8 Key Insights into the Swiss Watch Industry based on recent Prospects and Challenges research by Credit Suisse
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8 Must-Know Facts About the Swiss Timepiece Industry
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Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.
PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.
In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”
The Fondation Cartier pour l’Art Contemparain building in Paris
8 Key Insights into the Swiss Watch Industry based on recent Prospects and Challenges research by Credit Suisse
Pronounced dead back in the 1970s, the Swiss watch industry has staged an impressive rebound from the watch crisis. Thanks to a decision to refocus on high-end products, the Swiss watch industry benefited from a boom in demand for global luxury goods that began in the mid-1990s.
Credit Suisse has recently released Swiss Watch Industry, Prospects and Challenges, aiming to shed light on an industry that is outstandingly well positioned but facing a number of challenges.
On the demand side, the financial service provider investigates the durability of the boom in Chinese sales, and identifies emerging-market countries the watch industry should be targeting for future exports.
On the supply side, Credit Suisse analyses the consequences of the tougher supplier situation, the changes affecting the “Swiss Made” label, as well as the verticalization of distribution. Below we share eight key insights from the comprehensive research.
“ The Swiss watch industry is the leading exporter of watches by value ”
Leading Exporter of Watches by Value
Although the Swiss watch industry accounts for only around 2.5% of global production in terms of unit numbers, it is by far the leading exporter of watches in value terms, with export revenues of more than CHF 20 billion.
Over the last 10 years, its exports have grown at an average annual rate of 7.2%. The 2010-2012 period was particularly impressive, with growth rates in double-digit territory. Although business has slowed markedly in recent quarters, exports remain at record levels by long-term standards.
“ Asian countries were responsible for 70% of the rise in exports between 2000-2012 ”
Past Growth Fuelled by Asia
The Swiss watch industry owes its success to its foresight in actively targeting growth in the emerging markets. By far the biggest contribution to the growth of Swiss watch exports over the past decade has come from Asia.
In overall terms, the Asian countries were responsible for around 70% of the rise in exports during the 2000-2012 period. Of these, Hong Kong and Mainland China provided the biggest fillip to growth. Around 28% of total watch exports went to these two countries in 2012; this compares with a figure of only 14% in 2000.
Future Growth From Next 11
Thanks to rising incomes and growing prosperity, Vietnam, India, Russia, Ukraine, Malaysia, South Korea, and Mexico will offer substantial growth opportunities for the watch industry over the next few years. Brazil, South Africa, and Turkey also offer opportunities.
Whether Swiss watch brands can indeed exploit the potential that is available remains to be seen, however. In specific terms, the high import tariffs and taxes (on luxury items) levied by some countries – such as Brazil and India – constitute significant barriers to market entry.
“ Vietnam, India, Russia, Ukraine, Malaysia, South Korea, & Mexico will offer substantial growth opportunities ”
Important Domestic Retail Market
The domestic market’s importance to the Swiss watch industry is often underestimated. Credit Suisse estimates that the Swiss retail trade sold watches valued at an estimated CHF 2 billion-plus in 2012 (retail prices). That makes Switzerland itself one of the most important markets for the country’s watch industry.
Around one-half to two-thirds of the watches sold in Switzerland are destined for foreign tourists. Tourists – in particular those from China and the Gulf states – were also the primary driving force behind the recent boom in sales for the Swiss retail watch trade.
“ The domestic market’s importance to the Swiss watch industry is often underestimated ”
Vertical Integration To Continue
Given the desire to control the entire value chain – from the tiniest component through the assembly of the watch – brands are buying up suppliers across the board, or are building up their own production capacity. The integration of these production stages is inevitably resulting in concentration within the industry.
One key driver of this development is the Swatch Group’s desire to halt the sale of movement components. The desire for exclusivity and a high degree of independence from suppliers, particularly at times of strong demand, is the driving force behind this trend.
Distribution Going In-House
As with production, distribution is also increasingly being taken in-house by the watch brands. In particular, a growing number of monobrand stores have opened since the end of the 1990s.
However, such a strategy is associated with high costs; this makes it difficult to implement, especially for smaller, less well-known brands that do not have the backing of a group.
The geographical distribution of monobrand boutiques illustrates the current balance in global demand for watches. The highest concentration is found in Asia, the largest export market for Swiss watches.
Over one-third of these boutiques are located in China alone (including Hong Kong and Taiwan). The Arab region (Dubai) and major European cities (Paris, London) also display a high concentration of monobrand boutiques.
“ As with production, distribution is also increasingly being taken in-house by the watch brands ”
Swiss Made
The “Swissness” bill passed in June 2013 requires at least 60% of the cost of manufacturing a “Swiss Made” product to have been incurred in Switzerland. In contrast with the previous industry-specific ordinance, the “Swissness” bill governs not only the watch movement and final inspection but also the production of all watch parts.
The new restrictions are likely to provide additional demand for domestic suppliers, particularly in relation to external watch parts, although supply bottlenecks pose a potential danger.
“ 60% of the cost of manufacturing a “Swiss Made” product has to be incurred in Switzerland ”
Opportunities Outweigh Risks
Credit Suisse rates the medium-term prospects of the Swiss watch industry as positive in overall terms.
The major watch and luxury products groups are noted for their negotiating strength, and are therefore ideally positioned to benefit from the expected, continued growth in demand for luxury goods. Prospects are also very positive indeed for independent, well-established, traditional brands at the luxury end of the market.
However, prospects for some smaller, independent producers – especially in the lower and mid-price categories – look trickier. They are likely to suffer most from the structural challenges. All in all, we expect the concentration process within the Swiss watch industry to continue over the coming years.
The above insights were derived from Credit Suisse’s research: Swiss Watch Industry Prospects and Challenges. To request the full report please visit the following link
To further investigate the luxury timepiece market on Luxury Society, we invite your to explore the related materials as follows:
– Luxury Watchmakers Focus on Sustainability
– The 7 Most Significant Trends at Baselworld 2013
– Luxury Watch Market A Crucial Factor In Swiss-China Trade Talks
Creative Strategist, Digital
Sophie Doran is currently Senior Creative Strategist, Digital at Karla Otto. Prior to this role, she was the Paris-based editor-in-chief of Luxury Society. Prior to joining Luxury Society, Sophie completed her MBA in Melbourne, Australia, with a focus on luxury brand dynamics and leadership, whilst simultaneously working in management roles for several luxury retailers.
