Wall Street Journal on trouble in Swiss watch industry

[jstan9]

I thought yesterday’s WSJ piece on the Swiss watch industry was fascinating. It’s behind a paywall, but here are some excerpts (it’s a long feature article in the Business & Finance section):

GENEVA—You’re 25 years old, bask­ing in the glow of your first big job pro­mo­tion and a hefty raise. Why not splurge on a big-ticket item?

Your fa­ther might have bought a fancy Swiss watch. But the thought doesn’t oc­cur to you—for most of your life, you’ve used your cell­phone to check the time. In­stead, you book a get­away to Costa Rica, which you doc­u­ment ex­ten-sively on In­sta­gram.

Swiss watch­mak­ing ex­ec­u-tive Jean-Claude Biver wants to change that think­ing. From his perch at lux­ury con­glom­er-ate LVMH Moët Hen­nessy Louis Vuit­ton, the 68-year-old has seen younger gen­er­a­tions drift away from his cen­turies-old in­dus­try. He is on a mis­sion to get them in­ter­ested in watches, be­fore it’s too late.

“It’s the first time we have young peo­ple not buy­ing watches,” says Mr. Biver, who leads LVMH’s watch di­vi­sion. “Time is every­where. Why should these kids buy some-thing for the wrists that tells them the same thing they get every­where?”

Ex­ec­u­tives across Switzer-land’s watch in­dus­try have been wrestling with the same ques­tion. How can they con­vince young con­sumers that me­chan­i­cal time­pieces are rel­e­vant—let alone worth the price of a car? At the same time, the tra­di­tion-bound man­u­fac­tur­ers are fend­ing off Apple Inc. and other tech com­pa­nies that are dis­rupt­ing the mar­ket with wrist gad­gets that track your work­outs and or­ga­nize your so­cial life.

And another:

The per­ils fac­ing the Swiss in­dus­try have been laid bare by a sharp down­turn start­ing in 2015. Chi­nese con­sumers, who drove a two-decade boom in the watch busi­ness, reined in their spend­ing. That ex­posed watch­mak­ers’ grow-ing dis­con­nect with clien­tele in the West. Swiss watch ex­ports glob­ally fell 13% be­tween 2014 and 2016. Last year, ex­ports rose 2.7%, but still lagged well be­hind the lux­ury sec­tor as a whole.

[S-F]

You father might have bought one because the one he wanted was actually in the display case waiting to be purchased.

[amh]

Originally Posted by S-F

You father might have bought one because the one he wanted was actually in the display case waiting to be purchased.

Agree, it would seem like they're deliberately sabotaging the 'younger' market by constraining supply of popular models

[brian15876]

Originally Posted by S-F

You father might have bought one because the one he wanted was actually in the display case waiting to be purchased.

[springer]

Originally Posted by S-F

You father might have bought one because the one he wanted was actually in the display case waiting to be purchased.

Very true. . .or he bought it because he could afford it.

Pricing has gone too far for a stainless steel watches.

[samson66]

Figures that in 2015 when the market was apparently stronger you could get Rolex sports models everywhere. Now that we've had this "sharp downturn" there's not a watch to be found anywhere. Sort of doesn't make much sense. I guess restrict supplies to boost demand and "exclusivity" I suppose.

[jstan9]

Originally Posted by samson66

Figures that in 2015 when the market was apparently stronger you could get Rolex sports models everywhere. Now that we've had this "sharp downturn" there's not a watch to be found anywhere. Sort of doesn't make much sense. I guess restrict supplies to boost demand and "exclusivity" I suppose.

This is a paradox to me...because you’re absolutely right. There just aren’t many sports models ‘in the AD wild.’

I’d also note that the press wants stories — and this was a big feature in the WSJ, as I mentioned, complete with fun pictures. It would be great to see a similar story from Rolex senior management, but, apparently, they rarely talk to the press.

[toto]

[tomchicago]

Hence production problems and consolidation pressures will force the sale of Rolex to Swatch Group in order to survive.

[JacksonStone]

Originally Posted by tomchicago

Hence production problems and consolidation pressures will force the sale of Rolex to Swatch Group in order to survive.

Why didn't you opt for SwatchChicago as your screen name?

[airchitect]

Originally Posted by JacksonStone

Why didn't you opt for SwatchChicago as your screen name?

I was think this too as I’ve seen a similar comment in a few threads.... Yes I think there will be consolidation in the future but it won’t be Swatch taking over Rolex by any means. Swatch, Richemont, and LVMH all have portfolios of “other” brands. No Rolex, no Patek, no AP, and no Seiko. The top dawgs. I think you’d see the watch Operations of those three first with swatch’s movement division surviving only to supply outside companies. Regardless I think in many years time, the four companies mentioned above will be the ones still standing. I also think regarding supply and pricing you’ll see a huge spike in price to create more exclusivity and more demand from the luxury set.

[dmash]

Originally Posted by airchitect

I was think this too as I’ve seen a similar comment in a few threads.... Yes I think there will be consolidation in the future but it won’t be Swatch taking over Rolex by any means. Swatch, Richemont, and LVMH all have portfolios of “other” brands. No Rolex, no Patek, no AP, and no Seiko. The top dawgs. I think you’d see the watch Operations of those three first with swatch’s movement division surviving only to supply outside companies. Regardless I think in many years time, the four companies mentioned above will be the ones still standing. I also think regarding supply and pricing you’ll see a huge spike in price to create more exclusivity and more demand from the luxury set.

Yeah JLC, Breguet, Vacheron and Lange are all a joke.

[mahefa]

Originally Posted by tomchicago

Hence production problems and consolidation pressures will force the sale of Rolex to Swatch Group in order to survive.

It is not allowed in foundation rules.

[irish john]

Originally Posted by tomchicago

Hence production problems and consolidation pressures will force the sale of Rolex to Swatch Group in order to survive.

say it isnt so

[beshannon]

https://www.rolexforums.com/showthread.php?t=591652

https://www.rolexforums.com/showthread.php?t=591510

[jstan9]

Originally Posted by beshannon

https://www.rolexforums.com/showthread.php?t=591652



https://www.rolexforums.com/showthread.php?t=591510

Thank you! This forum is fast! I hadn’t noticed these posts.


Sent from my iPhone using Tapatalk

[brandrea]

Maybe if the younger gen aren’t interested, it’ll free up supply for us dinosaurs

[douglasf13]

I think it's absolutely true. Rolex demand is certainly outstripping supply at the moment, but it sure doesn't seem to be because of a bunch of 22 year olds. While young buyers are out there, this is primarily a game of those over 30, who at least remember what it's like to wear watches as kids. That's likely why Rolex has nearly doubled in price over the last dozen years. May as well get more money while they can from the older folks who have a retro fondness for mechanical watches.

I've said it before, but I have an expensive (when new) gold pocket watch and ebony cane from deceased relatives, and while they're nice heirloom keepsakes, I'd never actually use them, and I can see the mechanical watch going that way someday. I personally wouldn't have a lot of money tied up in them for investment sake long term, but who knows??

[JacksonStone]

Originally Posted by douglasf13

I think it's absolutely true. Rolex demand is certainly outstripping supply at the moment, but it sure doesn't seem to be because of a bunch of 22 year olds. While young buyers are out there, this is primarily a game of those over 30, who at least remember what it's like to wear watches as kids. That's likely why Rolex has nearly doubled in price over the last dozen years. May as well get more money while they can from the older folks who have a retro fondness for mechanical watches.

I think saying the current spike in demand for Rolexes disproves the theory there is an existential crisis facing the Swiss watch industry as a whole is like saying because we have an unseasonably cold winter in the Northeast United States, the mean global temperature isn't rising. The Rolex supply shortage/demand spike is one short-range event affecting one line of one brand. This article is talking about long-range macro trends that can (and theoretically will) affect the entire industry in generations to come. Claiming the former disproves the latter is myopic.

[douglasf13]

Originally Posted by JacksonStone

I think saying the current spike in demand for Rolexes disproves the theory there is an existential crisis facing the Swiss watch industry as a whole is like saying because we have an unseasonably cold winter in the Northeast United States, the mean global temperature isn't rising. The Rolex supply shortage/demand spike is one short-range event affecting one line of one brand. This article is talking about long-range macro trends that can (and theoretically will) affect the entire industry in generations to come. Claiming the former disproves the latter is myopic.

I completely agree. This isn't about 2018, it's about 2030+. The relatively new Apple Watch is far and away the watch I see most often these days, and that image is burning into the mind of today's youth.

The pocket watch had a 400 year run, and the mechanical wrist watch has been fortunate it to make it to 100 years, which isn't too shabby, considering the pace of technological development over the last century and the sky rocketing prices of mechanical watches. When we get to the point where the 2D screens of our phones are replaced with 3D holograms/projections, or whatever, I'd imagine we'll all be wearing such a thing on our wrist, rather than fishing it out of our pockets...not unlike the last transition from pocket watch to wrist watch.

[samson66]

Originally Posted by douglasf13

I completely agree. This isn't about 2018, it's about 2030+. The relatively new Apple Watch is far and away the watch I see most often these days, and that image is burning into the mind of today's youth.

Maybe so but the Apple watch is basically an electronic toy and the latest fad. Rolex has never relied on fads or trends. Rolex watches are luxury items and most people of lesser means and the <30 crowd did not make up much of Rolex's sales to begin with. People who want a luxury watch don't by an Apple watch. They may ALSO have an apple watch, but I don't think anyone out there who is intersted in a Rolex has ever or will ever buy an Apple watch instead. Two totally different markets in my opinion. After all, everyone on here could be wearing Invictas couldn't we???

[douglasf13]

Originally Posted by samson66

Maybe so but the Apple watch is basically an electronic toy and the latest fad. Rolex has never relied on fads or trends. Rolex watches are luxury items and most people of lesser means and the <30 crowd did not make up much of Rolex's sales to begin with. People who want a luxury watch don't by an Apple watch. They may ALSO have an apple watch, but I don't think anyone out there who is intersted in a Rolex has ever or will ever buy an Apple watch instead. Two totally different markets in my opinion. After all, everyone on here could be wearing Invictas couldn't we???

That's my point. If the youth market isn't interested in luxury items for the wrist, and their wrist real estate is being used by a gadget instead, it doesn't bode well for the future of mechanicals. Once the tipping point happens, and mechanical watches become the uncool luxury baubles of older relatives, watch out.

[HK Islandboy]

Originally Posted by JacksonStone

I think saying the current spike in demand for Rolexes disproves the theory there is an existential crisis facing the Swiss watch industry as a whole is like saying because we have an unseasonably cold winter in the Northeast United States, the mean global temperature isn't rising. The Rolex supply shortage/demand spike is one short-range event affecting one line of one brand. This article is talking about long-range macro trends that can (and theoretically will) affect the entire industry in generations to come. Claiming the former disproves the latter is myopic.

Very well put

[Car32]

Originally Posted by douglasf13

I think it's absolutely true. Rolex demand is certainly outstripping supply at the moment, but it sure doesn't seem to be because of a bunch of 22 year olds. While young buyers are out there, this is primarily a game of those over 30, who at least remember what it's like to wear watches as kids. That's likely why Rolex has nearly doubled in price over the last dozen years. May as well get more money while they can from the older folks who have a retro fondness for mechanical watches.

I've said it before, but I have an expensive (when new) gold pocket watch and ebony cane from deceased relatives, and while they're nice heirloom keepsakes, I'd never actually use them, and I can see the mechanical watch going that way someday. I personally wouldn't have a lot of money tied up in them for investment sake long term, but who knows??

I am cautiously optimistic mechanical watches and Rolex will survive, although certainly there will be many brands that fail and it will be more niche than it is now. Im in my late 30s so can certainly remember when everyone wore a watch and I get the whole smart watch threat, but here's why I am cautiously optimistic:

1) More than ever its man jewelry, and a decent portion of men will always want man jewelry. Thats why I dont think pocket watches and canes arent great analogies - they aren't worn like a necklace/chain, ring, bracelet or watch, which can be worn just for the look. That means you need a further utilitarian use to justify carrying a pocket watch, and here, the smart watch/no one needs a watch to tell time argument holds up. As for canes, they're simply not in style and probably never will be again.

2) I think (hope) the smart watch threat is overblown. Why? not because I think more people will appreciate the "craftmanship" of a mechanical watch, etc, but simply because the way technology is moving, we'll probably move on to augmented reality glasses, direct implants that eliminate the need for smart computer on your wrist. In that case, we go back to point 1) its man jewelry at the end of the day. In addition, just like cars, hand bags, shoes, shirts, bottled water and almost every other product category: there almost always tends to be a range of options, from cheap-that-can-get-the-job-done to more expensive options that no one "needs" that continue to sell. Just like luxury hand bags and cars, mechanical watches will be considered luxury items and have a market. I HOPE!!

I will be honest, one of the "justifications" for spending so much on a Rolex is the thought of having an heirloom to pass on to my kids, something they see me wearing every day and thus hopefully have a positive association with me once Im gone. There are not many mechanical things made today that are supposed to last for generations. I know its all marketing but it worked on me and I love the concept (Patek's marketing about keeping for the next generation is genius). If the industry can figure out and expand good marketing like this, then it will do ok in the long run.

[rw2008]

Consider the source.

If I were in charge of the brands that LVMH owns, I too would be worried about long term demand and the possibility of future consolidation.

To an extent, all luxury watch brands should be wary of these things, but this would have a different impact of different brands.

[locutus49]

Yet another doom and gloom prediction of the fall of mechanical watches. I am old, but I think Rolex will continue to thrive.

[tyler1980]

Originally Posted by locutus49

Yet another doom and gloom prediction of the fall of mechanical watches. I am old, but I think Rolex will continue to thrive.

yeah i agree. Its not the big names that will disappear. Its the mid level and low end. Rolex is safe along with some others IMO

[singe89]

While Rolex and others might be holding supply to create hype and in turn more demand I'm sure they are doing fine financially.

AP posted a record year in 2017 and RM has had off the charts growth (AP owns a portion of that too) and the prices of Pateks have been insane. These companies all have more demand right now and I'm sure will be highly profitable long into the future.

Now the big conglomerates like LVMH, Swatch, and Richmont will have some of their brands hurting.

[Dirt]

Originally Posted by singe89

Now the big conglomerates like LVMH, Swatch, and Richmont will have some of their brands hurting.

I can see this happening.
It's sad in a way, because they virtually saved the Swiss watch industry.
Perhaps we are seeing another round of technology challenging the mechanical world just like the Quartz crisis did.

[lucevan le stelle]

Originally Posted by tyler1980

yeah i agree. Its not the big names that will disappear. Its the mid level and low end. Rolex is safe along with some others IMO

Yes, pretty much, unless you consider un-GS Seiko in the low end. Scarcity may be a positioning move to greater exclusivity and as such higher luxury status. 15k no-date Sub in the future?