Her is the story of how Swiss watchmakers left the $ 300 segment vulnerable to the emergence of Chinese made fashion and marketing driven brands.
There has undeniably been a change in watch sales over the past decade, and it should be attributed to a volume decrease combined with a value increase. One of the consequences of this volume decrease in the entry-price segment is to have created a vacuum that lifestyle watches are filling.
What do we refer to as lifestyle watches? They are the watchmaking counterparts of designer spectacles:
- They usually cost less than $ 300 and are made in China
- They are distributed through multiple channels: you can purchase them online, in department stores, in jewellery stores and at your typical mom and pop watch store.
- They are either fashion based (Ben Sherman, Calvin Klein, DKNY, Hugo Boss, Gant, Michael Kors, Timberland), or they are marketing based: Bering, Daniel Wellington, Fossil, Ice Watch, MVMT, Police, Skagen Denmark.
Of course, there is also the post-Subprimes Chinese Market Peak, which artificially increased sales until a reversal of policy by the People’s Republic government in 2013. Exports of Swiss watches between 2009 and 2013 are to be taken with a pinch of salt as they include a surge in luxury consumption by Chinese consumers that masked the drop in sales caused by the Great Recession in other markets.
Volume Decrease Coupled with Value Increase
After the industry consolidation of the early 1980’s, a lot of Swiss watchmakers have gradually been moving most of their chips away from the entry-price segment of quartz watches ($ 300 and less) to grow their market share of mechanical watches.
If 1 mechanical watch retails for $ 900, when 1 quartz watch retails for $ 300, the watchmaker breaks even by selling 1 mechanical watch instead of 3 quartz ones. In volume it looks like they are selling less, but their turnover remains the same and they almost spend ⅔ less on manufacturing, warehousing and shipping costs.
The chart below shows how Swiss watchmakers have managed to triple their turnover between 2004 and 2014, while decreasing their overall volume.
Lifestyle Watches in the Entry-Price Segment
Trading watches in Switzerland used to be a tightly fated activity, and that directive was cancelled in 1966.
By 1972, businessman Séverin Wundermann more or less invented the concept of fashion based lifestylewatches, by brokering a license to produce Gucci watches (Severin Wunderman, the genius precursor of the fashion watch).
The Alibaba Group, created in 1999, capitalised on the Internet to connect suppliers with entrepreneurs. Since watchmakers were partially moving out of the entry-price segment it led market shares up for grabs. If they are no longer producing watches for the entry-price segment, where will people who are not willing to spend more than $ 300 find satisfaction?
Image source HODINKEE
With this alignment of stars, entrepreneurs could now seizing the opportunity to procure watches in China and sell them to style thirsty Western consumers: brands such as Ice Watch, Daniel Wellington, MVMT, Larsson & Jennings, Filippo Loreti or Nordgreen have all been created and launched after the 2007 Subprime Crisis, yet they are selling from tens of thousands to millions. These new watches have essentially replaced the Swiss quartz watches that have disappeared after the shift to mechanical watches.
Most of these young brands have been growing, and are still growing their market base after the launch of the Apple Watch. They manage to be more relevant to their customer base than institutionalbrands, which ironically makes them more vulnerable to going out of fashion.See Relevance is the New Luxuryfor further reading.
What does the future hold?
Well the production of watches a time consuming process: it takes at least 8 months to sample and produce a new watch collection, and that does not include pre-series testing. We will probably never see an Inditex’ fast fashion business model applied to lifestyle watches, because it is currently impossible to reduce the development and production time to a few weeks like in the textile industry.
However, what we have seen through our work with watch supply and market research in the last 10 years is that the opportunity for marketing driven brand still exists, partly because Swiss brands have not gone back to the entry-price segment (maybe it no longer makes sense for them to go back) and partly because lifestyle brands are somehow more short-lived. The latest brand on our list, Nordgreen, was launched in 2017 by former Mc Kinsey managers.
In the last 5 years, a lot of entrepreneurs have simply tried to follow the Daniel Wellington digital or MVMT marketing business template, but what it really takes is for someone to come up with the next big thing.
Advertising and social media platforms keep changing their algorithms, so the next big lifestyle brand is the one that will find a new way to leverage technology to promote their brand. See Ramping up Watchmaking Entrepreneurship for further reading.