The question that we are always asked when returning from BaselWorld can be summed up in a word: “So?” Well, so what happened? What are the trends, the gossip, the rumours, the strategies, the tactics, the changes, the continuations, the new models, the successes, the concerns…?
Each time, we are a bit embarrassed because how can it be possible to sum up this enormous and impressive Aladdin’s cave that we call BaselWorld, in which we find, almost democratically, items ranging from sumptuous treasures to modest trinkets? How can we easily answer such a (much too) simple question, since watchmaking, like society, moves at very different speeds according to whether you are powerful and recognised or weak and unknown? And yes, the global figures are excellent and the outlook seems quite positive, but, behind this alluring and smiling façade there are much more varied and contrasting landscapes.
This year, there was something rather strange in the atmosphere at BaselWorld, something that felt like a slight yet perceptible anxiety. With total exports of CHF 19.3 billion (+19.2 per cent), the year 2011 will certainly go down in history. These numbers were achieved, however, in the general context of accelerating levels of concentration, whether in production or in distribution.
The entire watch sector—particularly in Switzerland—is undergoing structural modifications as it searches for a new balance. And, without a doubt, this rebalancing pro-cess—although this term is not really strong enough to describe what is in fact a veritable mutation—is going to accelerate even more over the year ahead.
A vast game of go is taking place, which explains the feverishness of some players who see their positions crumbling and their territories shrinking. Among these players are brands, agents, distributors and retailers who all fear the effects of all the major vertical integration that began symbolically twelve years ago when Richemont purchased LMH (Jaeger-LeCoultre, IWC, A. Lange & Söhne) for more than CHF 3 billion, and the acquisition of TAG Heuer by LVMH for $739 million (CHF 1.138 billion at the time). At the same time came the announcement by Nicolas Hayek of his intention to gradually stop delivering movements to third parties.
It has taken a decade for the effects of this “big bang”—the formation of the large groups and the planned stoppage of deliveries by ETA and Nivarox-FAR—to make themselves fully felt. On one hand, this situation has been for the better, namely the progressive re-industrialisation of the Swiss watch industry. On the other hand, however, it has been for the worse, since it has resulted in the gradual suppression of brands, distributors, and independent retailers.
This reconfiguration will accelerate even more with the planned closing of a large number of independent doors. As an (unsubstantiated) example, rumours in the corridors of BaselWorld stated that of the 80 or so Omega retail outlets in Switzerland, only maybe ten will still be around in two years. Clearly, this is to benefit the brands themselves and their own networks of boutiques, but it also benefits the large distribution groups and their watch “multiplexes” that are being built nearly everywhere.
Focusing on Asia
Other considerations have also added to the prevailing nervousness. Among them was the very recent announcement of the strategic acquisition of the movement maker La Joux-Perret by Japan’s Citizen group (as a reminder, Citizen is valued at CHF 1.5 billion, the near equivalent of LVMH’s watch division). Yet another was the symbolic, but still striking, passage of Eterna (which produces a part of its own movements) into Chinese hands. Then there was the acquisition of de Grisogono by a group of Portuguese and Angolan interests.
Besides Citizen—which is settling into the heart of the Swiss watchmaking landscape and will thus soon be able to offer Miyota Swiss Made mechanical movements—the other Japanese giant, Seiko, is providing vital support to TAG Heuer, which has been without Nivarox-FAR assortments (Swatch Group) since the start of the year, by supplying specially developed assortments produced by its subsidiary Seiko Instruments Inc. (SII) using the advanced LIGA process. Today, the cards are being totally reshuffled and the players who reacted a little late to the Swatch Group’s clear threat are frantically trying to improve their hands (see our editorial on this subject).
Another subject that provoked many concerned discussions at BaselWorld was the industry’s dependence on the Chinese empire (China, Hong Kong etc.), which absorbs more than half of the watches exported from Switzerland. Some worried voices consider this as a large “bubble” that could very well burst, if there should be some sort of political or economic reversals.
Confronted with all these challenges—real for some, still imaginary for others—the first backfires are being heard here and there. “Distributors and retailers now know that they are going to lose their cash cows,” explains Jan Edöcs, who left Milus (in Chinese hands) to join Consalve, a consulting firm for “business development” and a “family office” based in Bern. He intends to develop alternative solutions, including coordination platforms that group together investors, brands, and independent distributors. Edöcs even wants to find viable alternatives for independent retailers who see themselves either deprived of key brands or forced by them to fill their shelves to overflowing. (Continued)
Source: Europa Star June - July 2012 Magazine Issue