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Wound upSwiss watchmakers try to keep pace

Sales at the biggest manufacturer, Swatch, nearly halved in 2016

Mar 30th 2017

| LA CHAUX-DE-FONDS

BASELWORLD, a giant watch fair that ended this week, usually runs like

clockwork. Companies show off new products; buzz and higher sales follow.

However, something seems to have jammed. Exports of Swiss watches sank by a

tenth in 2016, the worst performance since the financial crisis. Swatch, the

world s biggest watch company, saw profits plunge by 47%. In February exports

were 10% lower than they had been a year earlier.

Swiss watchmakers have been around for long enough not to panic: Blancpain,

owned by Swatch, dates back to 1735; Vacheron Constantin, owned by Richemont, a

Swiss luxury conglomerate and Swatch s closest rival, was founded 20 years

later. In La Chaux-de-Fonds, a watch-manufacturing hub, workers toil much as

they always have, at chin-high desks, using slim instruments to assemble

springs, wheels, jewels and other tiny parts. But swings in demand have of late

been particularly extreme.

The period from around 2004 to 2012 saw high growth. Chinese shoppers accounted

for about half of Swiss watch sales during that time, reckons Thomas Chauvet of

Citi, a bank. Manufacturers introduced pricier products and raised the cost of

existing ones. The financial crisis was a blip. Chinese demand for watches, as

for handbags and fashion, has since waned. Nor has it helped that many

companies were slow to adjust to a changing market, continuing to push products

onto fragmented wholesalers around the world that had little power to resist

big brands terms.

The immediate question is whether this source of demand will recover. The fact

that exports to mainland China have recently risen slightly may simply reflect

the fact that fewer Chinese are buying watches in Europe, due to higher import

duties and fears of terrorism. Sales in Hong Kong, the industry s most

important market, remain depressed.

In the longer term, the worry in the industry concerns the young. Apple now

claims to be the world s second-largest watch brand, after Rolex. Will they

consider the watch as a possible status symbol or as an information-tool or as

a design product? asks Jean-Claude Biver, who runs the watch business at LVMH,

a luxury-goods conglomerate. Who knows?

Watchmakers are ill-suited to a generation with fickle tastes. They are often

slow to recognise changes in demand; many firms are only now starting to track

which models sell to which consumers, where. Even for watchmakers with better

data, the meticulous nature of making and assembling components means they will

find it hard to build a flexible supply chain.

Firms responses to the challenges have varied. Swatch is mostly carrying on as

usual. As for Richemont, last year it bought back older inventory from the

stores it distributes to in order to clear shelf space for new models. As part

of an organisational change, from March 31st onwards the bosses of individual

watch brands will report directly to Richemont s chairman, Johann Rupert, which

the firm believes will make it nimbler.

At LVMH, Mr Biver is also trying hard to hook millennials: about two-fifths of

advertisements, he says, are directed at those who cannot yet afford his firm s

watches. Last year its TAG Heuer brand introduced a connected watch developed

with Google and Intel, which sold well. Other brands seem set to follow its

lead: in May Richemont s Montblanc will start selling a smartwatch with a

heart-rate sensor and a built-in microphone, among other features. But the

smartwatch category itself is far from established. In trendsetting Silicon

Valley and elsewhere, the status timepiece of choice is often a smartphone.

This article appeared in the Business section of the print edition under the

headline "Wound up"