Retrospective-Perspective: The Watch Industry 2004/2005 - On the road again

April 2005

11.1 billion Swiss francs! The value of Swiss watch exports has gone through the roof. Exports grew 9.2% i.e. CHF 932.3 million in 2004 in relation to the ‘terrible’ year of 2003, which we last year called ‘The year of living dangerously.’
The ‘dangers’ seem long gone, at least on a short or even mid-term time frame, and the watch industry has regained its good health. Several very different factors came together to allow these good results.
The main one, of course, is the general macro-economic situation. Economic growth has returned, although in an unequal manner according to the world’s geographical regions. As it is being pulled along by the United States (which is financing it notably by the declining dollar), boosted by a continually expanding China, although still convalescing in Europe, this economic growth has found new strength in Japan and bubbles up here and there around the world, with the result that the watch sector benefits directly on a global scale. There is also a number that indicates the beginning of a real rekindling of the economic fires. For the first time in a long time, the number of pieces exported by Switzerland is on the rise. The growth in the Swiss watch industry is therefore not being fed only by regular increases in the average watch price, but also by the increase in the number of exported timepieces (+510,000 or +2.1% in 2004). This is indeed good news.

Maturity = Breguet + hip hop
There are also other factors involved in this growth. Among the most important is the level of maturity that the art of watchmaking has reached today. For a long time, we have heard about the ‘comeback’ of the mechanical watch. From now on, we can speak definitely about the reign of mechanical timekeeping. With the combination of computer-aided design, computer-controlled manufacturing, artisanal skills, time measurement performance and advanced marketing methods, the mechanical watch has unquestionably taken its place as one of the icons of our era.
What is most extraordinary in its success is that it is all about refining and perfecting a technology that is, in itself, out of date, because, if you want to read the precise time, quartz can do it much better and much less expensively.
But, for a long time now, the watch has not been created to simply tell the time. Its long lifespan in its current forms comes from the fact that it has acquired a whole other aura. It has moved past the status of a utilitarian object to join the ranks of jewellery, of art. It has become a status symbol par excellence.
Gradually, this trend in favour of mechanical watchmaking touches larger and larger circles, ensuring future growth not only geographically, but also vertically within its markets. Yes, a year or two ago, who would have guessed, for example, that the circles of American rap and hip hop would start wearing dual time zone watches equipped with two tourbillonsı Grandfather Breguet must be turning in his grave.

Anything goes
Carried away by this mechanical craze, watches cannot contain themselves. This year is seeing an incredible explosion of the wildest attempts, of one-upmanship, of watchmaking folly. The queen of complications, the tourbillon is the most spectacularly visible object in this race for timely treasures. The famous watchmaking ‘legitimacy’ that dictates that the tourbillon is reserved for the best master watchmakers confined to the silence of their workshops has been blown apart. In one year, we have seen a double, triple, or even quadruple tourbillon, while waiting for the next sextuple tourbillon.
The tourbillonesque folly is emblematic of the actual state of the watch art and industry. What counts is no longer the relationship between research (chronometric precision) and the means to achieve it (purity, simplicity) but rather the absolute ostentation of performance for the sake of performance.

From Classicism to Mannerism to Baroque
If we were to make a historical comparison, we would find it in the ‘Baroque’ period. In the history of art, the classicism of the Renaissance transformed somewhat into Mannerism, which in turn gave birth to the Baroque movement. This form, made of pomposity and grandiloquence, was also an artistic response to a violent and agitated world in full re-organization. The parallel is valid for our epoch, also full of historical convulsions and world ‘re-composition.’
The Baroque trend in current watchmaking is therefore a sort of ‘response’ to the turmoil of our times. Classicism – that is, the basis of watchmaking as defined at the turning of the 19th century – has arrived at its apogee. It is seeing itself now as ‘deformed’, ‘exaggerated’, ‘parodied’, ‘bloated’.
The formal classic harmony in watchmaking has also been blown into a thousand parts. The size of watches has little by little become overly exaggerated. The forms have become larger and more varied as have the lines, colours, and materials. The diamonds, or crystals, have invaded everything, finding refuge even in the interior of the movements, colonizing bridges and oscillating masses. The ‘Bling’ wind has blown in, adding still another touch of extravagance. Diamonds rain from the skies. Watches have become clearly more playful. Impertinence is mixed with the quality of craftsmanship to give all sorts of embellishments.
This is certainly a large part of its current success: offer a happy and warm alternative to the anxieties and worries of the times. And, it is also a paradox - as if all the Baroque effervescence of today’s watchmaking was not there to remind us of the time, but to make us forget it.

Beginning of a classic ‘return to order’
In the middle of all this outlandishness, signs of a gradual classic ‘return to order’ are beginning to see the light of day. The technical advances that, on one side, permitted the current creative explosion are, on the other hand, the source of this gradual return to classicism. Yet, it is a revisited classicism, taking advantage of new design technology and tools.
One example of this, clearly illustrated in this issue (see our Cover Story), is the silicon wheel developed by Patek Philippe. More than ever, this ‘guardian of the temple,’ yet a guardian that is open to the future, Patek Philippe has used the latest and most advanced technol-ogies to create this radical new wheel. This novel creation has drastically changed production methods (no more tooling, milling, or drilling, replaced instead by photography and plasma engraving) that have allowed it to ‘reinvent the wheel’ in a literal and figurative sense, a wheel that is the most classic element of traditional watchmaking. (It also meets the strict and very “classic” standards of the famous Poinçon de Genève or Geneva Seal.) But since it requires no lubrication, it solves a problem that is as old as timekeeping itself.
These avenues of research, which Patek Philippe is not the only one to explore, are certainly among the most promising for the future of mechanical watchmaking. Aside from the spectacular and fashionable aspects, the more seemingly modest innovations of this type will ensure the continued evolution of timekeeping.
The paradoxical returns to the source, to simplicity, to refinement, to clarity and to chronometry are sketching out the first contours of a ‘new classicism’ yet to come. The simple watch, at least in appearance, created this year by François-Paul Journe, is in our opinion an ‘anti-cyclic’ indicator of things to come. As we discuss in this issue, “to be avant-garde today means being simple.”

New competitive dynamism
The creative explosion of 2004 also can be explained in other, more pragmatic terms. Since 2003 was ‘The year of living dangerously,’ many development projects, including many innovative ones, remained on the drawing boards while waiting for better days. With more optimistic moods prevailing, these various projects all came to fruition at about the same time, giving the impression of a sudden and growing phenomenon that in normal times would have been more gradual.
Another factor was also important. In 2004, we saw the collective arrival of several projects of new ‘manufactures’ (Vacheron Constantin, Vaucher, Piaget, extensions of Rolex...), the re-launch of brands that had been re-awakened from their slumber (spectacularly in the case of Zenith, ongoing in Ebel’s case), and the re-conquest of markets.
This new competitive dynamism has been even more accelerated by the veritable ‘baby boom’ of new brands (see the section on ‘Baby Boom’ in this issue), the explosion of new labels, which have for the most part been carried out very professionally using effective marketing campaigns. In their own way, these new brands are all proposing strong and innovative products.
Acting as stimulants, even ‘research laboratories’ or as ‘studios,’ these recently established brands are working on interesting concepts for the future, whether in a technical sense (for example, the instrument watch of Biformeter), mechanically (the poetic displays of Hautlence), or aesthetically (the interesting jewellery approach by Raynaud Genève).

On the road to hybridization
Watchmaking has certainly not finished evolving and those who said, a few years ago, that “everything has been done in the mechanical watch” were clearly wrong. No, everything has not been done, and one area that is showing interesting results is hybridization, where the mechanical and electronical combine into one.
Along these lines, Hysek, together with young designers, launches a futuristic tourbillon hiding an LCD display on an underdial, or a Gérald Genta which will soon introduce Incontro, its ‘concept watch’ with the same provocative double display: on one side is a tourbillon and on the other a multifunctional LCD time display.
Others, such as Seiko, for example, are pushing the envelope of mechanical/electronical integration even farther. After more than 28 years of research and development, the Japanese brand is launching its Kinetic movement on a commercial scale. This opens veritable new perspectives for the future of watchmaking, allying the two distinctly different technologies of precision and autonomy.
This major innovation, in a terrain left fallow by Swiss companies, accompanies a strong desire to move upmarket by Seiko. Gradually, the Japanese brands are looking to share the haut de gamme pie, which has been jealously guarded by the Swiss.

Nothing lasts for ever
History, in general, and the history of watchmaking, in particular, remind us that nothing can be taken for granted, that nothing lasts forever. The grand epoch of French classic timekeeping and the glorious era of English time measurement have disappeared with the changing winds. We should also remember that the Swiss industry itself started by copying the French and the English master watchmakers, and by copying them so well, it ended up controlling the markets.
In its turn, the then-Calvinist Geneva contributed to the development of the watch industry in the Jura region by delocalizing some of its production. We see these same phenomena happening today… but where is production going nowı Chinaı

China, China, China
China! It is both a fabulous potential market (growth up 41.7% in 2004) with its millions of emerging millionaires, and a powerful potential competitor as well.
There too, everything began with the copy, whose performance has become more and more impressive, rapid, and qualitative (to give one single example, even though Lange & Söhne is not yet distributed in China, very nice copies are circulating).
We have already mentioned, during the September watch fair in Hong Kong, that four Chinese watchmakers proposed veritable tourbillons at prices that were, of course, unbeatable. Yes, they were a bit rustic, but we should not make the error of dismissing them. This is only a first step, a first sign that the now-dominant watchmakers would do well to heed. Their domination is not eternal.

Maturity of the groups
Another quite real phenomenon, and one that is also not eternal, is the power of the large groups. They had a very good year in 2004: a turnover of more than 4 billion CHF for the Swatch Group, with a growth rate of 28% in the prestige watch sector; an 18% growth and a turnover of 750 million CHF in the Watch and Jewellery division of LVMH; for Richemont, its fiscal year closes end of March, analysts expect watch sales turnover to attain 2.25 billion Swiss francs.
These figures confirm the particularly good health of the most prestigious sectors of the haut de gamme. The grand race for acquisit-ions and mergers is over; investments for brands are in the digestive phase; investments for production tools have reached maturity. The large groups have, in a certain manner, succeeded in sharing the markets and ensuring their mutual predominance.
The Swatch Group, clearly more industrialized than the two others, is the undeniable leader in large parts of the market that was ‘abandoned’ in the crazy race towards luxury. Tissot, for example, with a production of two million watches, demands respect. But the 28% growth in the haut de gamme segment demonstrates that this sector is also doing quite well. Even though the Swatch group has an industrial culture, it has established itself as a spec-ialist in luxury.
After divesting itself of Ebel, whose direction has been a bit erratic, LVMH is concentrating its efforts on its two flagship brands, TAG Heuer and Zenith. TAG Heuer is leading the charge and is showing unwavering dynamism. As to the perpetually effervescent Zenith, it is moving towards a “star” brand trying to attract women towards haute horlogerie.
As for the Richemont group, it reached full maturity this year. Major investments have been made in terms of production tools that are now operational. With a rich bouquet of strengthened, dynamic and rejuvenated brands, Richemont is now looking towards new markets such as China, for example, where the group recently made a prestigious, remarkable, and global introduction of its products – a prelude to a desired expansion into this key market of the future.
Then there is the fourth (or is it first depending on the viewpoint) ‘group,’ King Rolex. One only needs to stroll around an outlying area of Geneva, gazing at the brand’s new production facilities to understand the power of this ‘silent empire.’ A veritable Fort Knox of watchmaking, the imposing black anthracite structure is witness to the brand’s solid faith in the future. With (very) small steps, Rolex is gradually evolving as well. One example is its ad campaign depicting very sexy young girls and guys, light years away from the world of art, elite sports and science that have, up to now, been the exclusive testimonials of the venerable brand. In the same way, its Oyster has been slightly revisited, yet one does not change a winning horse, one only ‘spruces it up’ a bit.

The move upmarket slows (to some degree)
The incredible move upmarket over the last few years – to the point where not even a square centimetre of space remains at the summit – has calmed down a bit (relatively speaking).
While there are still many watches selling for six or seven digits, the ‘belle horlogerie’ has become a little more accessible.
The famous ‘mid-range,’ sometimes called the ‘soft underbelly’ of the watch industry, has benefited from the fact that many other brands have raced to the ‘luxurious’ summit. It has now undergone its own transformation. Most of the mid-range brands have refined their offer, decreased the number of references, graduated their collections, and strengthened their brand image. By doing so, they have approached their ‘cousins’ in the haut de gamme.
This qualitative improvement in the mid-range has also been made possible thanks to the new computer-aided design and production technologies. At the same time, new ‘niches’ are being created, leaving cracks in the market for brands offering originality and creativity without actually being in the ‘haute horlogerie’ segment.
There is also a rather widespread opinion, although difficult to demonstrate, that the fashionization of watchmaking has reached its limits. It is true that the fashion world, either directly by the watch lines it has launched, or indirectly by other influences, has profoundly and forever altered watch design. The aesthetic changes at Jaeger-LeCoultre, for example, have taken the brand’s products from a rather rigid and protestant type of mindset to a much fresher and relaxed spirit, and illustrate the indirect influences from the world of fashion on the canons of watch styling.
Still, the ‘fashion’ brands, while they have made a long lasting imprint seem to be slowing down a bit, too. As an example, Gucci, after having seriously shaken the watch trees, has fallen back on its own stylistic codes (the G in all its forms).

Resistance of independent retailers
It is possible that the relative withdrawal of the fashion brands is tied to the particular-ities of watch distribution. Whether it is considered as a pure accessory or not, the watch remains an object a part. A small technical jewel, the watch appears as a ‘fragile’ product, which one prefers to buy at a store that can offer guaranties of competency. It is a little like spectacles. Generally, we prefer to purchase them at an optician (whether it is a chain store or an independent). In the same way, we prefer to buy our watches at a specialized retailer (whether it is a chain store or an independent). The act of buying the watch, even if it is not expensive, remains a ‘prestige’ purchase. The rather technical nature of the timepiece, which needs explanation and advice, offers partial protection for the way it is distributed.
The independent retailers have understandably offered a lot of resistance faced with the emergence of the large networks. Even in the United States, where you see the same names all over the country, the share of the market belonging to independent retailers remains large, and they occupy the majority of the market for the haut de gamme sector. In this regard, despite the many acquisitions and mergers of the large groups in the retail arena, these represent only 20% of the stores and 34% of quality watch sales. In the prestige sector, independents realize 64% of sales against 25% for the chain stores and 11% for department stores.
This strong resistance on the part of the independent retailer is also an effective brake against the complete fashionization – and standardization – of the timekeeper.

Don’t ignore the Internet
Old habits die slowly and a new actor on the scene – the Internet – has made its entrance. With the bursting of the dot.com bubble a few years ago, people thought we had turned the page for a long time. In fact, that did not happen. Instead, the Internet has matured; it is secure; it is professional. Those who still see it as a threat are wrong and must begin to change their tune. Those who aren’t afraid to seize the Internet’s opportunities are growing stronger.
Already a number of collectors or simple aficionados don’t hesitate to order their collection pieces via the Internet at prices that are discounted by 40% to 60%, sometimes even 70%. Whatever the reasons, or the networks, which are behind such operations, they offer a new and efficient distribution channel. (In passing, we might add that the list of haut de gamme watches available at such discounts on the Web gives a more precise indication of the real state of a brand’s sell-out than all the other statistics.)
Yet, the influence of the Internet does not stop there. Used judiciously, the Internet is an incomparable instrument for directly analyzing the market and trends. It is also an effective protective tool for the brands themselves (on this subject, see our new regular column WorldWatchWeb® realized in collaboration with IC-Agency in Geneva).

The year of Bling
If we were to give a prize for Watch of the Year, we would give it to a ‘bling’ watch - not because we think it is the best timekeeper (oh, no!), but because it seems to be the most representative of what has happened to the industry over the last year. The mélange of its huge size, sophisticated mechanical movements and case dripping in diamonds reflects the current state of the watch industry.
The timepiece has won the battle of recognition and has become one of the most visible objects, an indispensable accessory, and a symbol of a lifestyle (the ‘rap’ lifestyle for ‘bling’). Mechanical timekeeping has won the battle because mechanical calibres equip the most coveted watches. This double victory opens new horizons and has cleared the way for a new battle: that of one-upmanship, in which many have now become involved.
The bling watch shows that today everything and anything is possible. Bling goes beyond the frontiers of good or bad taste. It is by definition outrageous. Bling is to watches what carnivals are to society. It is when the masks come off, when everything is allowed, when excess mocks the ‘powerful.’ But, as we know, the carnival is only a time. The carnival is a libertarian parenthesis. When the parenthesis closes, reason returns. Good-bye bling. Orthodoxy will soon be back again.

Source: April-May 2005 Issue

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