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Deloitte: 2021 outlook for the Swiss watch industry

INTERVIEW

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March 2021


Deloitte: 2021 outlook for the Swiss watch industry

Covid-19, smartwatches, sustainability, second-hand or online sales: year after year, Deloitte provides a comprehensive overview of the Swiss watch industry in a dedicated study. As the pandemic continues, we asked its authors Karine Szegedi and Jules Boudrand about their latest findings and the outlook for 2021.

T

he seventh edition of the Deloitte study on the Swiss watch industry was published last autumn. Over the years, this survey, which gauges the mood of industry executives, has become a must-read. It is all the more instructive as the Swiss watch industry is going through a historic crisis due to the pandemic, and in 2020 experienced its worst contraction in turnover of the last 80 years.

The 30-page study (to be found here) was compiled through interviews with 55 senior executives in the watch industry, as well as an online survey of 5,800 consumers in 11 of the most important markets for Swiss watchmaking (China, France, Germany, Hong Kong, Italy, Japan, Singapore, Switzerland, the United Arab Emirates, the United Kingdom and the United States).

Karine Szegedi, Managing Partner, Consumer industry and Fashion & Luxury lead, Deloitte Switzerland
Karine Szegedi, Managing Partner, Consumer industry and Fashion & Luxury lead, Deloitte Switzerland
Jules Boudrand, Director, Financial Advisory and Watch industry lead, Deloitte Switzerland
Jules Boudrand, Director, Financial Advisory and Watch industry lead, Deloitte Switzerland

While 67% of the executives surveyed see a negative outlook for the Swiss economy, the number for the Swiss watch industry is even worse at 85%. “The fact that the future of the watch industry is seen as worse than for the Swiss economy as a whole shows the seriousness of the current situation and the monumental challenge facing the industry,” write the study’s co-authors, Karine Szegedi and Jules Boudrand.

“How do you judge the economic outlook for the next 12 months?”
“How do you judge the economic outlook for the next 12 months?”
Deloitte Swiss Watch Industry Study 2020

Deloitte Swiss Watch Industry Study 2020 In the current context, which lacks clarity, to say the least, and as the pandemic has continued into the first months of the year, we asked them about the lessons to be learned from their survey and the prospects for the Swiss watch industry in 2021.

“The fact that the future of the watch industry is seen as worse than for the Swiss economy as a whole shows the seriousness of the current situation and the monumental challenge facing the industry.”

Key findings of the latest Deloitte study on the Swiss watch industry
Key findings of the latest Deloitte study on the Swiss watch industry
Deloitte Swiss Watch Industry Study 2020

Europa Star: A first key finding of your study concerns sustainability. This is an urgent issue that needs to be addressed, but isn’t it even more urgent to save an industry that has been hit hard by the coronavirus – and by the suspension of international travel in particular? Is this something of a paradox?

Karine Szegedi: Watchmaking is part of a much wider debate on consumption patterns, which has certainly been highlighted by the pandemic. Consumers increasingly want to understand and identify where the products they buy come from, from food to watches. In the field of watchmaking, this theme is particularly relevant to packaging, which has a strong influence on the environment.

Jules Boudrand: It is also linked to the growing popularity of second-hand watches and the extension of the lifespan of models already on the market. Beyond the immediate topicality of the coronavirus, our study shows that sustainability and second-hand watches are two important vectors for changes that will take place in the watch industry.

“Sustainability and second-hand watches are two important vectors for changes that will take place in the watch industry.”

 Statements on the topic of sustainability
Statements on the topic of sustainability
Deloitte Swiss Watch Industry Study 2020

We are seeing an increase in the number of announcements made by brands about sustainable actions. How can we distinguish mere position statements from in-depth reflection and transformation?

Karine Szegedi: Some brands are concretely embarking on recycling or upcycling. In fact, it is becoming difficult to escape the theme of sustainability; more and more watch brands and groups are communicating on it. This in itself is already a driving force for change in the future.

“How do you rate the impact of smartwatches on your sales?”
“How do you rate the impact of smartwatches on your sales?”
Deloitte Swiss Watch Industry Study 2020

Another interesting theme in your study is the smartwatch. This is where Swiss watchmaking executives are realising that, in retrospect, they have missed out on something important...

Karine Szegedi: The evolution of their awareness is striking. Our surveys show it year after year: when they first arrived, smartwatches did not frighten the Swiss watch industry, then they were associated with the entry-level segment, and now more with sport and health, i.e. everyday life. The Swiss watch industry missed this particular boat. We still see brands investing in connection, but this segment is likely to remain a niche market for traditional Swiss players.

Jules Boudrand: In the first quarter of 2020, 7.6 million Apple Watches were shipped worldwide, an increase of 23% compared to the first quarter of 2019. This result shows that global demand for smartwatches has continued to grow despite the hurricane of the pandemic. Over the same period, exports of Swiss watches fell by 23%.

“On smartwatches, the evolution of the executives’ awareness is striking. The Swiss watch industry has missed this boat.”

“What kind of watch do you wear?” (by age category)
“What kind of watch do you wear?” (by age category)
Deloitte Swiss Watch Industry Study 2020
“What kind of watch do you wear?” (by country)
“What kind of watch do you wear?” (by country)
Deloitte Swiss Watch Industry Study 2020

You also note the growing polarisation between a small group of leading watch brands and the rest of the industry. This is not entirely surprising, given the fall in volumes...

Jules Boudrand: A good indicator of this is the second-hand market, where the intrinsic value of the most popular brands is very clearly displayed. Consumers who continue to buy watches are increasingly relying on solid long-term value.

Karine Szegedi: With quartz and mechanical entry-level watches experiencing a very sharp decline, the entire sector is being pulled towards the top end of the range. Annual production of quartz watches in the Swiss watch industry has fallen by more than 10 million units since 2011. More than 60% of those questioned consider this decline to be a threat. In view of the continuing decline in volumes, there will probably be no return to the Swiss watch industry’s historical output levels.

“How likely is it that you will buy a pre-owned luxury wristwatch in the next 12 months?”
“How likely is it that you will buy a pre-owned luxury wristwatch in the next 12 months?”
Deloitte Swiss Watch Industry Study 2020

This is always a delicate exercise: what are your predictions as to whether or not watchmaking will pick up again in 2021?

Karine Szegedi: Although a recovery is expected in 2021, its pace will largely depend on the duration and extent of the new lockdowns that have been in place since January, and the rate at which the global vaccination campaign advances. The industry’s growth will probably continue to rely on leading brands (whether independent or part of groups) and be driven mainly by high-end mechanical watches. Interest in luxury products in China remains strong. However, it is obviously still very difficult to make solid forecasts in view of the many health uncertainties.

“The second-hand market now clearly shows the intrinsic value of the watch brands.”

“How would you rate the negative influence of the following external factors on the Swiss watch industry?”
“How would you rate the negative influence of the following external factors on the Swiss watch industry?”
Deloitte Swiss Watch Industry Study 2020
“Which of the following factors are likely to pose a significant risk to your business over the next 12 months?” (multiple answers possible)
“Which of the following factors are likely to pose a significant risk to your business over the next 12 months?” (multiple answers possible)
Deloitte Swiss Watch Industry Study 2020

Are you worried by the growing dependence of the Swiss watch industry on the Chinese market, which has become even more pronounced with the expectation of China’s swift return to “normality” compared to the rest of the world?

Karine Szegedi: Chinese customers retain the greatest potential for the entire luxury industry, not just watchmaking. They are indispensable and will remain so for a long time to come. What is interesting with the end of Chinese travel is that we now have a much more accurate view of the weight of local consumption in the statistics. In a way, the figures are therefore much more transparent.

Jules Boudrand: The big uncertainty is what will happen when travel retail reopens. Delays in vaccination strategies are harming the brands that are most dependent on this business.

“What are your growth expectations for the Swiss watch industry in the following regions in the next 12 months?”
“What are your growth expectations for the Swiss watch industry in the following regions in the next 12 months?”
Deloitte Swiss Watch Industry Study 2020

We have not seen the wave of bankruptcies among Swiss watch brands that some observers predicted for 2020. Is that the result of a genuine strong internal resilience, or of support from the authorities?

Karine Szegedi: There has been no wave of bankruptcies, but there have been waves of redundancies within brands and suppliers. As the Confederation and the cantons have provided a lot of support, potential bankruptcies have been postponed. The crucial moment will come after the authorities have stopped providing financial aid.

Jules Boudrand: Moreover, we do not expect a major period of mergers and acquisitions. The major luxury groups are already well diversified in watchmaking and the “fittest” watch brands are not for sale.

“What is interesting with the cessation of Chinese retail travel is that we now have a much more accurate view of the weight of local consumption in the statistics.”

“To what extent is each of the following business strategies likely to be a priority for your business over the next 12 months?”
“To what extent is each of the following business strategies likely to be a priority for your business over the next 12 months?”
Deloitte Swiss Watch Industry Study 2020

Is e-commerce going to be as important for watchmaking as for the rest of our daily purchases?

Jules Boudrand: There has been an increase in online sales, but no major brand has yet achieved even 30% of its turnover via e-commerce.

Karine Szegedi: New habits are taking hold, now that the pandemic has been going on for more than a year. But at the same time, retail is also reinventing itself, and as far as watch sales are concerned, there is still a premium on the physical experience. The brands are investing heavily in their flagship boutiques.

“Which sales channel do you think will be the most important in the next years?”
“Which sales channel do you think will be the most important in the next years?”
Deloitte Swiss Watch Industry Study 2020

In this rather gloomy context, and as the pandemic continues, can you spot some signs of optimism for Swiss watchmaking?

Karine Szegedi: Historically, the watch industry is good at adapting, and taking cues from its consumers. Shifts in consumption from one place to another are far from new for the watch industry. Brexit was interesting in this sense, with strong growth of inventories on the British watch market around that time.

“The crucial moment for many watch brands and suppliers will come after the authorities’ financial aid comes to an end.”

“When you buy a watch, where are you most likely to make your purchase?”
“When you buy a watch, where are you most likely to make your purchase?”
Deloitte Swiss Watch Industry Study 2020