” said the executive, who also heads Gucci Group Watches and Jewelry.
He noted this had not prevented some brands from doing brisk business in Basel, including with their distributors from Russia, who attended despite concerns the U.S. and European Union will impose further sanctions in retaliation for Moscow annexing Crimea.
“There is a kind of complete disconnection between social reality and the business in the fair,” Sofisti said. “At the same time, it’s also a positive sign, which means there is a positive view of the future; things will be sold; there are solutions and we will be there and we will be moving on.”
Stephen Urquhart, president of Swatch Group’s flagship brand Omega, was cautious in his outlook for China, which, according to some analysts, accounts for 45 percent of Omega’s sales — a figure he declined to confirm. “I think maybe it’s too early to talk about a turnaround, but we’re definitely not talking about the situation getting worse,” Urquhart said.
“For years, everything was going towards the high end, and now there is a little tendency towards the middle to lower end — not only watches, I’m talking in general,” he mused. “How will the Chinese consumer adapt? It’s difficult to say.”
Even brands less exposed to China face an array of challenges, as currency volatility spreads from Russia and Japan to Indonesia and Turkey.
“It used to be: We just sold watches. Today, it’s very different,” said Cindy Livingston, president and ceo of Sequel AG, which is present in 65 markets with its Gc and Guess watch collections. “You can have a business that is legitimately good that just goes upside down because of a currency.”
Marc Hayek, ceo of high-end brands Blancpain, Breguet and Jaquet Droz, said currency swings not only risk denting revenues in Swiss francs, but they are also crimping the behavior of high spenders. “We all are more nervous today because it’s so volatile, the exchange rates — we don’t know what’s going to happen tomorrow. So the money’s here — ‘I buy, but I’m thinking twice and I want to buy something that has stability,’” he said.
While some brands — including Breguet and Omega — are hiking prices in Russia this year to compensate for the weak ruble, Hayek is usually reluctant to tamper with prices. “You always have other ways to compensate. The problem is, with the quick change today in currencies due to the political situation or whatever, you cannot adapt the prices every two months,” he noted.
Instead, many firms are increasing their offer in the accessible and premium price segments to compensate for declining demand at the luxury end. Among the leading trends at Baselworld were classical timepieces inspired by heritage designs, blue and gray dials and an abundance of skeleton watches.
“There’s been a lot of conversation from existing brands that used to be in those price points, that maybe had migrated upward a little bit, to reintroduce product back at those price points, and there’s brands that have come on strong in those price ranges,” said Ira Melnitsky, ceo of U.S. watch retailer Tourneau LLC.
He pointed to the example of Tudor, the sister brand of Rolex, which competes in the segment of 2,000 Swiss francs to 6,000 Swiss francs, or $2,250 to $6,775 at current exchange. Having returned to the U.S. market last September, Tudor revealed plans to launch in the U.K. this fall.
Diversifying is key for the brand, which until a few years ago was sold almost exclusively in China, said Philippe Peverelli, managing director of Tudor.
“You must never have all your eggs in one basket. We inherited a historical situation where we do indeed have a lot of eggs in the Chinese basket, but I think there are dozens of brands who would love to be in our situation — in other words, to be strong over there and have to develop elsewhere,” he said.
One justification for price increases in recent years was the investment required to ramp up production capacity at firms that did not have a strong manufacturing base. This took on increased urgency ahead of the decision by Switzerland’s competition regulator last October authorizing Swatch Group, the world’s biggest watchmaker, to gradually phase out deliveries of mechanical movements to rival companies by 2020.
Tag Heuer, for instance, has spent 40 million Swiss francs, or $45 million, on increasing its ability to manufacture its own chronograph movements, including its new CH 80, which features in a new Carrera that will retail for $5,500. But ceo Stéphane Linder said Tag Heuer was also rebalancing its offer with introductions in the $1,000 to $3,000 segment, which accounts for 35 percent to 40 percent of the brand’s overall sales. The strategy is clearly aimed at the U.S., where he said watch sales in general were struggling to take off.
“Even though every green light seems to be switched on more and more, the consumption of watches is not booming. It’s not a recession, but this is not a growing market, so the story in the U.S. is all about taking market share. However, I’m confident. I think that we have reached the bottom and I think that the U.S. consumer will start to buy luxury products again,” Linder remarked.
Seiko is also angling for greater visibility with the opening of its first U.S. standalone boutique on New York’s Madison Avenue in June. This will be dedicated to its most prestigious collections, including Grand Seiko and Astron. In parallel, the Japanese watch company will introduce two more-accessible lines in the U.S.
With prices ranging from $450 to $695, Prospex, an adventure sports line previously available only in Japan, will feature in a new advertising campaign featuring Seiko’s most recent brand ambassador, tennis player Novak Djokovic. Recraft — a line of automatic watches inspired by archival Seiko designs — will be priced from $195 to $395 in a bid to appeal to younger consumers.
While the reduction in the supply of watch parts presents a threat to some independent brands unable to secure alternative supplies, the outlook is not all bleak for smaller players, according to Peter Stas, cofounder and ceo of Frédérique Constant, which also owns the Alpina brand. He sees an opportunity for family-owned brands to curry favor with retailers, who are under pressure from large conglomerates to absorb excess stocks from Asia.
“Then on top of that, the groups are reducing margins. We don’t do that,” he said. “More and more retailers are starting to realize they should really maintain one-third of their store space for independent brands.”
Many watchmakers are pinning their growth prospects on female consumers.
“Women are becoming more independent. They are working, they have discretionary spending power and increasingly, they are buying for themselves,” explained Luc Perramond, ceo of La Montre Hermès. He believes that in recent years, watch brands have overlooked consumers who may not spend upwards of $10,000 on a luxury watch, but who can stomach price tags from $2,250 to $4,500.
“We want to remain accessible because there is a huge market out there and you must not neglect growth in volume with new clients. Otherwise, you clog the high end and you stay focused on a tiny group of customers with very high revenues,” Perramond said.
Bulgari is banking on its Lucea watch to fuel ceo Jean-Christophe Babin’s vision of propelling the Roman jeweler into the ranks of the top 10 Swiss watch brands within three years.
“It’s the very first Bulgari really designed for ladies and designed to be a daily watch,” he said, noting that the timepiece was “priced also in a very mainstream way,” with models ranging from $4,200 to $40,000. The launch will be supported by a new campaign with Carla Bruni, representing “the highest ever investment we will do on ladies’ watches, because we are convinced that we have really a global winner,” said Babin.
While brands including Louis Vuitton and Christian Dior skewed smaller with their new ladies’ models, U-Boat — known for supersized timepieces favored by the likes of Arnold Schwarzenegger — took the opposite tack.
“In doubt, marketing people, designers, big companies say, ‘We’ve got to cover all the sectors, let’s have a small ladies’ watch.’ But I think they’re going in the wrong direction, because the Asians are wearing big watches,” said Mounir Moufarrige, president of U-Boat. “And maybe psychologically there’s more value on a big watch than there is on a small watch — but we’re selling a lot in Asia.”
The new Elegance collection from Longines comes in three sizes: 25.5 mm., 34.5 mm. and 37 mm. The timepieces, which address growing demand for ladies’ automatic watches, are available in steel or steel and rose gold, with or without diamonds, priced from $1,750 to $5,300.
At Movado Group, novelties include the new Movado Concerto Mini — as worn by brand ambassador Kerry Washington on the TV series “Scandal” —– and the next generation Ebel Wave, which will launch this summer with a new bracelet and case featuring a redesigned wave pattern.
Swarovski, meanwhile, is offering slightly lower-priced models in its bestselling Octea line. The newly slimmed-down Octea Sport, available in colors including silver and light gold, will sell for $650, versus its previous entry price of $850.
“I think there’s a big void in the market for value-added watches with diamonds below $1,000,” said Jeffrey Cohen, president of Citizen Watch Company of America. The company aims to address that with the Citizen L Sunrise ladies’ collection, priced from $325 to $795. Set to hit stores in September, the watch will be backed by an ad campaign featuring “American Idol” winner Kelly Clarkson.
“We have certain watches at $500, $600, $800 that in other brands would be at least two to three times as much,” Cohen claimed. “Even at our price point, there’s a lot of brands that have these throwaway watches, which are more accessories. Our watches last.”
However, competition from fashion brands is set to intensify, as they step up their game to lure customers away from traditional watch brands.
Fossil Group, for instance, has been ramping up its capacities to assemble mechanical movements and manufacture cases in Switzerland as the firm expands its selection of Swiss-made products for brands such as Emporio Armani, Burberry and Fossil.
“Adding an element of Swiss-ness adds authenticity and credibility to the craftsmanship of the watch,” said Luis Samaniego, senior vice president of luxury brands at Fossil Group. “Having made the decision strategically to go after the fashion ‘Swiss-made’ space, we came to the conclusion very early on that it was imperative that we became as vertically integrated as we could, and that means being independent from anyone else when it comes to the production of movements.”
The company expects to increase its output of mechanical movements to 130,000 this year from less than 90,000 in 2013, according to Martin Frey, managing director of Fossil Group Europe.
Louis Vuitton, meanwhile, combines heritage and craftsmanship in its new Escale Worldtime men’s watch, which features a dial hand-painted with dozens of colorful geometric pictograms copied from vintage customized Vuitton trunks.
So far, only one employee has the skill to apply the 30 colors one by one, which partly explains the watch’s price tag of $67,500 — though it’s not a limited-edition.
“It’s limited by the guy who’s painting it,” said Hamdi Chatti, vice president of fine jewelry and watches at Louis Vuitton. “He can paint one dial a week, so we had a little chat and I said, ‘OK, we can do 52 a year.’ And he said, ‘May I have holidays?’”
Paolo Marai, president of the Swiss luxury division of Timex Group, which produces watches for Versace, Versus and Salvatore Ferragamo, welcomed the increased competition at the high end, noting that selling a fashion watch for more than $500 remains a tough sell in many mature markets.
“I’m more than happy that people want to upgrade. Finally, we’ll have more actors playing in our price segment, which will only reinforce our positioning. I keep saying that going forward, fashion brands will take a big portion of the market from traditional watch brands,” he predicted.
“You need to be a global brand and it’s not easy for a traditional watch brand to be a global brand, unless they can spend a fortune,” Marai explained.
While the battle rages for the middle ground, the industry’s top players appeared unassailable.
Rolex wowed retailers with offerings including the GMT-Master II, featuring an eye-catching red and blue Cerachrom insert on the bezel, and the relaunched Cellini collection, consisting of 12 classically inspired models priced from $15,200 to $19,400.
Patek Philippe, which this year celebrates its 175th anniversary, made a splash by revealing it will stop producing its Ref. 5960 annual calendar automatic chronograph in precious metals and switch instead to stainless steel. If that sounds counterintuitive, it is worth noting that steel pieces are a rarity at Patek Philippe and therefore become instantly collectible, though with a price tag of $54,800, the timepiece remains a major investment.
Tourneau’s Melnitsky said pieces like this were eagerly awaited by his customers, prompting the retailer to increase its budget at Baselworld this year.
“Our business seems to be growing faster than the market is growing and the early indications for 2014 are very positive,” he said.
“We like what we consider the continued return to classicism by a lot of the leading brands, so there were a number of looks that to us were reminiscent of past successes from the brands but evolved to a new place, and that resonates very well with our customer base.”