Watchmakers brace for a slowdown in 2023
GENEVA - Demand for luxury watches is cooling down after the post-Covid boom of 2022, executives said at trade fairs in Geneva this week. Swiss watch exports may continue to rise but the reality is that distributors’ stock is growing and many retailers have become reticent to commit to major orders, they said.
The U.S. market, the biggest for many major watchmakers, is a top concern. Rising interest rates are holding back discretionary spending. U.S. consumers have a culture of revolving credit – they buy with their credit card and pay bills later. Rising interest rates mean that for upper and middle classes, luxury products such as watches, jewelry or handbags have become more expensive. On top of weakness in the U.S. market, demand in China is not recovering as fast as analysts expected and social unrest in France is likely to keep tourists away for the foreseeable future.
Hence, the global picture is far from rosy even though the Federation of the Swiss Watch Industry said last month that watch exports had risen year-on-year by 12.2 percent in February, against 8.6 percent in January.
“Due to rising interest rates, after record growth in 2022, we are experiencing a temporary slowdown in discretionary spending in the United States,” Bulgari CEO Jean-Christophe Babin told Miss Tweed in an interview in Geneva, where the brand presented its latest watch collections. The U.S. is Bulgari’s third-biggest market after China and Japan. “The U.S. remain a territory of opportunity for luxury, but this market is now growing less than others.”
Babin, who just came back from China, said that market was recovering quickly but had not reached 2021 record levels in terms of traffic. With the recent reopening of Hong Kong and Macao, many shoppers have returned. However, traffic in malls and boutiques there and elsewhere in China is around 10 to 20 percent below what it was in 2021, said the executive, who has dual French and Italian nationality.” But if there are fewer visitors, those who come, spend more than two years ago.
“Those people who visit malls come more to spend money than to walk around,” Babin said. “As a result, we make more revenue in 2023 with fewer clients versus 2021.” He pointed to the fact that there were visa emission and flight capacity constraints that prevented Chinese tourists from leaving the country and shopping abroad. He expected them to start traveling overseas again in May or June.
Overall, after a record year in 2022, Babin said he expected Bulgari to enjoy solid growth this year, helped in part by local clients in Europe or Japan with which the brand has built strong relations in recent years. Another growth market is Saudi Arabia, which executives say is becoming the new Dubai of the Middle East in terms of the gravity center for luxury sales. Many luxury brands, including Bulgari, have created a subsidiary and are opening boutiques there.
Bertrand Savary, CEO of the Arnold & Son and Angelus watch brands, part of the Japanese group Citizen, said Saudi Arabia was one of his top priorities in terms of investment. “The population in Saudi Arabia is young and affluent,” Savary said on the fringes of the Watches & Wonders fair in Geneva. “The country is opening up and allowing joint ventures with foreign companies and offering attractive conditions for investors.”
Savary said he also planned to work on the European market and develop relationships with retailers and local customers. China is also on his top list of priorities in terms of market expansion. However, he said was concerned about the current social unrest in France. “When people see on television that Paris is burning, this frightens tourists,” he said. Savary also shared Babin’s worries about the U.S. market. “For me, there is a lot of concern about how the U.S. market is going to behave in the next few months,” he said. Like him, he predicted that China would not recover fully for a while. Taking all these factors into account, Savary said he planned to increase production this year by 20 percent against 45 percent last year. “We are going to be prudent this year in terms of production.”
Julien Tornare, CEO of Zenith which is part of LVMH like Bulgari, is one of many executives who say the post-Covid euphoria is fizzling out. “I think we are going to come back to a phase of normality after the post-Covid boom,” Tornare told Miss Tweed. But for Zenith, Tornare was quite optimistic about its growth prospects for 2023 after having enjoyed buoyant trading in the past three years. “We continue to enjoy strong growth. We don’t see any negative indicators at this time. Order books are full. Globally, we are not particularly exposed to any major turbulences.” Regarding the ongoing turmoil in France that could scare off tourists, he said: “In Europe, we have learned how to do business without tourists. So, even if there are fewer tourists this year, it’s not that bad.”
DIFFICULT YEAR AHEAD
Wholesalers are bracing themselves for a more difficult year. “There has been a paradigm change,” explained Maximilian Busser, CEO of MB&F, an independent watch brand that has won many prizes for its creativity and innovation. “Retailers are being much more cautious than last year. “Many big distributors told me that their total inventory had doubled since the beginning of the year. They are bracing themselves for a sharp slowdown,” Busser said.
However, there was some good news. If customers were frustrated when they couldn’t buy the watch they wantedlast year, replenished stocks this year mean they should now be able to buy the watch of their dreams. If last year, they bought whatever time pieces were available, this year they are likely to prefer to wait to get the model they want, he said. “On brands that have big volumes, customers are going to be able to leave the boutique with a watch,” Busser said. “But customers are no longer ready to buy whichever watch is available. They want the watch for which they came.”
Busser said MB&F was increasingly approached by distributors keen to sell the brand’s watches. However, since production is limited, he preferred to stick with those distributors that believed in MB&F from the beginning. This year, Busser said he expected to produce 420 watches against 345 in 2022. Demand for his brand is so strong that distributors have waiting lists of many years, he said.
SECOND HAND
The price of watches on the second-hand market dictates a brand’s desirability. One of the main worries for watch buyers is that the price of very popular models for hot brands such as Rolex, Patek Philippe and Audemars Piguet has been steadily falling since last year. The good news is that those who bought watches to speculate on their value in the second-hand market and were behind last year’s bubble are progressively disappearing from the market, industry players said.
Arjen Van De Vall, CEO of Richemont’s second-hand retailer Watchfinder, said it was difficult to predict what was going to happen in terms of price trends in second-hand time pieces. “If we talk purely about watches for which there was a lot of speculation, there is a risk that there could be a further decline in prices. But there could also be a further spike,” Van De Vall told Miss Tweed on the fringes of the Watches & Wonders trade fair.
“What we are seeing in the last few weeks is that collectors are getting back into the market,” he said. “Many people are still testing the waters. We see a lot more interest than six months ago for very high-end pieces, watches costing more than €30,000 on the second-hand market,” he noted. “What we see now is that there is more availability of pieces that were more difficult to secure six to nine months ago. Many flippers have left the market. Some of them made a lot of money but some of them also got burned,” he explained.
WHOLESALERS
In the past few years, many major watch groups and brands have cut down the number of wholesalers they work with. They prefer selling their products in their own boutiques. This allows them to control image, prices and stock. Also, they pocket the margin they were previously giving wholesalers.
Audemars Piguet, one of the market’s most popular brands, has been reducing its network of wholesalers for more than a decade and mainly relies on its own network of monobrand boutique. Same for Richard Mille. Patek Philippe, which for decades relied solely on third-party distributors, announced that it would cut the number of authorized dealers by 30 percent. This means that Patek Philippe is going to open boutiques. Rival Richemont, owner of Cartier, Van Cleef & Arpels and several watch brands, is also downsizing its network of wholesalers. In Paris, the Swiss group Bucherer, one the city’s most important watch retailers, closed down the accounts of several of its brands including Panerai, IWC and Jaeger-LeCoultre. Last year, Bucherer had already stopped selling Richemont’s Vacheron Constantin and Lange & Söhne.
One senior source close to Bucherer in Paris said the retailer told Richemont recently: “You cannot pick and choose like in a menu. Either Bucherer in Paris works with all of Richemont’s brands or Richemont takes all of its brands back.” The senior source added: “The idea was to send a warning to Richemont that they cannot behave like that. It is a matter of principle. You cannot say I am going to open boutiques for those brands that are doing well and I leave you those brands that are not doing particularly well.”
As wholesalers lose business with big brands, they are on the lookout for new names and concepts. Some independent brands that were struggling to find distributors one or two years ago say it has become much easier to find retail partners. “If three years ago, many watch dealers would tell us that they are not taking on any new brands, today they have become much more forthcoming,” Robert Punkenhofer, CEO of the minimalist Viennese watch brand Carl Suchy & Söhne founded in 2018. One of its investors is Peter Brabeck-Letmathe, the former chairman and CEO of Nestlé. Today, the brand works with 10 retailers including Chrono Passion in Paris.
Former banker François Moreau is the founder of Reservoir, a watch brand launched in 2017 that features both a retrograde minute hand and jumping hour indicator. It looks like an RPM gauge or speedometer, and is coupled with a power reserve function that indicates how much autonomy the automatic time pieces have. Many Reservoir watches are inspired by vintage cars’ dashboards like that ofPorsche 356 Speedster from the 1950s. Some also feature cartoons like Popeye. “Yes, it’s true that it has become easier to find distributors but they are mainly interested in brands that stand out from others,” Moreau told Miss Tweed.
Reservoir, alongside 50 other brands, took part in the Time to Watches fair at Geneva’s HEAD fashion and design school. It ran in parallel to the Watches & Wonders fair at Palexpo out near the city’s airport. Miss Tweed was not given access to the Watches & Wonders fair, even though it had received an email that confirmed it was registered. The organizers of the fair did not give any warning about the fact that the media was no longer accredited. The explanation, provided by the brands that had invited Miss Tweed to the fair, was that Richemont had blacklisted the Paris-based media. The same thing happened in 2022. Plus ça change, plus c’est la même chose.
