Baselworld 2015

The record-breaking years for Swiss watchmaking. And yet...

While 2013 was called the year that beat all records, 2014 was even more productive. It registered a 1.9% increase in turnover compared to 2013. Despite the good news, there is a crisis looming in the dark.

By Eric Othenin-Girard
Specialised journalist

It’s a fact: Swiss watchmaking had never had higher annual profits. Yet, there is an impending crisis. At Baselworld, we usually find very satisfied watchmakers who seem very glad about the previous year’s success. Some get carried away in their enthusiasm and lie through their teeth by stating that they made a double-digit profit. They even go further to say that they sold 60% or even 80% of their annual production during the fair. And all those unsuspecting souls who are not familiar with the watchmaking world both envy and admire them greatly.

Some even decide to invest in those self-proclaimed thriving watchmaking companies.

This is however quite a surprising practice because the moment foreign capital is invested in a brand, its management needs to become more thorough and those brands practically disappear from the radar. The only time we ever hear of them again is to say that investors backed out for fear of bankruptcy. This explains why some say that putting four independent watchmakers around a table is a game of bluffs.

No crisis yet?

Some will say that this is quite a pessimistic way of seeing things. But whilst it may not be reassuring it is the stark truth. Of course, this imagery does not reflect the watchmaking universe as a whole. Indeed, we need to remember that all watchmaking groups are enlisted on the stock market and must thus publish their global return. This makes it quite difficult for them to cheat.

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As mentioned above, Swiss watchmaking has never fared this well. To set the record straight, we should note that the recession is not only the result of the anticorruption campaign launched by the new Chinese government. Actually, business is not so good in several other markets. Yet, the United States and Japan have registered a 6.2% and 15.2% growth respectively, which incidentally ranks Japan the fourth largest market in the world.

That said, German and French markets are registering losses of over 6% and the Chinese market 3.1%.

This has not yet developed into a full-blown crisis but the drop is irritating so much so as the Swiss market is completely devastated. Even the best, most dynamic points of sale – some of which had a CHF600 million turnover just one year ago – have stopped ordering watches. This applies to all brands, be they at the bottom or at the top of the ladder. Switzerland has suddenly become too expensive for tourists. The Swiss National Bank’s unwise decision to abolish the Euro floor rates increased the Swiss franc’s value and made it equal to the Euro. As it is, there has been a 20% increase in the sale of Swiss products abroad. And yet, even wealthy collectors who could afford to buy any watch at any price anytime are not being spendthrifts. They are being careful and comparing prices. If the same watch costs CHF800,000 in one place and CHF1,000,000 in another, they prefer saving the CHF200,000 and hence buy watches outside Switzerland.

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Chill factor

It is also no secret that those who wished to use their stay in Switzerland to buy a Swiss-Made watch – even at a low price – have given up on the idea. This is quite logical because if rich collectors can afford a 10 to 20% rise in price – depending on where they buy their timepieces – the same cannot be said of people with limited budgets. Even if they dreamed of wearing a Swiss watch on their wrist, they would not have enough money to indulge. Incidentally, the situation does not only apply to the dry-out in watch sales but it also concerns travelling. For instance, where it is traditional for Asian tourists to buy gifts either for themselves or for others on the occasion of Chinese festivities, they hardly bought anything this time round.

Under such circumstances, it is quite understandable that the actors of the Swiss watch market are quite “dampened”. Whilst Switzerland may well be a small market, it is nevertheless an iconic one and if business is rusty, watchmaking tends to stagnate. Consequently, suppliers get less orders and then things spiral out of control –unemployment and job loss ensue and so does all the suffering that comes with it.

Fortunately, at least groups – the Swatch Group in particular – foresaw this situation and prepared themselves for it when business was booming. Thanks to this prudent policy, and despite the hazards of the economy or the stupidity of the Swiss National Bank, the group will be able to keep its somewhat 35,000 employees. And in the present situation it is working out quite well, so much so as they registered a little more than a 6% increase in profits last year. This just goes to show that rigorous and smart management is profitable both in the short and the long run.

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Pictures: Courtesy of Baselworld

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