Patek Philippe

“The watch industry went too far”


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May 2017

“The watch industry went too far”

Patek Philippe is a reference, a virtually inviolable icon of Swiss watchmaking. How did this family firm, one of the last, get through the annus horribilis that was 2016? What are the secrets – if there are any – of its resilience? Interview with Thierry Stern, President of Patek Philippe.

What do you think of the current downturn in the watch industry? The situation is unsettled, to say the least.

Thierry Stern: The overall situation isn’t catastrophic – far from it. One reason for the current slowdown is overproduction. Many companies insisted on production at any price. The markets became saturated, and then indigestion kicked in. But in our case foresight came to our rescue; we have been extremely vigilant for some years now. Back in 2015 we started the year with a cautious outlook. We specifically looked at the number of pieces we wanted to deliver, and were careful not to force the hands of our retailers, not push things too far. We never really had to reduce delivery levels, because it was never our intention to increase them at all costs, but we did apply the brakes a little. We also took the risk of keeping stock here, within our own walls (in fact, we’ve been pushing for that for a long time, and, as things turned out, our stocks were basically exhausted within the year).
In the marketplace, this restraint enabled us to work in greater depth, with fewer pieces, placing the emphasis on rarity and an enduring focus on the long term.

At the same time, watch customers have become more volatile, more restless, less loyal.

We have always given priority to our local clients, wherever we are in the world. That, in our view, is vital. In a way, you get the clients you deserve: loyalty and continuity before the volatility of passing trade. We have enormous confidence in our 400 or so retailers. In addition to the fact that they are often built on historical partnerships, they give us an insider’s understanding of the markets, their differences and how they evolve. For a long time now, unlike many other companies, we have stuck with our strategic decision to prioritise our retailers. We have only three Patek Philippe boutiques, in Geneva, Paris and London. And, let me just say, I find it utterly unfair to retailers, when watchmakers open their own boutiques right next door.

“Our strategy of trust in our retailers has proven decisive. It means that we don’t just think about ourselves; we take into account the needs and expectations of our distributors, our retailers, and our end clients.’’

Today, our strategy of trust in our retailers has proven decisive. It means that we don’t just think about ourselves; we take into account the needs and expectations of our distributors, our retailers, and our end clients. You should never be too greedy or too pushy. Rely on trust. The trick is to maintain visibility without increasing stocks. And I don’t want to increase production. So we proceed by taking small but consistent steps, as we have always done. And if you need to stop and take a rest, then you do it. It’s a matter of internal regulation. It’s not always the easiest path to take, but in the end our model has proved effective – as well as being agreeable to everyone. We are also fortunate that, as a family firm, we have no pressure from shareholders. We are sheltered from power games, strategic changes of direction, repurchasing, number-crunching and deep discounting – all the things that have brought us to where we are today. 2016 might not have been a record year, but we are fortunate that we don’t have to keep chasing records. We have time on our side.

And yet you’ve made a number of announcements this year.

What can I say! We’re watchmakers, we love to create. It’s our profession, and our passion. We’re often tempted to do too much. For 2017, I had 50 new items ready to go into production. We deliberately limited ourselves to 20 or 25, including updates to our current collections. However, we are presenting a coherent selection of new products, across all our ranges and series. Having said that, easing off a little does allow us to focus on our processes, the future and, something that for me is essential – reliability. We do pretty well in that respect, but we’ll never achieve zero returns. Nevertheless, we must continue to improve our after-sales service – its quality, efficiency and speed. Today, our clients demand product reliability above all else. From a technical standpoint, we regularly bring out two new developments each year. But before they are ready to be launched they must offer maximum reliability. They are bench-tested, road-tested and checked from A to Z. And they must be available for prompt delivery. That’s how you win the war.

Do you think the current slowdown has also triggered a stylistic and aesthetic “recalibration”?

Watchmakers went too far into gadgetry and ostentation. There’s no doubt about that. Today, our customers are somewhat apprehensive about the future, and they’re looking for a more conservative stylistic approach. Design is central: how can you make a simple, attractive watch with three hands that delights and enchants? That’s the hardest thing. Designers, get your sketch books out! But stylistically speaking, I don’t mind admitting that I’m proud of our collections, which I believe are extremely strong in this regard.

The Patek Philippe brand is perceived as being traditional in spirit. And yet, you invest a great deal in research.

If there is a Patek Philippe tradition, it’s also very much a tradition of innovation. But innovation, in a technical and visual sense, that comes second to usefulness, reliability and precision.
Our research and development labs are here, at the heart of the manufacturing facility, and they are equipped with the most cutting-edge resources available, all the necessary tooling and the finest engineers.
Testing is front and centre of our strategy, and we spend a considerable amount of time on this. Sometimes the direction we take is very promising; other times we’re disappointed. But our efforts never cease. We work with organisations such as the EPFL in Lausanne and the CSEM in Neuchâtel, and sometimes in consortium with other selected companies. We pioneered the use of silicon, and today around 85% of our watches have silicon components.
Historically, Patek Philippe has always helped watchmaking to evolve, but we want to avoid technology for its own sake. When we develop a new technology it has to work, and we have to be able to integrate it into our production. In fact, we consider it our duty to continually innovate and evolve. But when we innovate, we remain “traditional” in our own way, and this also applies to the watch casings and external parts. It’s important also to bear in mind one cardinal rule: all our innovations must be capable of being repaired in 50 or 100 years’ time.
A Patek Philippe is, and remains, an investment.

“How can we not be confident, when we have invested 500 million francs out of our own pocket in a new building, as we are in the process of doing?”

You seem quite confident about your future.

How can we not be confident, when we have invested 500 million francs out of our own pocket in a new building, as we are in the process of doing? And all to produce barely 60,000 watches a year. It’s a hefty investment! This unit, next door to our current manufacturing facility, is our investment in the future. One of its purposes is to strengthen our after-sales service, and train up the watchmakers of tomorrow. But we will also bring in our watch casing department, which is not far away, as well as installing our component manufacturing and research divisions here. I would also have liked to keep some empty space for future projects, but the 50,000 m2 we have planned are already filling up too quickly.

Are you afraid that we are coming to the end of a cycle, that people are falling out of love with watchmaking, that everything could change?

As I said, the watch industry took things too far. There was too much of everything and a lot of nonsense, and it led to saturation and then indigestion, which is what you get when you eat too many sweets. But there’s a sense that things are turning around, that the desire is back again. Our history gives us the luxury of a certain amount of detachment, which helps us to keep the ups and downs in perspective. For example, our enamelled Dome table clocks suffered through a period of distinct apathy. But not only did we continue to stock them, we continued to make them, in order to preserve the savoir-faire. And it proved to be the right decision because, although we don’t fully understand why, one day the tide turned and we sold out of our entire stock.

What can you tell us about your market distribution, in these uncertain times?

We remain very strong in Europe, which accounts for 40% to 43% of our sales. This is the result of comprehensive, long-term efforts with our local clientele. Ten years ago, the USA was also very strong, at around 30%. Today, although it is down to 15%, there is still great potential there for us. The USA is home to some of the finest Patek Philippe collections – there are some breathtaking pieces in the hands of collectors who have kept a very low profile. Asia, as everyone knows, has calmed down considerably – Hong Kong first and foremost – but it still makes up 30% of our market. Things are going very well in Singapore, for example. Japan less so. But the market that has suffered the most is Russia, without question. There, it’s all or nothing.

Patek Philippe regularly makes the headlines with extraordinary results at auction. Is this the result of a deliberate policy?

Absolutely not, it’s the result of a policy focused on quality, reliability and the long term. Remember, we have made a commitment to be able to repair or restore anything, forever. We are set up to do this, and we do it every day [see ‘The manufacture within the manufacture’, Europa Star March 2016,]. But of course we’re absolutely delighted with these extraordinary results. We welcome them heartily, but we don’t use them. They serve to confirm that we have made the right choices, and they attest to the exceptional trust in which our clients and collectors continue to hold us.