Nothing new?

October 2003

Describing the economic situation of Germany's watch and jewellery branch can be boring because nothing seems to change – at first sight. People complain and the picture is painted black. But if you look a little closer the painting also has some light spots although they are small, maybe too small.

The general political situation leaves people feeling callinsecure. There is discussion of future reduction of pensions, some communities are close to bankruptcy, public liabilities increase and the main result of a reform of the public health system negotiated between both the majority parties and the opposition in parliament is that people have to pay more for future medical treatment.

The results of a poll, published in September show that 43 % of Germany's population have only 100 Euros spending money per month. Only 17 % claim to have more than 300 Euros for spending on consumer goods such as watches and jewellery.

That is why for many retailers, manufacturers and distributors, the situation is simply bad. “I have been in the watch business since 1965, but I have never seen a situation like this,” says Gerd Hofer, Managing Director of his watch brand Nivrel which he founded some 10 years ago. “We are doing alright with our export business,” Hofer states, “but in Germany even the way companies pay for deliveries is getting worse.”

No surprise! An increasing number of jewellers often don't have enough money to refill their stocks with new watches and jewellery. And if they do restock, they risk not being able to pay their bills.

“In our branch you find predominately watchmakers and goldsmiths on one hand and on the other, sales people,” explains the sales manager of an important watch company when referring to the different structures of watch and jewellery retailers:. “Surprisingly, the shops owned by sales people are better off because they approach marketing quite differently, they are open minded and willing to participate in joint marketing initiat-ives. These companies are prospering.”

One survey shows that most watch companies are selling less in Germany and that some of them react by stopping deliveries or even cancelling their contracts with some of their concessionaires.

For example, the reputable German watch brand A.Lange & Söhne intend to cancel concession contracts with some jewellers in Germany. “We are expanding in the Middle East,” says a Lange-Uhren marketing employee and reports of an increasing interest for Germany's most famous luxury watch brand abroad. Lower sales in Germany have led to rumours that by the end of 2003 this will lead to the closure of some 15 of 40 points of sale of the Glashütte brand.

Hartmut Knothe, Managing Director of the company does not confirm this number, but admits planned closures. “We do not know yet how many contracts we will have to cancel, but we will have to cancel some this year.”

Many brands are in this same situation and it can often be seen in staff policies whereby managers and representatives who have been working for the company for years are being fired.

Robert Jäger, one of the icons of the German watch trade who made Germany the number one market for Maurice Lacroix, left in June 2003. Officially declared as a resignation for personal reasons, it is assumed that Jäger had to go because the turnover of Maurice Lacroix in 2002 and this year were unsatisfactory.

Another long-term leading employee, Emanuel Bitton, who was head of the TAG Heuer subsidiary in Germany and had taken over European responsibilities this spring, unexpectedly left the company in July. “We were unable to come to an agreement about the future strategy,” he explained to me. And Michael P. Sarp quit his job as Managing Director of Swatch Group Germany after a stay of only one and a half years.

Clearly the watch companies are trying to save money wherever possible. Important watch brands like Maurice Lacroix, fashion brands like Esprit and even powerful holdings like the Swatch Group with its 18 brands are not participating at Inhorgenta next year because of declining sales and high participation costs.

Whether or not this is the right decision was one of the topics of a panel discussion organized by Munich Fair International in September in order to get an idea of the current situation and obtain a feel for the forthcoming year.

It also highlighted the varying expectations of watch and jewellery brands.

“We anticipate that next year will be a little more positive than 2002 and 2003. We have seen a positive tendency during the last two months,” states watch and jewellery producer Georg Bunz. “We see that retailers are trying to give their shops a more attractive appearance. Things like this do not just happen, and I think that both manufacturers and retailers have thought things through which is why I foresee a more positive trend in 2004.”

Ralf Arp, Sales Manager of Citizen Europe is not so optimistic. “As a classical watch supplier we see the situation as difficult. My prognosis for 2004 is that we ourselves will see changes, but not before 2005,” he says.

Expectations vary, as does the morale. Prof. Werner Thieme, a board member of the Fossil Group simply s it “controlled optimism.”