Germany 2002 Rising Waters and Decreasing Turnovers

April 2003

In times like these with weak economies and political confusion, Germany remains a difficult market for watches and jewellery. In addition, the unusually heavy rainfalls caused floods in eastern Germany last August and destroyed many shops and a lot of hope. Some people were left with nothing.

Last year (2002) was hard for Germany's watch and jewellery retail business. But not only shopkeepers were struggling through another year of decreasing turnovers. Manufacturers also had to understand that the watch boom of the late 1990s finally has come to an end. Even high-class luxury watches, generally bought by customers who do not react to economic slowdowns immediately, sold less than the previous year.

Although brands like Glashütte Original and A. Lange & Söhne do not publish numbers and details of turnover and profit any more since they belong to the Swatch and Richemont groups, there were indications proving that less money was earned compared to the past years. Orders for advertisements for instance – not from these groups – were considerably reduced in both newspapers and magazines. Also subsidiaries and agents of Swiss luxury brands realized once more that Germany – a tough market anyway – is particularly difficult at present.

But it wasn't only the famous German and Swiss brands that were affected by consumers' reservations. Smaller companies, and especially many of the mid-priced brands had to face up to the fact that people are trying to save money for hard times to come, general economical calamities and consumers' concerns about a possible war in Iraq.

The retail business also suffered. Once again, small shops with up to five employees were doing less business (-19%) than stores with 6 to 10 employees (-12%). But also retailers with a long tradition and even luxury chains are in trouble. The overall turnover of the watch and jewellery retail business in Germany with some15,000 points of sales sank from 6.2 billion euros in 2001 to just 5.5 billion last year.

Decrease year after year
The watch branch is said to have lost some 20% of turnover during the past five years. Statistics show that August 2002 was the worst August in the watch and jewellery business since World War II. Even big and powerful companies and groups such as the Munich based Richemont Northern Europe or the Swatch Group had to face stagnation or even decreases of sales and turnover and concentrated their efforts to at least maintain the results of 2001.

“The German market overall was confronted with an extremely strained economy in 2002. The introduction of the euro, coming along with numerous increases in prices and a weak acceptance of the market, led to a noticeable reserve in consumption already in the first half year of 2002,” stated Swatch Group Germany. “The weakness of the stock exchange,” it continues, “the high unemployment rate and political discussions over tax, retirement pensions and job market reforms prior to the election for the Bundestag (the German parliament) in autumn, caused further uncertainty and a further drop of economic activity. The watch branch was not spared from these effects. Consequently, the Swatch Group Germany did not attain their ambitious targets completely.”

However, the Swatch Group PR department published that most brands of the group have been able even to enlarge their market shares. In particular Omega, Longines and Tissot were very successful with their quality products and their “outstanding value for money.”

Smaller watch companies did not do so well either. “The whole branch is lying on the ground,” complains Dieter Obert, German importer and agent for Camel Active Watch, Xemex and Atlantic. “I don't know how it is going end. Even people who used to buy a watch en passant now refuse to do so.”

With this background it is actually not surprising to see turnovers in retail businesses not only decrease but also literally plunge in 2002. The watch magazine U.J.S. recently published statistics showing a decrease of retail turnovers of 7% for the period from January to November 2002 and an incredible average of -15% in November, both in comparison to 2001.

Serious situation for new brands
“2002 wasn't an easy year,” cautiously states Simon P. Robinson, Managing Director of TechnoMarine in Germany, "especially from the period around August/September, partly due to the weak economy and the political situation. Also jewellery shops were affected because people became insecure about what was to come in terms of taxes and socials costs, which the re-elected government intended to increase.

"The luxury section was also affected, because not only did sales drop but also the number of customers entering stores decreased. More people preferred to have their old watch repaired rather than buy a new one. That's why in 2002 the stocks remained full and retailers were very reserved about ordering new watches. We at TechnoMarine achieved some compensation because we widened our distribution. But during the last quarter of 2002, no jeweller wanted to add a new brand to his assortment.

“I have commercial contacts in the USA, Spain, Russia and France,” says Mr. Robinson. “The situation is similar everywhere. TechnoMarine is still new on the German market and instead of an anticipated increase of roughly 50 per cent for 2002, we only had a increase of five per cent.”

The future simply washed away
Last year's most impressive event was, without any doubt, the huge floods in August that made parts of eastern Germany resemble lakes.

In February 2002, Hans-Jürgen Mühle, head of the Nautische Instrumente Mühle watch company based in Germany's revitalized watch town of Glashütte, presented his Mühle S.A.R. Rescue Timer. In August last year, Mr. Mühle and his son Thilo were trapped in their own factory by the water of a small creek which had become a roaring river flooding vast areas of Glashütte in the Erzgebirge mountains within an unbelievably short period of time. The employees had been evacuated in time fortunately. “For two days and nights we were helpless prisoners of the flood with no electricity and no telephone. Even the mobile phones didn't work. We were afraid,” Mühle admits.

Streets and houses in the centre of the small town were seriously damaged by muddy water. The work of 12 years of rebuilding and renovating was washed away within half an hour. Every Glashütte watch company, Nomos, A. Lange & Söhne, Glashütte Original, Mühle and Bruno Söhnle had to contend with damages to their buildings and the destruction of equipment. However, most of the companies were able to continue production again after several days.

In November 2002 Nomos even opened their first Nomos store in Glashütte, also as a sign of optimism. The shop is in an historical location: No. 12 Hauptstrasse, which is the house where Ferdinand Adolf Lange, the founder of the Glashütte watch industry, opened his first workshop in 1845.

However, thousands of east Germans came out with literally nothing after the muddy, fetid water of the river Elbe and its tributaries had receded. Many jewellers and watchmakers lost their stocks, equipment and furniture during the floods. Still heavily indebted from founding and developing their small companies and completely disillusioned, many shopkeepers were physically and psychologically unable to start up again.

So it was good to see how many people from all over Germany were willing to help their fellow citizens and to redress the huge damages caused by that disaster. Hundreds of thousands of people donated money to numerous campaigns. Jewellers and watchmakers from other parts of Germany donated furniture, tools and equipment. Some even travelled to the parts of the country affected by the floods to help their east German colleagues in cleaning and restoring the demolished stores. A special donation came from the Swatch Group, owner of Glashütte Original. Dr. Hanspeter Rentsch, a member of the Board of Directors of the Swatch Group, handed over a check of CHF 100.000 to Glashütte's mayor Frank Reichel.

Déjà vu ?
One success story is that of Brigitte Gertz. Brigitte Gertz, is a watch and jewellery retailer in Kirchheim-Teck, Baden-Würtemberg and she reacted to the demands of her female customers. Inspired by watches with five changeable plastic bezels introduced by Gucci several years ago or the Oilily watch with various screw-on parts, women requested watches that could be simply changed to have a different look.

Women frequently entered the store looking for watches to fit their fashion outfit. “It was not easy to react to the customer's expectations and ideas. Normally, you can only change the strap if someone wants another look for a watch. I realized there was a trend coming for watches that can be varied in a simple way,” says Gertz, who seems to have had the right solution to this problem. Within a period of two years she created a successful product. The 'Déjà vu?' watch (the question mark is part of the brand's name) with a steel case on which a disc of material can be fixed by a rubber ring. Gertz explains, “As there is no thread, it is really an easy-to-do change from one disc to a another.”

Four different dials and more than 500 different discs of precious stones, aluminium, steel, wood, mother-of-pearl, rubber or set with fake diamonds, sapphire or rubies are available (to mention just a few) plus roughly 50 different straps. “I started distributing my watches in 2000,” says Gertz, who works with some 20 suppliers and already sells her products to roughly 120 retailers in Germany.

However, the Déjà vu? watches, which are equipped with a Swiss quartz movement and made by the Lacher (Laco) watch factory in Pforzheim, are not only welcome to fashion-conscious ladies. Goldsmiths have also taken this opportunity to create a timepiece of their own design without worrying about the horological aspects too much. Déjà vu? is not only a watch that changes its appearance. It is also a means to develop customer relations because women come back to the store to buy new discs for their watches – and, if the retailer is lucky, something else as well.

King Size Watches
Rainer Nienaber runs his business in the small town of Bünde in North-Rhine-Westphalia. In 1995, Nienaber released his first collection of 'King Size' watches (registered brand), which are mainly produced by small companies in the Pforzheim area. The brand's name has nothing to do with the diameter of the watches, which are of a normal size. The King Size watch collection consists of watches with Jumping Hour, GMT-functions or retrograde time displays. One very special watch 'Skyline' shows New York's Statue of Liberty and a view of southern Manhattan still with the World Trade Centre twin towers on a dial of massive silver.

Nienaber's latest watch model is a reminder on how he started his career in 1982 by repairing precision pendulum clocks in his Bünde workshop. The new 'King Size Regulator' has a dial made after the model of regulators from Strasser & Rohde or Riefler (German precision clock makers). Those clocks had a large minute hand in the centre of the dial and two sub-dials for hours and seconds. Rainer Nienaber points out that his watch has – as opposed to other brands regulator watches – the second hand at 12 o'clock.
Experts will recognize the difference, however even a layman will admire the hand wound movement which can be seen through a sapphire crystal caseback. The King Size Regulator is made by the watchmaker himself in a small edition and is decorated in the same manner as the ancient precision wall clocks.

Successful Scout
“Scout took off like a rocket last year,” says Thomas Zinner, a Pforzheim wholesaler who is also producing watches, satchels and other school equipment for pupils under the brand name Scout.

“We have a share of the market of some 50 per cent now,” Zinner happily admits. The successful children's watches seem to fit a trend that became visible last year: Customers look for quality also in the cheaper price range. Scout watches, sold at retail prices between 23 and 39 euros seem to have the robustness for the special stress to which children expose them. “We offer a free life long full service for our products,” Zinner explains.

Also other low budget brands were successful despite the general situation in Germany. “The consumers demand value for money, good quality and attractive design,” Hans-Peter Gehmacher, Managing Director of Fossil, DKNY, Emporio Armani and Diesel in Germany explained as being the success of his company which increased turnover by some 20% in 2002.

Swatch were also optimistic. 'Although the forecast shows a stagnating market for the year 2003, Swatch Group Germany looks to the future optimistically and invests even more into the expansion of the marketing and into the inauguration of own retail businesses,' reads a press release from one of the biggest suppliers in Germany.

Return of a cockpit legend
Despite the bad news from the watch market, Askania, a producer of precision instruments in Berlin-Friedenau has re-opened its watch production. Carl Bamberger, who trained at Carl Zeiss, Jena, a world famous factory for optical instruments, founded the company in 1871. In 1875 Bamberger, then self-employed, constructed his first 'time ball', a nautical device showing the time to ship crews in ports by moving a ball up and down.

With the beginning of aviation, new challenges arose for the precision mechanic. The Askania instrument factory constructed flight devices for the German aircraft industry and, quite logically, also clocks and wristwatches. Following this tradition, Askania re-established their production of watches in the summer of 2001. The pilot's watch Blitz (lightning) for instance is based on an historic model and the case and bracelet are of nickel-free stainless steel. There is a screw on crown, ETA-automatic movement and a glass caseback with a printed picture of the historic passenger aircraft 'Heinkel HE Blitz'. Askania watches are, apart from the ETA movement, completely 'Made in Germany' by OHYA based in the Black Forrest in Southern Germany.

Success and failure
The survey of Germany's watch and jewellery branch is varied. Success and failure sometimes are – like the economy – very close to each other. Some people are struggling to keep their production or retail stores running. Others are simply lucky in starting up a new business and turning their ideas into reality and achieve good financial results.

It is true, currently the general situation in Germany is not good. But it is also true that “Our major error is to lament” as one retailer in the small town of Walsrode (Lower Saxony) stated.

Germany is the biggest consumer market in Europe. Amongst more than 82 million inhabitants in this country there is a huge number of people with lot of energy and brilliant ideas.

It is also true that Germans are inclined to be pessimistic and sometimes see things as more difficult than they really are. But those who don't are still doing all right.