Casualties in the 'Race for Luxury'

January 2004

There is probably no doubt about it, the list of casualties in the 'Race for Luxury' is going to get longer between now and the large watch fairs in the spring of 2004. Whether there is a return of real economic growth or not, the situation won't change all that much. It is already too late for some. A brief survey of suppliers - the best barometer - demonstrates that Swiss production is still operating at a slowed rate. A glimpse into the current state of affairs shows the depth of the current slump.
The first observation concerns the large luxury groups, namely Richemont, LVMH and Gucci. Contrary to the Swatch Group, which is somewhat protected by its industrial strength and its balanced positioning between the low, medium and high-end sectors, these groups are today seeing the results of the rupture of the luxury 'bubble'. Richemont clearly paid a lot of money for the attractive LMH group (Jaeger-LeCoultre, Lange & Söhne and IWC) and is labouring to get a return on its investment. Certainly, the poor economic situation is not helping, but other factors are also adding to the burden. The group has embarked upon a very ambitious, and necessary, program of industrialization, namely the construction of the new factories of Piaget, Cartier, and Vacheron Constantin, which must be paid for. The particular difficulties of the flagship brand, Cartier, also weigh heavily on the group. Gucci, from the not so distant days of its splendour, has made Cartier seem old-fashioned in comparison. The venerable French brand suddenly seemed too conservative in a world conquered by the 'porno-chic' of the advertising campaigns promulgated by marketers from the world of fashion. In fact, it seems that the group's 'small' niche brands such as Panerai, of course, and Montblanc are showing the most vitality.
As far as the watch pole of LVMH goes, rumours are flying in all directions. In a hurry to create its own watch group, LVMH not only spent large amounts in the process, but contrary to Richemont, it acquired brands whose past was already in disarray and whose future remained uncertain, whether it concerns the excellent but old Zenith 'manufacture', or the problematic Ebel. In Ebel's case, the former CEO, Guillaume Brochard, was precipitously removed and now, according to insistent rumours on the street, the brand is up for sale. The sticky question is whether Ebel is saleable at the minimum price demanded by LVMH, which is its initial purchase price. It seems doubtful. At LVMH, it is also a 'small' brand, horologically speaking, Louis Vuitton, which seems to be doing the best with the phenomenal success of its 'Tambours'. And, what about the Gucci Group? This is a big unknown! The departure of Ford and De Sole has created uncertainty and no one can predict what will happen.

When we look at the independent watch companies, the collapse of the economic bubble has also taken its toll. The interesting experience of Ikepod has reached its limits. The brand's founder, Oliver Ike has had to move out of the picture and a new group, Perficio, is going to try and relaunch the company. Maurice Lacroix has just sent letters of dismissal to its employees and no one knows yet what will become of the brand. Franck Muller and his associate Vartan Sirmakes have had a serious falling-out and Muller is no longer at his post at the brand's 'Watchland' headquarters near Geneva. Muller has filed a suit against Sirmakes and the emotional and legal battle may well stretch out for years to come, causing its fans to lose interest. As for Jaquet, a firm specializing in mechanical movements (to which Hayek will soon stop delivering movements), its owner is behind bars in a case that sheds a harsh light on certain un-talked-about practices, such as the lucrative commerce of selling 'real fake' watches.
These examples portray a dim landscape as the year 2003 draws to a close. But, lest we be too pessimistic, there always have been and always will be those companies that do well. As a perfect example, take Audemars Piguet. Besides its excellent production and distribution, the brand has had a spectacular year with the Alinghi and its America's Cup participation, plus Schwarzenegger and his Royal Oak Offshore! Thus, the Swiss watch year was saved in extremis by a regatta in Auckland and an election in California...