Watches
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Tough time for watch sales
Weakened timepiece sales mean lower price points, more classics
By Emma Johnson
May 06, 2009
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| A close-up of Baume and Mercier's "Hampton Magnum XL Diamond-Set" watch for ladies, which features a big date at 12 o'clock, dual time at 6 o'clock and a 34.1-millimeter case in polished/satin-finished steel and white vulcanized rubber; suggested retail price is $4,790. (212) 593-0444 |
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New York--Watch sales are suffering at the hands of the economic slump like the rest of the luxury market, but more modestly priced and classic timepieces are poised to hold their own better than others, industry experts say.
"In the past, many jewelers did not want to bother selling watches under $400 or $500, but that has completely reversed," says American Watch Guild Executive Director Bert Kalisher. "Now, stores that never carried watches priced $100 to $400 are starting to stock them, and they find it's working. Consumers are buying at those price points, and watch companies are paying attention to this. They have to."
Weak sales for key watchmakers
As expected, the year-end picture was not pretty for the big three watchmakers. Swatch Group, which owns Blancpain, Breguet, Longines, Omega and Tissot, among others, saw 2008 net sales increase just 0.5 percent over the previous year, and its watch and jewelry business, which totaled $3.95 billion, increased by just 1.9 percent. The company said strong sales in China and the Middle East were offset by the economic slump in Europe and the Americas--especially the United States.
Global currency fluctuations slammed the company overall by nearly 5 percent and hurt jewelry and watch sales by 4.8 percent. Despite a slump in sales of 10 percent to 14 percent for January and February of this year, Swatch executives reported optimism for the latter part of 2009.
At Richemont Group, whose brands include Cartier, IWC, Jaeger-LeCoultre, Montblanc, Panerai, Piaget, Vacheron Constantin and Van Cleef and Arpels, net profits were up 5 percent on gross sales of $3.57 billion, which rose 10 percent over the previous year. Watch brand profits increased 6 percent on gross sales of $1 billion, which were up 12 percent over 2007. Factoring in exchange rates, sales in Europe and Asia were up 15 percent and 19 percent respectively, while in the Americas and Japan they fell by 2 percent and 7 percent, respectively.
For the fourth quarter of 2008, overall sales fell 7 percent, while watch sales dipped 5 percent.
"Given the current economic climate and the uncertainties facing us, we see no cause for optimism," Richemont said in a press release in which it issued a profit warning. "We must assume that there will be no significant recovery in the foreseeable future and plan accordingly to cope with this situation."
Luxury giant LVMH Moet Hennessy Louis Vuitton reported organic sales in which currency factors increased by 7 percent, including a 2 percent drop in its watch and jewelry business, which includes Chaumet, De Beers, Dior Watches, Fred, Hublot, TAG Heuer and Zenith. U.S. sales, which account for 23 percent of the company's overall business, were up 2 percent year-over-year. Total jewelry and watch revenue increased by 6 percent to $1.12 billion, while profit from recurring business dropped 16 percent to $150.2 million. LVMH bought Swiss watch brand Hublot in April for an estimated $250 million.
The company is cutting costs, including canceling plans for a Louis Vuitton flagship store in Tokyo. In a press release, Chief Executive Officer Bernard Arnault abandoned guidance for 2009.
Fallout for u.s. retailers
Tough times for these European watchmakers are directly tied to tough times for retailers in the United States. LGI Network reported the number of active storefronts selling fine timepieces fell from 30,000 to 25,000 in December from the year prior.
"Our study in September prior to the fallout showed a difficult climate for watch sales then," says LGI Network CEO Fred Levin.
A few trends emerged from the Salon International de la Haute Horlogerie show in January, including the sense that lower price points and classic, understated styling will dominate through these tough times, says Michael Irilli, Baume and Mercier marketing manager.
"Now is a time for back-to-basics and accessibility," Irilli says. "People are a bit embarrassed to be spending money these days."
According to LGI Network's January same-store sales report, watch sales decreased by 20 percent overall, with units in the $10,000 to $25,000 range falling the furthest, and those priced $300 to $500 dropping the least.
This challenges the conventional wisdom which asserts that the very high-end timepieces are immune from the economic downturn, as the very rich will always have money to spend.
Chia Kuo, luxury analyst for Telsey Advisory Group, which focuses on consumer goods, says that higher-end brands, including some Richemont labels, are hanging in a little better than others.
"With luxury goods, in general, there is a return to classics with less focus on experimentation," Kuo says. "It's the middle price points that are most pressured."
Watch brands will divide into two camps: Prestige brands with heritage will perform while others struggle, she says.
"Secondary brands like Roger Dubuis will need more marketing behind them," Kuo says. "They can no longer rely on word of mouth."
She points to Gucci's recent sale of Bedat and Co., the 13-year-old Swiss watchmaker whose price points start at about $600. The brand's initial success in the United States waned in recent years, and Kuo predicts a similar fate for others.
"Watchmakers, in general, anticipate low demand," she says. "We've already seen layoffs and there are many more to come."
Irilli says Baume and Mercier is one of those reasonably priced, classic brands that's showing resilience in this market. He says that brands with heritage cannot afford to radically redesign themselves with each ebb and flow of the market, but instead must reposition their marketing message.
"We're 179 years old," he says. "We're not going to change because there is a blip in the marketplace. Instead, you have to understand how your brand fits in the food chain. When times were better, we were a gifting brand. Now, we're sought after as a brand of affordable luxury."
Baume and Mercier's offerings at BaselWorld showcased larger sizes and enhancements to dials, crowns and the bracelet, with price points from $1,390 to $7,990, and product skewing to the lower end of that range. This compares with recent collections, which fell in the range of $1,500 to $5,000.
Irilli tells of a recent sale to an affluent client who--with a sensitive eye toward clients and colleagues that may be experiencing tough times--opted for an understated timepiece.
"He worried he'd find himself in a meeting with someone who had lost their job," he says. "You can't be showing off your new Rolex in that situation."
Financial snapshot: The big three
--Swatch Group, based in Biel, Switzerland, saw watch and jewelry sales increase 6.6 percent in 2008 at constant exchange rates, but only 1.8 percent in Swiss francs. Its watches, jewelry and production group, excluding electronic systems, increased 6.5 percent at constant exchange rates and 2.2 percent in Swiss francs. Bloomberg calculated that Swatch's net income decreased 25 percent to 418 million Swiss francs ($361 million).
--Richemont Group, based in Geneva, saw fourth-quarter sales fall 12 percent overall at constant exchange rates and 7 percent at actual rates (for which jewelry fell 7 percent and watches 5 percent). Its business in the Americas decreased 24 percent.
--LVMH Moet Hennessy Louis Vuitton saw revenues increase 4 percent at actual rates in 2008 both for the year and for the fourth quarter. Watches and jewelry were up 6 percent at actual rates for 2008 and down 2 percent if exchange rates were held constant for the company, which is headquartered in Paris and bases its financials on the euro.
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Luxury goods giant Richemont saw its sales decrease by 15 percent for the six-month period ended Sept. 30, with a decline in U.S. sales and revenues at its jewelry houses and luxury watch brands contributing to the downturn. Read More
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