We Ask The Experts: Is The Coronavirus The New Quartz Crisis For Watchmaking?
Experts weigh in on the current pandemic and its effects on the watch industry. How will COVID-19 shape watchmaking’s future?
The novel coronavirus pandemic is rocking the entire world, with all of humanity put on “hold” as we hunker down in our homes. In this article, we’ll explore how the virus is affecting the Swiss watch industry.
Is the coronavirus’ impact similar to the crisis caused by the introduction of quartz watches? Will it be as devastating to the industry? How are the brands faring right now? And on a personal level, do watches help provide solace for collectors in these uncertain times?
I asked Paul Boutros, Head of Watches and Senior Vice President of Phillips North America, Greg Simonian, President of retailer Westime, and John Reardon, President of Collectability, for their views. Let’s take a look.
The Quartz Catastrophe
The quartz crisis crippled the Swiss watch industry for years. The introduction of inexpensive, battery-operated (quartz) watches from Japan in the late 1960s caused Swiss watch sales to plummet as consumers bought cheaper timepieces. How bad was this crisis?
Paul Boutros: Production of Swiss watches dropped by more than 50 percent from 96 million watches per year down to 45 million from the mid-1970s to the early 1980s. Watch industry employment plummeted from a peak of 90,000 down to 30,000 employees.
John Reardon: The quartz crisis was an iceberg that the watch industry saw approaching for many years. It was not a shocking last-minute surprise but a simmering shift that the [Swiss] watch industry anxiously awaited in the 1960s. By the 1970s, the shift was complete. The brands that adapted survived and those that did not, perished.
The Swiss watch industry ultimately recovered from the crisis. How did the brands rebuild?
Greg Simonian: In order to compete, the various antiquated methods of production had to standardize, and production costs had to drop. Nicolas Hayek [Swatch Group's then CEO and Chairman of the Board] was instrumental in this process. In addition to modernizing production, he launched the Swatch brand of quartz watches, which directly competed with watches from Asia. The mechanical world had to set itself apart from the purely utilitarian world that was dominated by quartz movements. This gave way to complications, independent watchmaking, and appreciation for the art of mechanical watches.
Paul Boutros: Brand leaders, as well as the Swiss banks who backed them, realized that a ground-up restructuring of the industry was needed. Visionaries like Nicolas Hayek and Ernst Thomke, who rescued movement maker ETA, streamlined and consolidated movement makers and brand subsidiaries. At the same time, prestigious brands, such as Patek Philippe, instead of promoting accuracy, marketed their watches as luxury items with unparalleled hand craftsmanship, quality, and eternal longevity.
Same-Same or Different?
Watch brands are facing another crisis brought on by coronavirus. How does the impact of the virus compare to the quartz crisis?
Greg Simonian: I wouldn’t compare the two beyond the fact that they both led to a drop in sales. The quartz crisis was industry-specific. Coronavirus is affecting virtually every aspect of the global economy.
John Reardon: The difference in the present COVID-19 disaster is how suddenly the problem appeared. Literally, within weeks, our reality changed in the watch world. There are no watch shows, no travel, no brick and mortar retail. With the quartz crisis, the 'disaster' was a relatively slow evolution. The changes in the watch world now can only be described as sudden and almost nuclear in scale.
Paul Boutros: In my opinion, the impact caused by disruptions stemming from coronavirus will not be anything like the quartz crisis. No doubt production and sales of new watches will be down for 2020, by a significant percentage, but Swiss mechanical watches remain highly desirable. There will be no fundamental consumer shift away from mechanical watches, as was seen by the introduction of low-cost quartz watches. I view this as a cyclical downturn similar to the impact of the financial crisis on the watch industry in 2008/2009, with a significant uptick to come in 2021 once the virus is behind us.
Staying the Course
How are the brands faring now amid the crisis?
John Reardon: The watch industry has pushed the pause button. To sell existing inventory, the smart move for brands is to allow their retailers to sell online in an authorized capacity. The new normal of retail sales is now a digital experience. I commend the brands that are taking this as an opportunity to educate about their watchmaking and its history using digital and social media. The preservation of this industry all comes down to education, and there is no better time in history than now.
Greg Simonian: Brands that had strong cash flow and minimal inventory prior to this will be OK and may actually gain market share once things normalize. Brands that are short on cash and with heavy inventory may have to liquidate product, which can cause long term damage financially and in terms of brand value.
Paul Boutros: Sales at boutiques around the world have slowed due to closures and stay-at-home mandates. So, clearly, sales for all brands will be down significantly. Fortunately, most of the larger brands, such as Patek Philippe, Rolex, Audemars Piguet, and the conglomerates - LVMH, Swatch Group, and Richemont – are cash-rich and will easily weather the storm. It’s smaller, independent brands without large cash reserves, which are most at risk.
Will Online Sales Save the Day?
Many haute horlogerie brands have balked at selling online. Is this changing during the pandemic?
Greg Simonian: Many brands are allowing retailers to use online platforms at this time. Most say it’s temporary, but we will see.
Paul Boutros: Patek Philippe is permitting its retailers to sell watches online for the very first time. Digital initiatives will continue to be put in place, with online e-commerce allowing the industry to continue to do business.
Comfort in a Storm
We are all looking for solace right now. Can watches heal collectors’ isolation blues?
Paul Boutros: Without any doubt, collecting watches is a welcome escape from the stresses of life. With mandatory at-home time, collectors and enthusiasts are enjoying their collections, learning about watches, and engaging with fellow collectors, probably more now than ever before. It’s certainly the case for me!
John Reardon: Many people turn to their hobbies and passions when things are difficult, as a distraction. The watch community is using social media to connect and inform. Nowhere can this be seen more transparently and publicly than with the numerous Instagram Live interviews we are seeing around the clock. Globally, people are coming together to share their passion and knowledge. Many new voices are now being heard, and the time is being spent to listen.
Greg Simonian: In a crisis, you always find refuge in your passion. If watches are your passion, then, of course, a little retail therapy will help!