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.

[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.

[toto]

[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

[tomchicago]

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

[beshannon]

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

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

[brandrea]

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

[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.

[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?

[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??

[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.

[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.

[locutus49]

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

[Sprta]

Tastes change as the person gets older. While you may like all the technology watches when you were younger you drift towards other items as you age and perhaps are successful. Same could be said for jewelry, while specific types of jewelry are attractive at a younger age taste changes during one life. Same can be said for cars i.e. from corvettes to bentlys.
Has anyone left an Apple watch as an heirloom.
There will always be an appreciation for items such as a Rolex.

[Sprta]

Dup post sorry

[Sprta]

Dup post

[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

[Wolfgangamadeus]

Anyone think cutting supply is an attempt draw in the younger generation through creating hype? This is so common in the sneaker and fashion worlds. Yeezys are hideous but everyone wants them because they are seen as exclusive. Maybe this is Rolex’s way of drawing interest from the younger, hype driven, generation. I’m 28 and I hate that stuff but I do see a lot of my peers are really into anything “limited” or “exclusive”

[Jrpontiac]

They are pricing themselves out of business. Not that Rolex is going out of business any time soon but a new sub is $8k, 20 years ago it was $2k. That outpaces inflation by a huge margin.

[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.

[JacksonStone]

Originally Posted by Jrpontiac

a new sub is $8k, 20 years ago it was $2k. That outpaces inflation by a huge margin.

The Submariner has also been substantially improved during that time, so inflation alone is an inaccurate measure of how much of a price increase would be considered reasonable. Rolex will know it's pricing itself out of business if its watches don't sell. Apparently that's not yet a problem for them.

[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.

[sdh1980]

I see more young people being interested in luxury watches than I've known in a long time

Most of the 20 somethings I work with are all aspiring to own a Rolex or an AP (seem to be the two most popular ones I hear spoken about). It's one of the most desired fashion accessories for them. They are always looking through Instagram showing each other the watch they are going to buy once they've saved or got their next bonus

Maybe has a a lot to do with all the rappers / football players owning them but as we all know, once you start in this game, it becomes very addictive and often a life long hobby

[tyler1980]

Originally Posted by JacksonStone

The Submariner has also been substantially improved during that time, so inflation alone is an inaccurate measure of how much of a price increase would be considered reasonable. Rolex will know it's pricing itself out of business if its watches don't sell. Apparently that's not yet a problem for them.

they have also changed the positioning. Its luxury now, not tool. Like it or not, it is what it is.

IMO the future of mechanical watches is upmarket anyway.

[JacksonStone]

Originally Posted by tyler1980

they have also changed the positioning. Its luxury, not tool. Like it or not, it is what it is.

Agreed.

[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.

[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

[jstan9]

Originally Posted by sdh1980

I see more young people being interested in luxury watches than I've known in a long time

Most of the 20 somethings I work with are all aspiring to own a Rolex or an AP (seem to be the two most popular ones I hear spoken about). It's one of the most desired fashion accessories for them. They are always looking through Instagram showing each other the watch they are going to buy once they've saved or got their next bonus

Maybe has a a lot to do with all the rappers / football players owning them but as we all know, once you start in this game, it becomes very addictive and often a life long hobby

I think Rolex marketing is genius, and the clear lynch-pin is their shrewd use of brand ambassadors from the sports and entertainment worlds.


Sent from my iPhone using Tapatalk

[Uhtred59]

Where is the guy with the bubble chart?