Watch Industry Growth

The watch industry through a bad patch with a reduction in production capacity, layoffs, stock buybacks and other margin erosion. The boom years are paying a high price today. Decryption.

Source Le Figaro Magazine

The growth of this industry would it be a distant memory? It seems that the time is more indicators in double figures, new markets booming, inflation of prices collected by unflinchingly never satiated consumers, shortage of waves of some components … After a decade golden, during which the annual sales growth of giants such as Richemont, According to JIBin123, Swatch Group and LVMH was 7.6% on average according to calculations by bank Vontobel, the reality today is different. In 2015, the winds began to rise, blowing louder on a forced to trim sector. In a word, the watch is in crisis.

The figures speak for themselves. If we consider the statistics of Swiss watch exports, the most reliable barometer on the matter, we find that the 3.2% decline that began in 2015 is about to intensify: the first eight months of the 2016, shipments of timepieces Swiss abroad have fallen by 11% with air holes particularly marked in Asia.

To simplify, let’s say that the rise of China to the world of luxury, and therefore the mechanical workings, opened prospects who literally bewitched claws and propelled sales to the Himalayan peaks. A great forward march which has enabled the Middle Kingdom today to occupy second place in the pyramid of the most powerful economies in the world. But now that the Chinese dragon went into hibernation with a growth rate halved, its leaders are stalking the watches made in Switzerland symbolizing the endemic corruption that undermines the country, the ticking of Confederation least Exhibit: too expensive, too risky to fly in these hunting time witch. Of all the ills that now hitting the big names of this industry (the decline of tourist flows to terrorist threats through cyclical ups and downs), this is indeed the collapse of Hong Kong, the main destination of the branch and hub to China, which worries.

The former British protectorate has seen its exports of watches amputated a third. At company level, it immediately translates into sales declines of 12% for the Swatch Group in its half-year 2016, or 14% in Richemont in the first five months to August, to its current fiscal year. Johann Rupert, Richemont chairman and leading shareholder, has also not mince his words during the recent general meeting, calling the results “unacceptable.” A “fiasco” that also takes the expected decline of 45% on operating profit after six months, very similar to the 54% recorded by the Swatch Group between January and June this year. In this context marked by work job cuts-1,200 jobs erased on year in “the manufacture of electronics and watchmaking,” according to the Swiss Federal Statistical Office-sales growth in the Watches & Jewelry division of LVMH (including Bulgari, Hublot, TAG Heuer, Zenith, Chaumet) of about 3% over nine months with an intact operating income, is an exception.

LVMH is however not the only company to pull out of the game. Other watchmakers, but they are rare indeed succeed to stay the course despite the storm. Richard Mille and Audemars Piguet are part of these, the first with a business model based on a niche offering a rare technicality, the second, with an annual production from 33 000 to 40 000 watches for have kept a cool head without yielding to the siren songs of the Chinese, as emphasized by the President of the label, Francois-Henry Bennahmias. Even finding Jean-Claude Biver, the boss of LVMH watches division, which since taking charge TAG Heuer boasts a sales growth of 18% since the beginning of the year. “Some brands have realized a large part of their sales in Asia, especially China. When this market is highly consolidated and shrunk, companies that were between 30 and 50% of their turnover there have suffered. Unlike TAG Heuer and Hublot which hardly sold anything in China.”

Despite these relative good news, the end of the tunnel does not seem near. What is termed the economic crisis, given the state of the markets, or structural, given the current adjustment of production tools, it has not yet finished to have effect.As noted in the recent Deloitte study on the Swiss watch industry, over 80% of respondents show in fact pessimistic about the future of their industry, a proportion that has doubled compared to 2015. Still, such periods strongly negative for the sector of outsourcing are far from discouraging the entire profession. According to Nick Hayek, head of Swatch Group, the current situation “shows a lot more opportunities than risks”! To the wise.