t is one of the most important indicators when taking the pulse of the watch industry, alongside the monthly figures from the Swiss Watch Federation. While the federation provides data on watch shipments outside Switzerland, the “Sell-Out Index” records actual sales conducted by watch and jewellery retailers on the main markets. As such, it represents a true indicator of the health of the industry.
Consultant Thierry Huron (The Mercury Project) is the author of this monthly index. The former senior manager at TAG Heuer began by taking note of the watch and jewellery retail figures provided by the Hong Kong authorities, the world’s largest importer of Swiss watches. He then extended the exercise to other countries, based on official sources, from the American Census Bureau to the French INSEE, in order to achieve a complete global overview.
- Quarterly results by market, compared to the first quarter of 2018 (YTD), show a general decline in watch and jewellery sales, with the exception of the United Kingdom.
- ©The Mercury Project
“Only a few countries do not specifically cover watch and jewellery retail in their statistics,” explains Thierry Huron. This is the case for Italy, where these figures are grouped under a broader category, and Japan, where watchmaking is classified with optical products. And of course, a third important country is missing: Switzerland! “The Swiss Federal Statistical Office only communicates this information annually and... very late,” the expert points out. “The latest figures available are for the year 2015.”
All these countries record sales in retail – including those in the watch and jewellery category – in order to calculate their public accounts and GDP. They have different calculation methods. France, Germany and Switzerland rely on VAT declarations, which also allows local purchases to be isolated from those of tourists. The United States, China and Hong Kong use national surveys conducted by their official statistical institutes.
While the Swiss federation provides data on watch shipments outside Switzerland, the “Sell-Out Index” records the actual sales of watch and jewellery retailers on the main markets.
We met Thierry Huron to discuss watch sales levels on the main markets. “The Sell-Out Index lists the performance of specialised watch and jewellery stores (independent retailers, chains, and brand stores),” he emphasises. “The vast majority of retailers sell both watches and jewellery. A decline in their sales is therefore a very bad signal for watchmaking, with jewellery traditionally doing better.”
- Thierry Huron (The Mercury Project), former manager at TAG Heuer, analyses the results of watch sell-out every month in a dedicated index.
What overall assessment can you make from global sales of timepieces in the first quarter of 2019?
Sell-out of timepieces and jewellery declined almost everywhere from January to March. We see a marked decline in the United States (-5.2%) and a very strong deceleration in China, where growth remains positive (+2.2%). Singapore (-3.5%) and Hong Kong (-2.5%) are also down. In Germany (-0.4%) and France (+1.4%), the sell-out of watches has stagnated for several years. Only one country escapes this global trend: the United Kingdom, at +11.9%!
What are the reasons behind these disappointing figures?
First, it should be noted that this deceleration trend intensified throughout the second half of 2018, and continues with negative figures. Last year was really divided into two phases. We saw a strong recovery in the first half of the year, which was marked in the main markets, followed by a decelerating second half, with a very poor month of December 2018. A major reason for this decline is the ongoing trade dispute between China and the United States. The general economic context is therefore not conducive to an improvement in the situation.
“Last year was divided into two phases: a strong recovery in the first half of the year, followed by a deceleration in the second half.”
- The growth of watch sell-out in the United States since March 2016.
- ©The Mercury Project
China has so far compensated for the slow growth or decline on the more mature watch markets. How do you see China’s watch retail situation developing?
It must be acknowledged that the situation in the watch and jewellery retail trade is linked to that of Chinese trade globally, and that’s decelerating. The current strategic move for watch brands is to assert their presence in mainland China, through the opening of numerous points of sale.
Prices are being harmonised, the government is seeking to stimulate local consumption, and imports of watches are being more closely monitored at the border in an effort to crack down on “daigou” (retailers who buy watches abroad for their mainland customers). It is less attractive to buy abroad, which could benefit the domestic market.
However, in this tense context, Chinese millennials, the main target of Swiss watchmakers and the luxury industry in general, remain fragile: the majority are not financially independent, and depend on the income of their parents, even their grandparents. In the current geopolitical context, deteriorating employment prospects and the pressure on middle class incomes have direct repercussions.
"Chinese millennials, the main target of Swiss watchmakers and the luxury industry in general, remain fragile: the majority are not financially independent, and depend on the income of their parents, even their grandparents.”
- The growth of the watch sell-out in China since March 2016.
- ©The Mercury Project
How do you explain the very strong growth in the United Kingdom?
This is undoubtedly a phenomenon linked to Brexit, as reflected by the shipment figures communicated by the Swiss Watch Federation. However, the figures in the Sell-Out Index also show that the sector of specialised watch and jewellery stores is very dynamic: in-store sales increased by 11.9% in the first quarter of 2019. There are several reasons: the jewellery industry is driving this upward trend, the depreciation of the pound favours shopping and local consumption remains sustained, particularly through e-commerce. Online sales represented 20% of the total retail sales in the United Kingdom in December 2018.
Even if these are not the latest figures, can you give some indications about the Swiss watch market?
In 2015 (the latest figures available), the activity of watch and jewellery stores in Switzerland, excluding department stores such as Manor, Coop City or Globus, represented 3.3 billion francs. This figure is close to the size of the German or French markets.
The entry-level segment seems to be suffering more and Swiss export volumes are falling every year. Is this due to the arrival of the Apple Watch?
Stock exchanges have punished volume brands such as Fossil and Movado when their annual reports were published. But the Sell-Out Index only reports retail trade figures in terms of value and not volume. The decline is probably amplified in terms of volumes, but it cannot be measured through our index.
Watch companies have embarked upon a comprehensive reconfiguration of their distribution networks. This has a strong impact on the independent retailers that make up your index.
Many brands, such as Omega, Bulgari and Zenith, have announced that they are reducing their partnerships. The Richemont Group, Audemars Piguet and Richard Mille have already endorsed this principle in their commercial policies. The logic of the brands, in this changing environment, is to capture the retailer’s 40% margin by opening their own stores or selling online. This move is also linked to limited production capacities; the industry is making efforts to optimise each element of its value chain. Taking control of logistics and stock management, creating a direct relationship with the customer and the omnichannel model are additional reasons.
“The logic of the brands, in this changing environment, is to capture the retailer’s 40% margin, by opening their own stores or selling online.”
How can retailers get by under these conditions?
Several major players in watch distribution are moving towards managing monobrand stores. This is particularly obvious at Watches of Switzerland, Bucherer and Embassy. Their advantages are their considerable knowledge of the local market, and qualified staff. But they have to accept a lower margin than in their multi-brand stores. What we’re also noticing is that specialised retailers are now more inclined to develop their jewellery business than watchmaking. This is very clear for major players such as Bucherer and Gübelin, as well as smaller retailers.
What other information does your index reveal?
It also highlights the importance of the watchmaking and jewellery segment in relation to total retail trade by market. In Hong Kong, this rate is very high, at 18.7%. In Singapore, it is 11%, while it is only 0.9% in the United States, less than 1% in China and 1.7% in the United Kingdom (total excluding motor vehicles).
The Sell-Out Index website is available here.