RETROPERSPECTIVE - The Watch Year 2010/2011: The great normalization

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March 2011

We are all small seconds hands ticking on the surface of time before disappearing and ceding the place to another small hand that will travel its own way around the dial, before it too disappears. To capture this beating of time, to arrange its fleeting nature and give it form—sometimes in glory—is the wonderful profession of the watchmaker. This is also part of the fascination that watches have had and will continue to have. As witness to this, economic crises come and go; the markets get locked up one after the other; independent retailers become increasingly rare; the large brands get larger and the small ones get smaller. Yet, nothing discourages people from choosing this vocation. How many new brands were created in 2010, following all those that came into being in 2009 when they planned their business with the idea that the clear sky was ‘the only limit’? Then, they found themselves confronting the clouds and the rain as soon as their first products were to venture outside.
We don’t have an exact count of their number, but one thing is sure: watchmakers are often a surprisingly resilient breed. In spite of the tremors in the financial community, followed by those in the economy and then society, the brands that closed their doors are really not that many. Making up for lost time, timekeeping is vigorously finding its growth again with CHF 16.15 billion in exports in 2010, almost that of the record year in 2008, which reached CHF 17 billion. The economic slump seems thus to have been just a year-long blip in the history of time. But, what exactly has happened during this ‘blip’?

A reflection of the world as it is
We have often said that watchmaking can very well be seen as a rather good reflection of the larger social, economic and political evolutions in the world. Watches owe their forms, colours and trends to society. In an economic sense, watches are closely related to the rules of finance, the stock market, globalization, exchange rates, costs of labour and raw materials. In terms of political changes, the watchmaker, while he is certainly sometimes an artist, is above all a businessman, and must submit to the powers that be and demonstrate his credentials. (Being a distributor of fine Swiss watches in Tunisia, Egypt, or Bahrain today is not an easy task since the prestige watch has become one of the strongest and most visible symbols of the ruling class). So what does this timekeeping reflection tell us?

Widening the gap
The first thing we observe, and the most important because it conditions all the others, is that the gap is widening. Just like in the ‘real’ world, the gap between the richest and the most powerful—the Swatch Group , Richemont Group, LVMH, plus the most established and institutional such as Rolex, Patek Philippe and a few large independents, including Chopard, Breitling and Raymond Weil—and all the rest, all the other brands, is constantly widening. The extent to which this is happening is illustrated, as we have mentioned elsewhere in this issue (see the article on Antoine Preziuso) through the words of an independent watchmaker who has practiced his profession for more than 20 years: “The big brands are going to crush us; we are all going to die.”
A number of reasons has led to this situation. In no particular order, there are industrial reasons, distribution policies, and expansion strategies that are major contributing factors. On an industrial level, the Swatch Group’s threat to stop delivery of its ETA tractor calibres has intensified efforts by its competitors to industrialize their operations. These considerable efforts are arriving at maturity today and their heavy investments must become profitable (on this subject, as an example, see Cartier’s new ‘just in time’ installations, in Europa Star 4.10). The necessary profitability of the industrial tool adds to the commercial and marketing aggressiveness of the groups, which are in a hurry to conquer the largest market share possible and to lock up the points of sale that they have won in this fierce battle.
As is also the case for their industrial verticalization, the groups are now investing massively to conquer these markets, directly through a sometimes frantic policy of opening their own boutiques (will this become a ‘subprime’ mess one day?), and indirectly by creating the widest poss-ible distribution networks. A strategy of getting your foot in the door.

Chinese sell-in
China is obviously the best example of the battle to be first. Everywhere we hear, without formal proof, that the incredible numbers seen in this market (up 57 per cent this year) are mainly due to the dynamic sell-in. The drawers and the stockrooms are filling up, but the products that are selling are not always those that make the front page.
The advantage the Swatch Group has in the Chinese market is glaring. This is largely due to the industrial nature of this ‘watch and technical conglomerate’, which gave it a head start, allowing it to prepare the ground long before the arrival of the others. As an anecdote, I recall personally having seen, in 2004 on Tiananmen Square in Beijing, a place totally devoid of any publicity, between the entrance to the Forbidden City and Mao’s Mausoleum, a large Omega clock. Placed on the steps of the National Museum, it was counting down the hours to the future Olympic Games. Thousands of Chinese stood in line day after day to take photos of themselves beside the clock, very visibly signed Omega . Today, there must be tens, if not hundreds of millions of photos with the Omega logo in Chinese homes. Another watchmaker, a medium-sized independent and long established in China predicted that, while today there is still place for everyone in China, in a few years, the Swatch Group will have the lion’s share. Its penetration is not to be credited solely with the group’s industrial base, but is also due to the diversity of the offer. The group is the only one to completely cover the market in a consistent manner, from the low-end to the very high end.

Seizing the concepts
Among the other reasons that the large groups continue to grow while the smaller ones are confined to smaller and smaller niches, there is one that plays a far from negligible role. Gradually, the groups and some of the largest brands began moving into new territories—particular niches that were up to now occupied by small independent brands, often those centred on a ‘master watchmaker’ or a singular type of timekeeping. Already at the centre of the page, the large groups have extended horizontally, into the margins, operating their own ‘research laboratories’ if we might use the term, which progressively absorb the ideas and models of the independents.
In this regard, the tourbillon vogue, inextinguishable as it seems to be, is particularly representative. Each brand seems to absolutely need an extravagant tourbillon in its collections—a double or triple rotation, off-centred, suspended, placed at the end of a hand, orbital, etc. Until recently, these ‘experiences’ were reserved for the ultra-niche mechanical brands, but today we find them in the mainstream.
From a design point of view, the large brands, always in search of the next buzz, have learned to seize the ideas coming from the independents, which are forced on innovation to survive. The large brands then develop these ideas to their fullest potential. We saw this happen a good decade ago when the large brands understood the commercial potential in products with a rigorous design intended for a large public. This basically drained the lifeblood from some independents that worked passionately, but with difficulty, in this sector. Today, history is repeating itself in the area of research into highly complex mechanical movements with acrobatic functions or prowess in displays (even here, however, the independents have a large lead, see for example Urwerk, Hautlence or Jouvenot). Thus, we now find concept watches in the collections of the large groups, which earlier were reserved to the most innovative niche brands. As the large groups expand their activities, no niche is safe anymore.

Weakened sub-contractors
During last year, even more than the independent brands, the sub-contractors have felt weakened. Often pushed to invest heavily in order to meet a constantly increasing demand, forced by the competition to obtain the latest cutting-edge equipment, to push mechanical research to the limit, to delve into research on materials and production methods, the sub-contractors were hit hard by the sudden decline—or even outright cancellation—of their orders.
The acquisitions, integrations, buyouts and controlling interests in a company’s capital have also played a role, weakening the profession even more. This profession itself was blinded during a time by the triumphant watch market, before harshly realizing how dependent they are on sudden shifts in the marketplace. While a watchmaker can always sell his stock, reduce his staff, outsource the work, or turn to other suppliers, a sub-contractor does not have these choices. There are exceptions, of course, as is the case of Christophe Claret, who is not afraid to publically admit a 33 per cent decline in sales in 2010, and who created his own watch brand to compensate for cancelled third-party orders (see our article in this issue on Christophe Claret). But, obviously, not everyone has the ability to do this.

Neo-classic effects
There has been so much talk of the great neo-classic wave, mostly in terms of style, that we might see, in this, only a ‘crisis design’. But what does it mean in economic terms? In other words, what are the consequences of this ‘two hands and small seconds’ trend on the industrial fabric, on sub-contracting, on the future of the brands? According to Christophe Claret, his personal 33 per cent decline in sales was due primarily to the abrupt halt in innovative mechanical projects that he was creating for large brands. The recent collapse of the Artisans Horlogers—very advanced constructors working in the ‘new’ watchmaking—seems to confirm this unfortunate trend. This neo-classic wave therefore affects—like the transfer of torque—research programs that are long, costly, difficult to make reliable, and hard to homologate, in favour of a timekeeping that is simpler to produce, has less production problems, demands fewer operations and allows for a greater rationalization. Having said that, however, to be fully successful with an ultra-thin, three-hands piece is still an art, an art that is not mastered so easily, and one that demands its own legitimacy (in this regard, see our wrap-up story on the SIHH in Europa Star 1.11).
Everything seems to show that the crisis, now followed by a quasi-general withdrawal into a minimalist and neo-classic style or at least a more measured style, has marginalized the secondary players even more while strengthening the main players.

A fog of short-lived insects
In parallel, another phenomenon has complicated matters. A little more than a year ago—on January 27, 2010, which already seems so long ago—Apple introduced the iPad. Remember this date, not so much for the iPad itself but as a symbolic date. This did not represent the death of paper, as we have so often heard, but rather it brought about an infinite multiplication of ‘papers’! The instantaneous access to an incessant flow of globalized and socialized information has opened new avenues for even the modest of brands, whose messages can now slide into a thousand cracks, rebound, and scatter around the globe like never before. Yet, this also runs the risk of being annihilated by the vast fog of infor-mation—a fog that is made up of billions of short-lived and constantly moving insects (see our editorial in this issue). In this saturated electronic ‘cloud’, very few things rise to the surface. It is often an illusion to believe that access to communication—not ever having been easy—is now easier. Succeeding in correctly getting a message out takes a lot of consistent and constant efforts—unfailing means and energy (we might mention, for example, Jean-Claude Biver and Max Büsser, two unrivalled communicators, whose practices and products are quite different, but whose promotional energies are quite comparable).

Sometimes, a miracle happens
Sometimes, however, a ‘miracle’ happens. This year, it is called Laurent Ferrier. Coming out of ‘nowhere’ (which is not correct since he acquired an extraordinary watchmaking expertise, notably at Patek Philippe), this man, at retirement age, surprised the entire watch community with his ultra-classic timepiece, realized with highly orthodox decorative mastery pushed to a level rarely seen. Suddenly, everyone was infatuated with his watchmaking that was going against the grain, appearing on the eve of the great neo-classic turning point. The prize for men’s watches that he received from the Grand Prix d’Horlogerie in Geneva in November bears witness to this appreciation. (In passing, at BaselWorld last year, his small stand was next to Snyper and its intergalactic girls in miniskirts—which represented the abyss between these two extremes of timekeeping).
From an economic standpoint, the Laurent Ferrier brand has strictly no impact on the watch business. Symbolically, however, it is quite important. Like all revolutions, the neo-classic ‘revolution’ needed a hero. And as we know, heroes are always chosen amongst the little guys, the eternal Davids against a fearful Goliath (in fact, David was a myth invented by Goliath to better deceive his world).

Access to the markets
But, as ‘one tree doesn’t make a forest’, one Laurent Ferrier does not necessarily help all the small Davids. Why? The essential element remains access to the market, and therefore to the final customer. In 2010, distribution was the most difficult domain. We are living, in fact, a paradox. On one hand, never has the offer been so large and so diversified, allowing the consumer to literally choose just about anything and everything, yet, on the other hand, never has it been so difficult for so many small and medium-sized brands to ‘get their watches in the doors’.
Everywhere, the doors are slammed shut and the fear begins to mount. As proof, it is always anonymously that ‘ostracized’ watchmakers dare say anything—with very rare exceptions that are generally not the most representative. It is in the anonymity of the back office where pressures rise: pressures to sideline the competition, to fill the drawers by holding back access to the markets, and even political pressures, as we can see in China. In this, watchmaking is not an exception. Everywhere, in all activities, direct access to the consumer or to the public is becoming very rare, which helps the oligopolies control most of the distribution channels. Independent retailers—the independent cinemas, for example, are facing the same thing—are thus caught between the most powerful devils of the sell-in and the deep blue sea of the same name boutiques the large brands open in their areas. The profession has been weakened, and puts the survival of the small brand that it represents in danger.

The great normalization
From a historical point of view, everything leads us to believe that watchmaking has now entered into one of these periods that we can call ‘normalization’. Most of the world’s watch business is controlled by a handful of global players. The creative effervescence that we saw during the years preceding the economic crisis of 2008 to 2009 has calmed quite a bit. The heart is no longer really in it, unless it is the wallet that is no longer open. Too much excess kills the excess. Along with the economic normalization comes an aesthetic standardization. But this does not take into account the natural human vitality, we might say. And, we must never forget that the improbable of today can become the reality of tomorrow (the political changes in North Africa have recently demonstrated this).
The paradoxical luck of the quality watch industry is its relative slowness. Whether we like it or not, developing a new product requires a lot of time—and there are many who have been burned because they forgot this essential fact. This relatively long lead time also allows the emergence of new propositions and makes the landscape—this is the paradox—more lively and more mobile than if pure speed was the only factor. New communications tool, even if they generate many illusions as we mentioned earlier, can also help promote amazing breakthroughs. As we said in the beginning of the article, “We are all small seconds hands ticking on the surface of time,” and fortunately, we do not always know what really awaits us.

Source: Europa Star April - May 2011 Magazine Issue