Retrospective-Perspective: The Watch Industry 2006/2007 - Watchmaking runs the risk of excess

April 2007

What a glorious year! Do we even need to repeat the numbers, proclaimed loud and clear just about everywhere? Well, why deprive ourselves of saying it once again. After all, the numbers are ‘historical’ since Swiss watch exports (from statistical custom’s data) officially reached CHF 13.7 billion in value for 2006, a rise of 10.9 percent in relation to 2005 (which was an increase of 11.5 percent over 2004, which was itself an increase of 9.2 percent over 2003). As you can see, exports showed two-digit increases, or nearly so, for the last three years in a row.
By market, Europe showed the strongest increases. Swiss watch exports into France were up 21.3 percent, into Germany up 21.0 percent, Spain up 15.6 percent, while Italy was comparatively disappointing with an increase of only 5.4 percent, although this country still remains the fourth largest market for Swiss timepieces. The United States alone absorbed some CHF 2.28 billion of Swiss watch products, maintaining its lead over second place Hong Kong, taking nearly CHF 2 billion. Japan increased its consumption by 10.4 percent, while China continues its imperturbable progression (up 14.9 percent at CHF 404 million) and is the 10th largest market for Swiss watch exports, ahead of Russia in 13th place (up 6.3 percent at CHF 204 million).
The mastodons of the sector accounting for these exceptional results are: Swatch Group, which crossed the threshold of CHF 5 billion in turnover last year (up 12.3 percent); Richemont Group, whose watchmaking activities were up 13 percent (or 17 percent in constant change) as of the third quarter of the year (Richemont’s fiscal cycle ends March 31); Rolex, where everything seems to point to healthy growth (the ‘Fort Knox’ of the Swiss watch industry does not reveal its numbers); LVMH, which recorded an increase of 28 percent in watch sales, with operational profit increasing 281 percent (passing from ¤ 21 million to ¤ 80 million).
This strong growth has been due, above all, to the luxury sector. Wristwatches valued at more than CHF 3,000 (price at export) have increased 27 percent by value and 34.7 percent by volume. Items priced below this threshold amount grew only 1.2 percent by volume, but still generate a little more than half the total rise in the year’s numbers.

Mad rush for the jackpot
We can thus rightly affirm that Swiss watchmaking is indeed ‘accompanying’ the new global geo-strategic and economic order of an eroding middle class or one not seeing its revenues grow, and a world where the rich are getting richer (for example, the number of platinum watches is up 23 percent and those in gold are up 17.3 percent).
This past year has again been dominated by a form of one-upmanship in the price of the pieces, fuelled by a frantic race towards sophistication and complication. But, in spite of this spectacular effort that has engendered much media attention, many signs tend to signal more and more clearly that we have probably reached the crest of the ‘baroque’ trend, and that it will gradually ebb, leaving space for a return to more classicism and temperance.
Or so it would seem. Apparently, however, the opposite appears to be happening. Never have we seen so many new brands embarking in the very haut de gamme segment (‘nothing below CHF 300,000’ says a brand that does not even exist yet, but which promises to amaze us very soon). And, not a week goes by without someone announcing that a new summit has been reached by their brand. The watch sector seems to be caught up in an incomparable turmoil. The fabulous margins that some brands attain are the stuff of dreams. It is quite natural, then, that a mad rush is on to reach the jackpot.
In this mad scramble, while there are often real advances and true innovations, as well as new inroads into the art of timekeeping, there is also a lot of ‘show’, and vague approximations to the real thing… To get noticed, a brand has to constantly make something even more spectacular. It must be larger, more visible, more complex, or more original, at any price. This can result sometimes in losing sight of the values of watchmaking along the way. And, unquestioningly even more serious, the final consumer is sometimes ‘disregarded’ since a person who buys a very expensive timepiece may be unable to get it maintained or repaired.

A return to ‘values’?
Sparks of change are beginning to appear, and more clearly in 2006 than in previous years. It seems that a return to the famous watchmaking values is slowly occurring. This is very good news for the sector as a whole as well as for the consumer.
Let’s take an example that recently impressed me (and I am far from being the only one), which I wrote about in the previous issue. H. Moser & Cie won two of the most prestigious awards in timekeeping, right after the launch of the company. This accomplishment did not happen by chance, but by design. H. Moser & Cie provides an antidote to the recent excesses in the sector by offering a purified form of watchmaking, an honest price/quality ratio, and pieces that go straight to the essential. This is especially seen in the admirable perpetual calendar, with its unique clarity of expression and readability, produced with great care, and considerate of the needs of the final consumer – in this case the brand has intelligently tackled the problems of after-sales service, thanks notably to the ingenuity of interchangeable regulating organs.
Another striking example of this return to values is given by the new line launched by Jaeger-LeCoultre, called Duomètre. What is particularly interesting and without a doubt emblematic of this new line is that it combines the ‘purest’ expression of timekeeping with extremely interesting technical innovations (only one regulating organ for two independent gear trains). Even more noteworthy is that this innovation is not ‘gratuitous’ but aims to provide better chronometry. This endeavour is in line with the traditional objectives of watchmaking – the pursuit of mechanical chronometry – from which it draws its profound beauty while seeking to innovate thanks to ‘nanometric’ parameters and performances provided by advanced machining technologies.

Innovation and respect for the consumer
It is also not merely by chance, that, in these exemplary approaches, design and technology work together. This is far from being the general rule since we still see way too many pieces that are made just for the sake of appearance, whose functions are basically superfluous.
But let’s be quite clear about all this… In making these observations, we are not pleading the case for watches that would be exclusively and strictly in conformance with the most classic canons of the art of timekeeping. Equally important to the future of the industry are successful examples of radically new styles that have been designed in a manner consistent with the technology of the piece. They have not lost their deeply watchmaking ‘reason’. Quite the contrary.
One illustration, among others, of this new approach is the latest watch to come out of the daring imagination of the watchmaker Félix Baugmartner and the designer Martin Frei. With their ‘201’ (see the article devoted to them in this issue), the duo at the head of Urwerk offers a way of reading time that is radically different from anything that we are familiar with up to now. Retractable minute hands that spring up from mobile studs indicate the time! Although the watch looks like a space ship coming out of nowhere, it contains not only an extremely complex technical mechanism, but also represents a veritable watchmaking quest, drawing on a long tradition of research into the way time is read.
Contrary to many watchmakers who prefer to stay within the ‘virtuous circle’ of grand complications (tourbillon, perpetual calendar, grande sonnerie...) at the risk of exhausting the mother lode, Urwerk decided to concentrate on the problems relating to how time is displayed (keeping in mind, however, that up to now nothing will really replace the beauty and simplicity of the intuitive reading of time on a circle). In addition, Urwerk takes into consideration the future wearer of its watches, since on the back, the brand is offering very useful technical, and in some cases, totally innovative functions, such as a gauge that calculates the watch’s total operating time over 100 years, a service indicator for maintenance, as well as a fine adjustment capability. This shows that ‘crazy’ innovation and respect for the consumer are not mutually exclusive.

Betting on the long term
This reflection on watchmaking values, on the skills that allow the profession to perpetuate, and the respect for the consumer are also at the core of several institutional initiatives whose goal is to ‘bring some order’ to the current chaos. In this vein, we immediately think of Franco Cologni and his Fondation de la Haute Horlogerie (see the interview in this issue). While the creation of this foundation is not exempt from strategic motivations (Let him who is without ulterior motifs cast the first stone), his recent creation of a website (www.haute-horlogerie.org) and the launch of a monthly online magazine demonstrate a real opening that goes beyond the small circle of brands in the Richemont stable, of which Franco Cologni, even though no longer active in all the operational aspects, remains the indispensable éminence grise.
An interesting aspect of the foundation’s mandate is that it is betting on the long term by speaking to the necessity of establishing a sort of tacit quality specification sheet to ensure the survival and growth of high quality Swiss timekeeping. It also advocates educating the young generations, as well as clients in ‘emerging’ nations about watchmaking values.

Machinations of the Swiss Made label
The Fondation de la Haute Horlogerie also sheds light on what we said earlier: Swiss watches are becoming more and more segmented between the ‘rich’ companies – those that proclaim or would like to proclaim to be the only ‘authentic’ brands – and the rest of the industry. But, even in the closed circle of the ‘rich’, it would be a near impossibility to establish common quality specifications (to give one example: up to what point must a brand integrate its various activities to qualify as a ‘manufacture’?).
This ‘two-speed timekeeping’ is actually full of contradictions. You only need look at the term Swiss Made, whose definition is periodically challenged. Up to now, in order to qualify for putting this sacro-saint term on the dial, 50 percent of the value of the movement must be of Swiss origin. However, for mechanical movements, the percentage may soon be increased to 80 percent if the barons of watchmaking have their way.
So what about the case and other parts of the piece? Up to now, while no Swiss provenance for the other components has been imposed before the mandatory final assembly and control in Switzerland, the large brands are pushing the FH to establish a new limit: 80 percent of the watch’s component parts should originate in Switzerland. (In this regard, refer to the article by our learned colleague, Michel Jeannot, that appeared in Bilan, No. 221.) But even among themselves, the barons have trouble reaching agreement since some have long profited from the legal haze surrounding Swiss Made by having all or part of their cases and other parts manufactured in China or elsewhere (with comparable quality, but with uncomparable delivery times, a decisive advantage, as Jeannot points out).
So, yes, it is paradoxical that the phenomenal success of Swiss timekeeping is today also its principal dilemma. Over the years, it has been often said that to flourish over the long term and benefit everyone – not just the elite – Swiss watches must be more broad-based. They must be accessible to all sizes of wallets. They must offer a range of products, from the Logan and the Smart to the Bentley and the Ferrari. In this sense, a new edict on the Swiss Made label would not only harm, or to put it more brutally, it would also kill a still-living segment of the sector – the brands in the mid-range – and it would also rapidly create a number of insolvable problems because the current Swiss industrial and artisanal fabric simply cannot meet the demand.
As you can see, it is difficult to navigate between these two dangers: an overused Swiss Made label that covers all kinds of practices (of which the final consumer could be made aware, at the risk of losing trust), and the necessity to preserve the entire ‘middle range’ segment of the industry. It is obvious that the bets have not yet been placed, and that the situation will take quite a bit of time before it settles down.
That still leaves the nagging problem of delivery times, due to the ‘overheating’ of demand, which are becoming longer and longer, even to the point that they are slowing the growth of certain brands. The year 2006 saw the creation of a whole series of initiatives (which Europa Star faithfully reported on) in the strategic realm of the mechanical movement. But they are still in the embryonic stage. It is necessary to leave ‘time for time’ to produce a reliable mechanical movement on an industrial scale. The good old ETA tractor, reliable and hard working, with consistent quality, and, above all, reparable in the four corners of the world, will maintain its advance for a long time to come.
On the other hand, a wave of new movements will also result in strengthening the perception of two-speed watchmaking: an ETA calibre, formerly vaunted by brands as the last word, is no longer systematically emphasized in favour of the often, but not always, overused term ‘Movement Manufacture’, which in reality is usually a customized or redecorated ETA calibre.
In the end, it is difficult for consumers to navigate through the maze of brands all claiming to be ‘authentic’ and all displaying the Swiss Made label when they are not really fully made in Switzerland. But, as long as business is good, which is evidently the case today, this type of issue is relegated to the back burner. One day, however, things will change, but everyone is crossing their fingers and hoping that the inevitable day will be very far off.

Luxury online soon?
Having said all this, we still must realize that we have a good thing going. It is certain that, in 100 years or even in 50 years, we will look at the current watchmaking era as being one of the most fertile in the history of this art and this industry. However, the constant flirtation with the exceptional runs the risk of making watchmaking more banal, in which case the entire sector will lose its attractiveness. By being continuously and loudly flaunted, the exceptional is no longer exceptional.
This ‘banalization’ of timekeeping also runs the risk of intensifying because of the Internet. Whether we like it or not, the use of the web is only going to grow. Up to now, watchmakers have remarkably resisted the temptation to sell online, protecting both the ‘aura’ of their product and their network of retailers. But, sooner or later, as we have seen in the fashion industry, one brand or another (who will be first?) will give in to the temptation, and will take the step into online sales. Won’t the others be obliged, then, to follow? People are taking bets, but here also, this strong trend risks accentuating the two-speeds of the industry.
It is nearly certain, though, that some brands will resist to the end, preferring to build their exclusivity on their ‘rarity’ and the impossibility of acquiring their products outside of certain ‘brick and mortar’ stores. In this way, they turn ‘difficulty’ into an engine for driving the desire of the consumer. Yet, while this type of activity may be valid for the most exclusive niche brands, it is quite different for brands with a larger clientele.
The appeal of the Internet is seen already in the media. All the magazines in the world are confronted with a decline in their ‘paper’ revenues, while their Internet revenues continue to climb (for those who have understood how to make the move in this direction). Gradually, although they will not disappear because ‘paper’ offers too many advantages, magazines will also become ‘niche’ products, reserved for certain uses, if only because of their ecological ‘weight’ since they use trees, ink, and lorries to transport them.
Yet, if you cast a quick glance at the situation, you get the impression that the exact opposite is happening. The magazines dealing with watches have never been so many or so luxurious, just like the timepieces and the brands themselves have never been so numerous or so luxurious. But it is now, we think, that the wave is cresting, before its probable and progressive ebbing, in terms of both the press and watchmaking.

From one tunnel to another...
With 80 years of experience covering the watch trade, as is the case for Europa Star this year, we have the right to look back a little. Caught up in the current euphoria, it is hard to imagine that 30 years ago, in 1977, our then editor, Valentin Philibert, wrote: “After several years of disarray and resounding failures where even the most prestigious names were not spared, the survivors are perhaps seeing the light at the end of the tunnel.” It has been a long time since the end of that tunnel was passed but it would be a mistake to think that another tunnel might not be around the corner.
Of course, during that particular era, the quartz technological revolution occurred, which shook the foundations of Swiss watchmaking to its core. But since then, the industry has enjoyed the good life, living well off of its income. Today, the threat is not this type of ‘revolution’. Rather, as we have discussed above, it may lie in the shift towards exclusive high luxury and mechanical timekeeping.
Another observation, partially connected to the preceding one, is that the number of new brands has never been so great. In itself, this fact is very encouraging, and demonstrates that watchmaking has become a very attractive sector for many young people. But, this fascination has two sides. On one hand, a large part of the newly created enterprises are run by young watchmakers, who are totally passionate about their craft and want to carve out a niche for themselves. They bring with them the ‘fresh blood’ necessary for the continuous renewal of the profession.
On the other hand, however, some people attracted to the art of time have less laudable intentions. They are salivating over the margins in certain types of watches, which can be considerable. In these cases, coming up with an idea, customizing an ETA movement, and adding a pinch of extravagance are not enough to construct a true brand and may even be perilous for the profession as a whole.
Fortunately, the practice of watchmaking is not subjected to administrative ‘authorization’, and the days of the cartels and quotas belong to the past. The only safeguard therefore is to return to a certain form of ‘classicism’. In reality, it is more complex to make something simple, pure, and essential than to make something ‘complicated’ and baroque. It is also necessary to promote the notion of true service, which will be the next principal battleground for the industry – for the betterment of all.

Source: Europa Star April-May 2007 Magazine Issue