Inappropriate spending
It is difficult for consumers to feel extravagant in financially troubled times. It has become insensitive, even unfashionable, to go and purchase a fabulous, sparkling wristwatch in the current downturn, even if consumers have the means to do so. It seems that a kind of wartime prudence is amongst us with ‘making do’ replacing spending. Even the stars are paying attention to the economic crisis. During the recent Oscars, the actress Angelina Jolie was praised in the press for favouring a pair of emerald earrings over the usual mega-carat diamond jewellery that is so often worn. The price tag of the Lorraine Schwartz earrings was still a whopping 2.5 million dollars, but they were perceived as less lavish than diamonds and a better choice considering the current economical situation! So what does this mean for the future of glamour, and in particular, the glamorous watch business?

Financially speaking
Let’s start by taking a look at the current situation. One way to see how the luxury watch industry is fairing is to look at the annual reports of the big luxury groups. LVMH, the world’s largest luxury group, recently reported a 17 per cent loss in revenue for its watch and jewellery brands in its first half-year results for 2009, with sales down 34 per cent, which the group explains as largely due to destocking by its retail outlets.
Compagnie Richemont SA announced that the first five months of this year through to end August have seen overall sales at a level 16 per cent below the comparable period last year, at actual exchange rates.
The Swatch Group reported a 15.3 per cent decrease in gross sales in its half-year report for 2009. These figures were much better than expected and the stock market responded with a 12.8 per cent rise in the bearer share price the day after publication, which is a positive sign. However, there is no denying that the watch industry, like almost every other luxury industry, has not been exempt from the recession. From the big groups to the manufacturers, suppliers, distributors and retailers, the recession hit at the end of October, beginning of November as consumers were either directly effected by the financial crisis or scared by what they heard about in the press.



Changing consumer behaviour
One of the main factors that has lead to a downturn in the glamorous watch industry is a change in consumer behaviour. Frugality has taken over from conspicuous consumption. Most people are now paying close attention to the price tags of their purchases and asking themselves, “Do I really need another diamond wristwatch right now?” Not that they aren’t dying to treat themselves, but they are putting these purchases off for the moment. And those who are spending are above all looking for value for money. In the recent Mendelsohn Affluent Survey 2009 Annual Report, 32.8 million Americans were reported to ascribe to the fact that “Good value for money is more important than price”, which is very positive news for the luxury watch industry.
Another change in consumer behaviour is that it seems that paying over-the-top prices for a brand name is not as appealing as it once was. Brand names and marketing hype are no longer going to be enough to seduce consumers. “In general, we are seeing a trend towards more carefully considered luxury with consumers focused on lasting luxury, bespoke details and unique creations,” explains a spokesperson from the luxury jewel-lery and watch brand Harry Winston. Consumers are going to be looking for genu-ine products with better value for money. “True luxury is going to replace false luxury,” explains Denis Asch from the retailer L’Heure Asch in Geneva Switzerland. “The shine on the outside is going to be replaced by the shine from the inside; it will be more discreet, but more efficient.”

The shepherd and his flock
This return to true value is a positive development for the watch client as those companies who have been misleading the consumer with marketing hype in the hope of turning a quick profit will be forced to redefine their offer or fall by the wayside.
Authenticity, creativity, exclusivity, originality and service are going to be essential key words for brands in search of future success. “Certain brands who wanted to jump on the bandwagon while it was moving and follow the crowd have suffered considerably. However, the ‘shepherd’ who creates trends and authentic products will always come through better than the others. In watchmaking, like in other sectors, there will always be the shepherd and there will always be the sheep, those who lead and those who follow. Those leading brands are managing much better right now,” says Asch.

A return to the classics
We are already seeing the return of the classic watch in the men’s segment and it is likely that this will be a concurrent theme that will be seen throughout the luxury industry. “I would say that the current trend of the return to the ‘classics’ is a trend beyond design. It is a trend that will transcend the entire luxury business” shares Marc Michel-Amadry President and Creative Director of Ebel. “We believe very much that the new values of luxury won’t be anymore about saying ‘I have money’ showing your watch, but on the contrary to say ‘I have taste’. We are really going towards a luxury revolution, in its codes and in the way of displaying it and communicating it. We are done with the ‘over-the-top’ conception of luxury, with all the excess and useless overstatement to show others that we have more money. New luxury will take on again the true meaning of beauty, of authenticity, of timelessness, of real elegance and refinement.”



A divided world
This change in consumer behaviour is going to be a challenge for many brands. The logo frenzy of the last couple of decades may be calming down in the developed world, but in emerging markets, such as China, India, Russia and Brazil, the joys of ‘brandmania’ are only just beginning. This is going to create difficulties for many watch companies as they may need to redefine their offer for developed regions, while maintaining former marketing strategies for the emerging markets. It is going to be no easy task, especially as it is estimated that a large number of the luxury consumers from emerging markets purchase while abroad and not in their home countries. Research presented at the last Luxury Briefing Conference in London in November 2008 by Accenture Managing Partner Richard Wildman found that up to 80 per cent of purchases by Asians were made when they go abroad, and as much as 30 per cent of developed market sales (e.g. in Europe) are attributed to emerging market customers as they travel. This highlights the importance of understanding ones markets, their different cultures, their lifestyle and their consumer preferences. Those who succeed in doing so should be in the best position to reap the rewards.
However, companies don’t necessarily have to change their strategies if the product is right, as Nicolas Beau, Chanel’s International Director explains, “It is possible to carry out specific marketing studies, which are often completed at the same time or after the product has come out. At Chanel our designers are ahead of time. Luxury seeks out innovation and creation; it doesn’t come from marketing. What is more important than the recession, is to trust the design.
“The luxury business is constantly evolving. New brands arrive all the time and old brands are often rejuvenated. There are new wealthy consumers from emerging countries that have only had access to luxury products for a very short period of time. There isn’t one luxury. The US has been hit badly, Europe a bit less, Asia has hardly been touched at all. The world lives very differently and we have to adapt to that,” continues Beau.

At the point of sale
There will always be clients who want the latest, greatest watch straight away, but they are becoming increasingly rare. “European clients with the means, are taking longer and longer to decide before purchasing. Luxury is changing and mentalities too. The salesperson must adapt and make more of an effort for a clientele which is becoming more and more demanding and has the means to be” shares Asch.
Value has become king. “The recovery will come first for the brands which will be smart enough to redefine and strengthen their value proposition to the end-consumer. There are still people buying out there, but they have become more discerning and demanding about what they are expecting from a brand”, says Michel-Amadry.
Another problem with luxury shopping right now is that shopping malls the world over are now looking increasingly similar. How much fun it was to go shopping abroad 20 years ago to find things that no one had back home. Glamour has gone global and the same products can be found everywhere. From London to New York, from Paris to Tokyo, from Shanghai or Dubai, the stores are all decorated in exactly the same way with the very same product lines. As consumers move away from the big name ‘it’ products in search of original, authentic items, the luxury brands will need to think out of the box to provide exclusive and desirable objects.

Looking into the crystal ball
Retailers are quietly optimistic that the end of year holiday season will finish the year on a high as consumers will be in the mood to spend again. The period of de-stocking the stores is coming to a close and retailers have started to re-order new products to fill their windows. It was a tough start to the year, but hopes are that the last quarter will soften the financial blow. “I believe that this holiday season is going to be very good,” shares Robin Levinson, Co-Owner of Levinson Jewelers in Florida, USA. “September and October are historically quiet for us, but I do feel very, very positive about 4th quarter… Just as I always say, what goes up has to come down, and of course the other way around.”
“The stock exchange isn’t going too badly and there is always a niche of people wanting to please around Christmas,” explains Asch. “The 2010 watch fairs will be an important turning point for the watch industry, more so than ever. We will just have to test the waters in due time.”

The future of glamour
So will the recession put an end to glamour? Will the ladies’ diamond timepiece become obsolete? No, it’s highly unlikely. The difference will be that consumers won’t be so logo-obsessed as before. They will be looking for beautiful and original timepieces that are value for money. For many of the world’s markets, glamour is on hold; it isn’t fashionable to show off one’s status right now, but that will change. It’s a little like the peacock who loves to swagger around with all his feathers on show; it’s in his genes. Fortunately, for the watch industry, humans aren’t so different. We love to look great, we love to have gorgeous things and we love to be admired for our good taste. Now what better way to achieve that than with a glamorous timepiece? Let’s hope that the upcoming holiday season will give people the excuse to start spending again.


Source: Europa Star October-November 2009 Magazine Issue