BaselWorld 2017: A hard business
Each month the Federation of the Swiss Watch Industry, or the FH, puts out a monthly update on the state of the Swiss watch exports business. These are really quite wonderful reports and feature a decent variety of data that can be used to analyse the state of the industry from at least three different perspectives. Firstly, the data tells you how each of the major export markets themselves have been performing. Secondly, each monthly report tells you how many watches were exported, categorized by material—steel, gold-steel, precious metals. And finally, the report tells you how watches in various price segments have been selling.
For a business that is notoriously secretive this is a godsend for the enterprising journalist. I am sure I have many colleagues in the field of business journalism who wished their sectors had similar agencies that report data in such interesting detail.
Pity, then, that the FH has had nothing but bad news to report for many many months.
To understand the mood that prevailed at BaselWorld this year one only has to look at the headline of the most recent FH monthly report for April 2017: ‘Smaller than expected contraction’.
In other words: Things could be a lot, lot worse.
This year’s Mint BaselWorld special is being prepared at time that are doubly testing.
On the one hand there is the chaos that is taking place in the broader world of high-end watchmaking. All across the world brands are struggling to cope with what seems to be a perfect storm of… what exactly? This confusion was the overwhelming sense one could feel all over the booths and halls and meeting rooms at BaselWorld. Something ails the world of watches. But what?
Demand is down in many world markets. The most recent FH reports suggest that except China and the UK, markets everywhere else, especially in Hong Kong and the US, continue to contract. For the first four months of the year exports are down 3.6%. And that is on a 2016 that was horrendously bad.
Some of the factors chipping away at demand are unsurprising. A crackdown on corruption in China (which deeply impacts Hong Kong), economic uncertainty globally, political instability in Europe and the US all seem to be enervating the market for high-end watches. The growth in the UK market, some experts tell me, are down to the weak Brexit-damned sterling.
Then there is the impact of wearables. Are wearables eating into the sales of ‘conventional’ watches? Regular readers might recall how 2015 was the year that Basel went mad for wearables. You couldn’t walk past three booth without tumbling into a heated discussion on the impending wearables crisis for conventional brands. Has that come to be? This is a fiendish question to answer. There is no doubt that Apple’s watches have been a roaring success. Nobody knows exactly how many watches Apple has sold. But it has sold in the millions. Yet almost every other wearable brand is struggling. Fitbit, Fossil have all seen sales slump. Yet even if you isolate the Apple Watch, there remains the conundrum of how exactly it is hurting the conventional watch market. Is the Apple Watch hitting brands that are in the similar price point? Is it forcing buyers of more pricey brands to trade down for a more functional watch? Or is it convincing buyers of cheaper watches to upgrade to an Apple Watch for the added functionality?
Data over the last twelve months or so seems to suggest a mix of all three. In April the price band that saw the most precipitous fall in sales, according to the FH, were watches in the sub 200 CHF bracket. Is it because buyers in that segment are upgrading to Apples? Who knows.
There is another intriguing possibility: that wearables have conclusively highlighted the functional inadequacy of conventional watches… without actually finding any buyers themselves. In other words what if buyers are looking at a Fitbit or an Apple Watch and thinking ‘Why the hell would I buy an automatic Swiss watch that tells the time, just about, when one of these slick gadgets can do so much more???’... and then they walk out of a store without buying a wearable either. What if, then, Swiss watches are losing marketshare to the idea of wearables?
The second testing aspect of the market is the state of affairs in India. Demonetisation, PAN card requirements and the implementation of the nationwide GST system have all driven retailers into high funk. Watches, this writer was told, flew off shelves in Delhi and Mumbai and elsewhere as brands sought to liquidate stocks before GST kicked in. All of which makes the Indian market one that is in the throes of intense crisis. There was zero ambiguity about one thing in Basel: the Indian market is going to underwhelm for a very long time indeed. It is, in some sense, the full coming around of a circle. Over the last decade observers have seen the Indian market transform from dowdy backwater to great shimmering new hope and back again.
But what does all this mean for the watches themselves? See, this is the funny thing about the watch industry. Crisis forces brands to do things that often result in exceptional watches. As we shall see in the case of Longines, the key trends emerging out of this fair embody themselves in some great watches.
The business maybe in the throes of crisis. But if you have money to spare, there are splendid bargains to be had. As you shall see in these pages.