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Opportunities For Improvement In The Luxury Watch Industry In 2017

Looking at the company’s past trends, Swatch’s cash conversion cycle is at a 10-year high. This has almost doubled since 2013 indicating a very large growth in inventories, a major driver of the cash conversion cycle. As of the 2015 annual report, most of the inventory growth was the result of increases in finished watches and spare parts for service.

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(Source: Swatch 2015 Annual Report)

The watch industry is unique; however, decreasing the Swatch cash conversion cycle back to previous ranges (and closer to standards of other industry comparables such as Tiffany, Richemont, or LVMH) would improve profitability. Reducing the cycle requires improving inventory turnover and potentially improving some of the other metrics that are signaling a tightening financial belt. Swatch’s biggest lever to pull to improve the cash conversion cycle is decreasing inventories.

Inventory practices need to change

Complex outside economic factors are the cause of decreased sales — that cannot be discounted. The slumping sales figures are the effect, and inventory & cost management can either dampen or amplify the outcome. Growing inventories and high fixed costs act as an amplifier.

The long cash conversion cycle is the result of large inventories. Some of the luxury watch companies carry very large inventories compared to other industries. This creates a problem during times of declining sales. I will walk you through the problem this creates:

1) Long Forecasting models. One top industry executive I spoke with told me that his and many companies forecast their production schedule 2-3 years out. This is a very traditional model of production scheduling but results in factories either over- or under-producing, leading to large inventory holdings or shortages. Watch companies build large inventories as insurance against shortages. However, large inventories also cost a lot of money to build and maintain. 

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Some of the luxury watch companies have had massive declines in net income during 2016 due to “excess capacity” in their factories (i.e. too much equipment, too many employees, too little demand for watches). 63% of Swiss watch executives surveyed by Deloitte in 2016 think that production capacities are “far too high” (up from 21% in 2015). In a Financial Times article from November 2016, the CEO of Richemont group said: “We’re just going to have to slim down, and not just in production but throughout the whole Group. I don’t have to tell any of my colleagues about the urgency.”


2) Which leads to growing inventories in times of slumping sales… Based on the last annual report, Swatch Group has relatively high levels of inventory. Analyst estimates range from 300 days to the (about) 1,200 days of inventory reported on Morningstar,  depending on cost-basis method used.  Regardless of the method, inventories are significantly higher than competitors and are trending towards 50% of the company’s assets, up from 40% six years ago.  Days of Inventory Outstanding is a metric related to the Cash Conversion Cycle that is used to measure the efficiency of a business.

In the case of Swatch’s large inventories, their June 2016 letter to shareholders says they are growing inventories (note: to their highest levels in 10 years) due to their belief in growing demand in 2017. As of the 2015 annual report, 89% of inventory consists of Goods in Progress, Semi-Finished Goods, and Finished Goods; only 5.6% is due to raw materials.  

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Excerpt from the Swatch 2016 semi-annual letter to shareholders

Opportunities For Improvement In The Luxury Watch Industry In 2017 Featured Articles

I reached out to Swatch Investor Relations for further insight on their forecast of increased demand in 2017 given the current declining sales environment. They responded by saying: 

Inventories growth was in line with acquisitions and the retail expansion. With the very low verticalization inventory is key in the production process, i.e. no parts in the pipeline, nothing can be produced, therefore inventory is also kept for safety reasons. A lack of parts (bottleneck with certain parts) would be a disaster => still fixed costs no turnover. The stock is seen as an “investment,” firstly, because it is profitable…creating a positive margin with the sale of the products and because the own stock is more secure than money in some banks (especially as CHF cash is a burden with negative interest rates). 

In other words, Swatch views the large inventory as an investment to aid in growth and a protection against negative interest rates given their recent acquisitions and plans for growth. Given current market conditions, it is not clear where the increased demand in 2017 is forecasted. Regardless, inventory is growing at a rate that outpaces current sales growth, weighing down the asset side of the balance sheet. This is the source of the long cash conversion cycle.

For Swatch’s competitor Richemont Group (which includes Cartier and Montblanc), inventories were large enough that the Group spent €249M in 2016 buying back excess inventory from retailers (and in some cases destroying it). Swatch and Richemont are responding to inventory management in very different ways. 

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3) Slowing sales & growing inventories lead to decreased financial returns. Complex economic factors are the cause of decreased sales — that cannot be discounted. The slumping sales figures are the effect, and inventory & cost management can either dampen or amplify the outcome. Growing inventories and high fixed costs act as an amplifier.

As a result of sluggish sales figures and growing inventories, profit margins are shrinking. Swatch’s net income is down 52% from 2015, and its annualized Return on Equity (another measure of business efficiency that measures how effective a company is at generating returns for shareholders) is down from 10% in 2015 to 4.8% as of the June 2016 letter to shareholders (reporting for comparable periods). Richemont reported a 43% decrease in operating profits in the six-month period ending in September 2016. Earnings per share are down 50% from a year ago for both companies. While sales are down only about 11%, profits and returns take much harder hits due to high fixed costs. 

Without changing the current production forecasting systems, reducing inventory holding periods, quickening cash conversion cycles, and reacting quickly to changing demand signals, the luxury watch industry will continue to face increasing financial pressure. This further builds the case that at least some companies, if not all of the industry could benefit from new production forecasting systems, allowing them to maintain less inventory and employ capital through quicker inventory turnover. Continuing large inventory holdings will weigh down the industry and potentially result in large future losses due to inventory write-downs or buy-backs.

Swiss Made: Continue to fortify what it means

The industry should continue to fortify what it means to be “Swiss Made,” continuing to push for more stringent requirements of manufacturers. The Swiss are increasing this requirement in 2017 by 10%, but there is still more to be done to fortify the brand equity.

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To call something “Made in America,” the rules require that “all or virtually all” components be made in America and “all significant parts and processing that go into the product must be of U.S. origin.” In Switzerland, this standard is currently 50%, increasing to 60% in 2017. Surprisingly, the global watch industry has a historic tradition of manufacturing pieces and parts in other countries with cheaper manufacturing costs. Most notably, when English watches were in vogue in the 1700’s, they frequently had the Swiss produce substitutes and stamped them with “Made in London”.

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Many of the mid-tier and above Swiss companies already exceed the 50% standard. For example affordable luxury category  Raymond Weil, which manufactures watches $1,000-$3,000 USD, exceeds the 60% standard. But few price points make 100% of their components in Switzerland (in fairness, few or no American companies indisputably make 100% of their parts in America either). Luxury watch companies have been trying to improve this by making more of their parts and movements in Switzerland and moving towards “in-house” movements made by the individual companies (known as vertical integration). However, many of the affordable category luxury watches you buy have at least some components made elsewhere. For many affordable or lower category Swiss Made watches, you are paying for 40-50% of parts made outside of Switzerland and the rest of the parts made by a machine in Switzerland, and finally, assembled by a technician in Switzerland.

The new law has been lauded by most industry executives and collectors alike. The Swiss improvements to the “made in” standard will continue to improve quality and fortify the luxury-end of the industry. Yet today, even educated watch enthusiasts don’t know whether most brands are a 100% standard.  Companies that are manufacturing their watches 100% in Switzerland should publicly advertise this to consumers and make their own 100% label known  (it is the standard in many countries for most products). In a 2016 article on the Swiss standard, Jack Forster wrote “Even in Switzerland, there are those who say the Swiss Made label has been so badly abused that it’s meaningless to consumers.” Ariel Adams has suggested the meaning has eroded to minimal importance to mainstream consumers. I have spoken to Swiss watch company executives who certify their watches are 100% made in Switzerland. If a company is going to the effort and cost to meet a 100% standard, this should become a point of differentiation they benefit from regardless of which price category they are in. The consumer is already willing to pay more for Swiss Made, driving companies to produce 100% in Switzerland, yet consumers don’t know who is and who isn’t. This needs to be advertised and hallmarked. Jack Wagner wrote an argument suggesting similar is needed — I agree.

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Consumers’ demands to know sourcing has worked in several other industries and led to positive changes in manufacturing or production (though it has been misused too). Most consumers aren’t willing to pay a premium for knowing the source, but the niche few who buy expensive luxury watches are looking for transparency. “100% Swiss Manufactured and Made” is an unambiguous statement and leaves little room for what is actually implied.

Opportunities For Improvement In The Luxury Watch Industry In 2017 Featured Articles

Changes should be made to online marketing 

The luxury industry has only recently embraced online presence through e-commerce and social media forums such as Instagram, Facebook, Twitter, etc. There were some early ventures into social media presence including Raymond Weil’s  2007 participation in Second Life, an alter-reality video game popular between 2007-2010. However, most companies looked on from the sidelines. In 2016, most of the luxury watch companies now have a presence online, but many still have a long way to go. Business intelligence firm L2 Inc’s 2016 report on e-commerce states that “gray marketers like Jomashop have built successful online businesses with aggressive digital marketing tactics selling brands’ products online—in order to take back e-commerce share, brands must scale digital investments in personalization, targeting, and search optimization in order to compete.

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Cartier has a very strong online presence

L2 Inc analyzes online presence and currently ranks Tiffany & Co. and Cartier as having the strongest ‘Digital IQ’. Rolex, IWC, and Jaeger LeCoultre perform well. Meanwhile, many of the brands that watch collectors love (Patek Philippe, A. Lange & Sohne, Vacheron Constantin, Audemars Piguet, Breguet) are much lower on the list, categorized as either “challenged” or “feeble.” Digital IQ comprises much more than social media presence. It also includes their website features & usability, e-commerce (which many companies still refuse to do), online customer service, and other e-metrics. Industry executives report that “social media is the most important element of their marketing strategy, followed by internet blogs.” Overall, this points to an industry ‘catching up’ on social media in order to stay relevant with younger customers and increase awareness among a generation that increasingly learns from social media and wants to do as much as possible through the internet.

Opportunities For Improvement In The Luxury Watch Industry In 2017 Featured Articles

L2 Inc’s 2015 Watch and Jewelry Digital IQ tool showing the Watch Industry digital averages (— line) and Rolex (green line) shown for comparison (source:

Many people will firmly disagree with my perspective on using more social media. The opinion over whether ultra-luxury brands need strong online presence is mixed; some view that it would ultimately harm the brand image. Others argue that lack of online presence will make the brands unknown and therefore not aspirational as 20 and 30 somethings grow older. For the first time ever, Swiss watch executives said they no longer consider social media as the biggest reputational risk. Every industry CEO and executive I have spoken to acknowledge this as a challenge. Because the industry has refused to publish prices online or sell online (until recently and only for a few companies), it has given rise to gray market sales such as Jomashop, which watch industry executives now view as the top threat to brand reputation and the industry (according to the 2016 Deloitte Industry report).

Social media is not going away and sales continue to move closer to the internet (whether the industry or enthusiasts like it or not). Overall, how well the industry embraces the internet in the future will determine the survival of many brands.

First, Companies must be willing to publish prices, figure out how to use direct online sales, and engage with millennials to ensure watches remain aspirational products. Financial services firms and consultancies also agree with varying degrees on the online pricing and sales strategy. Deloitte concludes: “companies should continue to focus on social media and bloggers to attract Generation Y and therefore potential future customers. However, it is also essential to have a marketing strategy that consists of different elements including print media as well as radio and television channels to broaden the audience of target customers.”

Opportunities For Improvement In The Luxury Watch Industry In 2017 Featured Articles

Perhaps the most successful watch ad / image campaign: Omega Speedmaster Moon Watch (Source: Omega)

Second, there is evidence to suggest that brand ambassadors actually have little effect. As such, Baume & Mercier has abandoned paid brand ambassadors entirely (this does not include unpaid ‘friends of the brand’). An L2 Inc study on celebrities endorsing products on Instagram found that only the top 10-20 endorsing celebrities actually had a meaningful effect on Instagram engagement for a brand (Justin Beiber being the top influencer). After the top 10-20, the rest had very little influence. This data was presented recently at L2 Inc’s Fall 2016 Consumer Behavior conference. 



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  • Sheez Gagoo


  • Erik

    I was expecting a little more analysis from someone from Harvard. As a fellow MBA student I was not impressed. 2/3 of this article was historical stats and references. Start with an executive summary and dive deep into a couple key opportunities. Too much skipping around.

    • Aaron (Author)

      @disqus_atJnkeSx7D:disqus thanks for the feedback.

      • Raymond Wilkie

        You forgot the bit about where to stick it.

    • Benjamin Fuson

      For one, this isn’t a business school project, it’s an opinion article on the industry aimed at consumers of watches. Also, without looking at historical stats and references what are you basing your opinions on and comparing current trends to?
      Overall Erik, great and insightful post to discuss the topic on hand.

      • Watching Time

        Oh come on, facts and research are no fun…they get in the way of unsubstantiated opinions! You only have to read a few comments on this article to figure that out.

    • Watching Time

      I have to admit, this comment is not helpful at all. Article content is the choice of the author and well researched articles are generally 60-75% citations. If you have a website we can read some of your work at, we’d love to check it out. Please post it.

  • SuperStrapper

    Are those common ratios used in the watch industry? Are more straightforward ones, like acid tests, not used because they would just make a watch brand look like shit? Considering that any bullion they have would make for an excellent quick asset, but the actual watches they are made from would not be. And I assume they all run fairly heavily in liabilities. I would also think that an asset turnover ratio (or almost any asset management ratio) would be a good indication, as rady-for-sale watches would be the bulk, if not the entirely of a brand’s inventory. Understanding that the TAGs and Omega’s of those world also sell other crap that is not watches.

    • Aaron (Author)

      @SuperStrapper:disqus great questions. Overall, these are just a few of many ratios. The Inventory Turnover is about .3 and Asset turnover is about .65 (which reflect the high DIO). The Quick (Acid) Ratio is a good measure of financial health because it measures ability to liquidate quickly (<90 days). Sitting at about 1.5 its at a 10-year low, but still within comps. This is mostly due to low current liabilities (~12% of assets). Therefore its not a financial health issue as much as an inventory and efficiency issue, but is impacting ROE as mentioned (fewer dollars at work). I think you are correct that most of the value is stored in finished and in-progress goods which limits the ability to quickly turn inventory into cash without flooding the market.

  • srs144

    Aaron, looks like from my googling, you were a Capt. in the army. Thank you for your service.

  • Marius

    I’m sorry to say this, but this is a rather simplistic — in some places even ridiculous — analysis.

    Firstly, the author goes on a lot of tangents that aren’t very useful, such as providing a historical perspective of the watch industry, or talking about the Swiss Made label, or discussing the aspect of smart watches.

    Secondly, the author very nicely explains how the large quantity of unsold inventory is a big issue for watch brands. However, the solution proposed is extremely simplistic: “This further builds the case that at least some companies, if not all of the industry could benefit from new production forecasting systems.” Okay, but how to you develop, apply, and implement such a system? And even if you use an improved forecasting system, how will it help the brand sell more watches? If prices continue to be as high as they are today, even a forecasting system made by Saint Peter himself won’t help sell more watches.

    Thirdly, the solutions proposed to overcome this crisis are mostly platitudes. E-commerce is a decent idea, but the problem is that extremely few people would buy an expensive watch online vs. from a luxurious boutique/AD — especially considering that the brands` online stores charge EXACTLY THE SAME prices as the ADs and boutiques, not to mention grey market dealers.

    Focusing more on social media might provide some benefits, but I doubt that it can seriously boost sales. This analysis talks a lot about how pictures should be taken and presented on Instagram, but doesn’t provide data proving that a strong social media presence can actually generate increased sales.

    Lastly, where are the opportunities mentioned in the title? The only opportunity listed by the author is the export to “emerging markets.” So where are these emerging markets? The author gives the example of Asia and the Middle East, but one can hardly describe these markets as emerging. Besides this suggestion, I can see no other opportunity identified by the author.

    • Raymond Wilkie

      The author being Aaron.

    • Sheez Gagoo

      You’re absolutely right. But I was happy to read at least a little about industry news. I can see two emerging markets: The most important is Iran and the second Burma.But in fact there is not a big difference between this article and a Proseminararbeit (no idea what the English word is) I wrote years ago. And it wasn’t my best work.

      • Raymond Wilkie

        the word ( a Noun ) means : Education.
        A course conducted in the manner of a seminar for graduate students but often open to advanced undergraduates.

    • Ariel Adams

      People who are accustomed to shopping online for some reason do not appreciate the volume of people buying very high-end watches online. Just because some traditionalists aren’t comfortable with big ticket item e-commerce, doesn’t mean it isn’t popular and growing.

      • Marius

        There is a big difference between e-commerce and online gray market dealers. The people who are buying expensive watches online, are acquiring them from gray market dealers, not from the official online store of that brand.

        For instance, JLC and Piaget have online stores, but they are charging full MSRP. What incentive would I have to buy from them? Exactly zero. In fact, buying from an AD would make much more sense as I could at least negociate a discount. If I wanted to buy a JLC online, I would go to Jomashop, or any other gray market dealer, and get a discount of at least 25%. I would have no reason whatsoever to buy my watch from the official JLC online store.

    • Aaron (Author)

      @disqus_sIZFPdTyFw:disqus here is some more information on some of the questions you asked about social media and e-commerce.

      Use of Social Media – The 2016 Deloitte Watch Industry study found that “social media and bloggers have the greatest influence on young people’s [18-29] watch buying decisions in all countries except China.” (see attached Figure 23 from Deloitte report). That’s why social media is critical for gaining sales from the generation entering the prime buying age.

      Value of Instagram – A study of luxury company Burberry found that user generated content campaigns on Instagram boosted sales conversions by 5-7% and average order value by 2%. Link to the Forbes article entitled “Instagram Is Shaping Up To Be The World’s Most Powerful Selling Tool” is below (screenshot excerpt from the article of the highlight).

      e-Commerce – whether people acknowledge it or not, watch sales online are growing extremely quickly. L2 Inc’s 2015 report states “The longstanding misconception among luxury brand teams that e-commerce is incompatible with luxury is quickly eroding.” The Deloitte 2016 Watch Industry study found US, Switzerland, and Germany buyers are most likely to buy their next watch online. Buyers in Italy and China rated it as their second-preferred method (see figure 20 below from Deloitte report). I’ve added the link to the Deloitte report if you are interested.

      I hope this helps provide a little more information.

      Forbes Article:

      Deloitte Report:

    • Erik

      I’m glad someone else thought this article was simplistic and that the tangents didn’t add any value. Why are we the only two to make this comment? I’m guessing people are easily impressed by lots of charts.

    • cluedog12

      This article is politically correct. To expect otherwise is to court disappointment.

      Agree that the beginning and end are not great, but sometimes you have to focus on your expertise (in-training) and leave the speculating to the comments section.

      Did the growing profits from 2010 to 2015 justify the feeding frenzy? If Swatch had not flooded the market with overpriced watches, would their profitability to-date be higher or lower?

      Will Swatch reap benefits from keeping their workforce mostly intact this year? When the global economy hits a real recession, will Richemont take Swatch to the cleaners?

      If you appreciate ABTW’s in-depth coverage of Swatch and Richemont watches, these are the sorts of questions that you cannot expect to have answered here.

  • GhostlyProduct

    Thanks for the analytical approach and the sheer depth of information you provided in your research. I think sometimes we forget that certain external factors play a large role in respect to fluctuations in the market. I would have liked to see your thoughts on changing consumer tastes and the shrinking of the traditional watch consumer and how these might also be a factor in the downtrend in sales.

    • Aaron (Author)

      @ghostlyproduct:disqus thanks for your comments. Hammering down changes to consumer tastes is difficult. We know from FH sales data that steel watches are selling better than most (see WSJ article from 09 Dec at bottom of post), which the WSJ suggests is largely a function of price. We also know that the smartwatch hasn’t really been the wearable people hoped for (though no doubt something in the future will come along). We know tastes are changing, but these two areas will be important trends to follow to see if the steel/price trend continues and also continuing to observe wearable tech sales.


      • Sheez Gagoo
      • Sheez Gagoo

        I hope I can enlight a little bit the current consumer behaviour:
        1. Status symbols are out. The current generation doesn`t show of wealth by luxury items like expensive cars and watches. They show of with hobbies,voyages and events and not expensive stuff that you wear or drive.
        2.Due to this fact, watch industry (and luxury in general) has to concentrate on craftmanship and communicate the value of their stuff through craftmanship going in the product. That means:
        3. Communication through social media (as you mentioned) has to concentrate on craftmanship and not brand ambassadors (hookers).
        4.When you communicate craftmanship, you have to provide value. Time is over, delivering a mediocre product with an inappropriate price. Blogs like this deliver information.
        5. People and also younger generation like good, authentic products for a reasonable price.
        6.Quantitative research is fine, but in this case you need some qualitative research first.
        7. The change in consumer behaviour is the biggest problem. For the entire luxury industry. Huge stocks and overproduction are just a symptom of different consumer behaviour.
        8.There`s still a demand for high quality, mechanical timepieces. Switzerland is unable to satisfy it. Why? Because of te change of cosuer behaviour, why do watch brands like Nomos and Junghans still have two digit growth and most of the Swiss brands are deep in the red? Because “ze Germans” adapted to this new consumer behaviour. Modern design, very good and authentic product and a kind of Berlin-Mitte hipster flair. Like Seven-Friday (Don`t like the brand, but they do a lot of things right)
        9. Another reason why consumer behaviour is important: The older generations that bought expensive watches (baby boomers) grow old. In most markets younger generation is the majority.

        I really appreciate your article, I share the same critical points, like others here. Your article is a fine try, but it lacks a little bit, like we say where I`from, meat on the bone. It`s comparable to a chicken wing. Don`t get me wrong, it reminds me a little bit of this coloring books: Nice frame, but finally some one else had to do the major work. But at least this books are fun and I tried to paint as good as I can.

  • mandimemike

    I wonder if it’s also not coincidental, the increased interest and sales volume of vintage watches. Many of these dealers effectively leverage social media exposure much better than the establishment. It also seems that German made watches are capturing much of the market. Though some being owned by Swiss luxury groups, are they tracked as Swiss exports since they aren’t Swiss made? Incidentally, I had to wait a few months for my GO to be made last year, apparently back ordered. My only other purchase last year was my first vintage piece.

  • Greg Kurdys

    I am not a high end watch user so my perspective is more about the business model. I would agree that failure to address the inventory/cash flow issue is a recipe for certain demise if there is any significant volume remaining. I see the watch industry as moving toward a boutique model with two main categories: 1) consumers looking for a piece of jewelry that has a basic timekeeping function, and 2) consumers looking for durable precision with some unique functionality (such as for pilots). To that end it may survive much as custom gun makers survive. They cater to a unique clientele with money to spend. As for social media it is just difficult to say where that is going. We have a billionaire President-elect that is a Twitter fiend, but I think the marketing of high end watches would need to target a very small consumer base – unlike politics.

  • Yes. Publish prices on line. In any industry, not having a price on a website makes me almost instantly click away. Pisses me off, actually.
    I’m there in the first place because I’m interested in buying your product. Don’t make it harder for me to do.

  • Yojimbo

    “This means the industry reported one of its steepest declines in 2016
    during a month both the industry and analysts expected a turnaround.”

    Sorry to play to my typecast here but ummmm bullshit bullshit bullshit. Late June early July this year saw Swatch’s Hayek being absolutely shit smeared in the press by investors for unrealistic projections for 2016 and the Swiss industry as a whole was told to brace for the bottom falling out this year by industry analysts. So who are the analysts you’re talking about?

  • Benjamin Fuson

    Thanks for the article. I think the “simplicity” that some are talking about is very pertinent as it relates to the decline in sales in the luxury watch market. Decreasing sales and increasing inventory are a problem, in part, due to a lack of much of the industry failing to be aware of how younger buyers shop. Increasing social media presence and increased UGC are what I see as the first steps in targeting a new generation of watch enthusiasts. From my experience, younger buyers are very big on social proof, this is a step in that direction beyond tradition means of advertising.
    Do you have any further thoughts on bringing in new watch buyers beyond what you presented in your article?

  • Grumpy Cat

    The Swiss can solve this problem by doing just one thing; although they won’t like it. Drop the prices! I won’t buy any Swiss watches until this correction takes place.

    • Raymond Wilkie

      Hell will freeze over first.


    not that hard really, younger folks and I am including myself in the lot (even though I am not per say young) shop online. they want easy access and competitive prices. How many of us have walked into a store looked at something you liked and while in that store checked the web for a better price…….I am guilty of that. So yeah be competitive price wise especially when gray market prices can be had for 75% less than msrp. In this fast pace world and if you work like I do (meaning like a dog) the last thing I want to do is go haggle for 20% off at some brick mortar store on my precious week ends. So while I appreciate old school stores where folks may or may not know their sh*t at the same time what I care about is a/ do I like the look of the watch and b/ can I afford it and c/ how do I get the best price.
    when I see steel 3 handers no date no thrills for 5K then yeah no wonder the boat is going in the wrong direction……

  • pinkdela

    look at BM clifton PC, a nice watch, could be a hit if priced better, but BM, thinks they need to cash out and do it in gold, 20k+ msrp. People in this segment wont buy BM because the brand does not communicate the level of luxury at this price point, meaning this watch wont sell well.
    The volume of watches needs to decrease, communicating prices and offering decent discounts to loyal customers should be acceptable. Finally, a recommendation for you, if your name is not VC, PP, Rolex or ALS: use steel (charge for steel) gold, platinum and exotic materials should be only for those who can really afford it. How many times i liked a watch, but it’s a precious metal case only? Sad it’s only a strategy to “justify” a (sic) “whaaat tag”.

    • Richard Baptist

      totally agree with you BM perpetual calendar should have been cased in steel at a realistic price. These watch executives don’t live in the real world. They have to make their pieces accessible to entice the younger generation. Only JCB gets it.

  • I find it hilarious (or delusional) that any Swiss watch brands would think that in the face of declining demand that “stocking up” on unsold watches as an asset to weather them through the storm is a belief that it’s just winter and spring is around the corner. When in fact they may be stocking up on pet rocks or 5 lb early cell phones that no one will ever want again. Guess they think their gold watches are a safe commodity like gold bullion. What rubes…

    The amount of time Swatch sits on assets is terrifying (or it should be for them). Guess they never heard of agile manufacturing and being reactive and having short piplelines. Perhaps they never heard about what the Japanese did with “just in time” manufacturing and distribution back in the 70s and 80s.

    Social media may be an influencer for the younger crowd, but what a ghetto it is if you actually want to learn about a product. The lesson from the hotel in the post is that amid all of the flood of crap images people take, there has to be curation to present images that support your brand image rather than tarnish it.

    Too funny that a lot of the big Swiss brands seem to think that doubling down with practices that no longer work will bail them out. They seem to see the present situation as a speed bump and not as tectonic shifts in any way.

    Thanks for the post and the analysis. Not sure I agree with all of it, but a lot of it is worth considering.

    • Sheez Gagoo

      The amount of stupidity in the industry is outstanding. Their behaviour is far from reasonable. I personally think, thats because idiots came in positions they simply don`t deserve. Almost 20 years of permanent growth, most of time double digit, didn`t brought the right people up. Most of them were cousins/sons/buddies of other executives. The huge amount of corporatism (=corruption) is the reason for lazyness and ignorance. In times like we have now, this is a toxic mix. Thats why I simply no longer believe in current watch industry. It has simply to die, so that a new and better industry can grow out of the ashes of the current crap`(mentioned that in an other comment). I posted the following paper a billion time to almost anybody related to the industry. I still think it`s relevance can`t be overestimated.

  • TechUser2011

    Interestingly, TAG Heuer (part of LVMH) has apparently been doing really well in the past year. According to this NY Times article:

    But not every Swiss watch brand is reporting that trend. TAG Heuer says that in the same nine months, its watch sales were up 18 percent year-over-year.

    • Sheez Gagoo

      1. They`ve build a smartwatch.
      2. They offer great value, and a lot of the smartwatch succes went into their classical watches.

    • ??????

      I can say from the personal perspective: several fellows I know purchased TAG Heuers this year – while never considered their watches before. Why this happened? TAG Heuer decreased the cost of entry this year – especially the Formula line:
      so they considered them as some entry port for luxury watches augmented by increased brand exposure (Mr Biver, luxury smartwatch, Formula 1, etc.) – it was just enough for them to jump for TAG Heuers.

      So I finally grew respect Mr Biver – he must be talented in watch industry indeed. I may not like Hublot, but his strategies do work.

  • ??????

    1) Inertance of Swiss watch industry, lagging to embrace the new customer auditorium, new economical realities, new trends in consumerism and society.
    2) Probably, corrupted minds and wallets of multiple SEOs.
    3) Technonlogy driven wave towards increased practicality. Stop pretending like everybody needs your watches, think of attracting new enthusiasts by craftsmanship.
    4) German watches. Learn from NOMOS/Sinn/Junghans/Stowa/etc. They do things right.
    5) Japanese watches (again, after what they did in 70s). Learn from Seiko (especially)/Orient and Citizen (entry level). They’ve shown that Swiss craftsmanship is overpriced – and thats painful to embrace, but you have to.
    6) Microbrands flooded the market. And some became very popular – like Chr.Ward, Steinhart, Deep Blue, Helson, etc. There are 1000 of them. They influence the luxury market indirectly – mostly by attacking the entry level segment – which in turn results in reduction for upper.
    7) Information Era – abundance of information everywhere, blogs, forums, etc. You have to get exposed in a right way or you die (this is for you, Vulcain – people forgot you).
    8) Pseudo-vintage trend seems to be passing already. So put aside your fake patina, pseudo-rotten lume and concentrate on something new.

    • Shinytoys

      You observations are absolutely on point. Just for the record, I never forgot about Vulcain 🙂 I have 9 wrist pieces and one sterling silver pocket watch 🙂 Cheers mate !

      • ??????

        You must be biggest Vulcain collector 🙂 joking. Love their watches too, wish them success they deserve.

    • Matt Maunu

      Maybe as an incentive to buy higher end watches, they could offer lifetime service to keep their product running. My wife’s gift, JLC, has already been back twice for service. I could have gotten her a new Nomos for those costs

      • ??????

        I would consider this as a heavy influential point. Today you associate the cost of entry not only by the price of the watch, but the cost of maintenance. Service costs equal to a new Nomos is absolutely wrong and can make think you twice about getting JLC. I like how Japanese – Grand Seiko, The Citizen, Royal Orient – offer free 10 year service, at least not bad. But for luxury watches it is absolutely ridiculous to punish buyers with crazy service costs..

    • TrevorXM

      good points.

  • Wm Ort
    • beardedman

      That’s actually a pretty clear-eyed article.

    • Richard Baptist

      Thanks for the article. Pretty much nails it. Every watch executive should be required to read it.

  • I don’t want to oversimplify an extraordinarily researched and written article, but the market is suffering because the prices are disproportionate to value. I don’t care how many boutiques, ambassadors, or sponsorships a brand feels the need to support, but a Seadweller isn’t worth $10,000 by any stretch of the imagination. Changing the dial color on a Luminor doesn’t justify a $2000 price increase and a “limited edition” label. The minuscule market demographic that would be interested in a white ceramic Speedmaster doesn’t justify the cost of R&D it took to develop it in the first place.

    Microbrands took off because people wanted the luxury look at sane prices; nearly every microbrand started with a handful of “homages” with off the shelf, third party movements. Chris Ward made Submariner knockoffs for years, and, whether you’re a fan of the brand or not, they’re a legitimate player now. Are they going to unseat Rolex? No. Should they be making Rolex uncomfortable? Yes.

    • Ige

      Well said!
      Furthermore, I don’t think that increasing investment in social media marketing will positively improve the health of the industry, especially when the biggest part of the price a customer is paying for is the marketing.

  • Lance Link

    Thanks Adam, however, with all due respect for your academia and research abilities, you (like most Swiss watch industry stalwarts) seem to be in denial about the smartwatch phenomenon. You give every rationale (from Brexit to ‘elections’) for the Swiss watch industry’s demise and hemorrhaging, yet you don’t acknowledge the smartwatch phenomenon. A company named Apple has surpassed the largest Swiss watchmaker (Rolex) in both dollar and unit sales volume. You won’t find this info in any dated 10Ks but you can rest assured that Apple will surpass the entire Swiss watch industry in dollar and unit sales volume. Throw a few other tech and Asian firms into the fray, then its game over for the Swiss, and rest assured that this demise will be insurmountable, unlike the ‘quartz crisis’ decades ago.

    • Shinytoys

      There’s no question that smart watches have not helped, but hurt the watch industry. The argument might be that smart watches are cheap, toy like replica’s of a “real watch”, but the last time I looked, men and women only have two wrists, one is reserved for a wrist watch parking space. Countless people are enjoying the freedom of their smartwatches, so much so, that with my Samsung S7, I can wear the watch and leave the cell phone at home. It’s nice getting rid of the “brick”, but I’m clearly aware that the little device is taking “quality time” away from one of my great loves, mechanical watches.

    • ??????

      I think you missed the point that people look at classical watches and smartwatches in a bit different way. Classical watches are more kind of craft, art, warm vinyl sound-kind of thing. While smartwatches are techy gadgets which copy or enhance the functions of smartphones. I may be wrong, but I think that the feelings moving towards purchase of classical timepiece and smartwatch are distinct. Yes, it does influence the classical watch market, but in a different way.

      • Lance Link

        Twas you that missed the point with your cliche’d ‘classical/legacy/heirloom’ vs. ‘tech obsolescence’ analogy. All of us love the art and science of the mechanical watch with its romantic 500 year history. Unfortunately it is this moot apples vs. oranges debate that is perpetuating the shock, fear and denial syndrome in the Swiss watch industry. The horse and buggy was also a warm, fuzzy crafty kinda thing when the automobile industry was in its infancy.
        I disagree with what you believe as I have vintage tourbillons sitting in a safe, yet I wear a smartwatche. Who says a classical purist can’t be a technologist and vice-versa? I have billionaire friends that have 8 figure watch collections, yet prefer to wear $400 Apple watches on a daily basis, for the obvious tech benefits. In 2020 there will be 6B interconnected global smartphone subscribers and over 50B interconnected IoT devices. If only 5% of those smartphone subscribers decide to trade in lumpy phones for ergonomic, untethered smartwatches, then you’ve got 300M smartwatch buyers in 2020. And who says there won’t be warm, fuzzy classical design with technology in it? TAG is coming out with a $10K gold connected Carrera, and they will sell even though the technology is pathetic. Rest assured, we will have a $100K smartwatch on the market in 4 years, then a $500K smartwatch in 5 years.

      • Lance Link

        Mikita…Nikita? Spare us the cliche’d, warm and fuzzy soundbites about classic, mechanical watches. I have a $7M+ plus collection of hundreds of mechanical watches that I can’t sell fast enough. Other than a dozen Patek’s and a handful of classic Rolex’s that will sell at auction, the rest of them will end up in some museum in Le Locle. How many Model T’s do you see on the road today? Or would that be a Skoda you love driving everyday? Twas you that missed the point, and indeed, you are wrong;-) You seem to be stuck in a Khrushchevian era Soyuz capsule with no sense of the infinite cosmic possibilities beyond this constrained earthly time-space continuum. Your perception is skewed by crowd theory and mainstream media hyperbole, premised on an all-or-nothing, mechanical vs. technological, polar-opposite argument. Who says classically designed watches can’t have technology and that smartwatches can’t have classic design? Have you seen any of the retro Detroit muscle cars or limited edition Jag E-Types coming out? Stop buying into the petrified, fossil fueled ‘industry vet” mindset. After an upper management house-cleaning at Richemont, Mssr. Rupert was adamant that the luxury holding company needed more innovative thinking and less “grey haired Frenchmen’. Oh Miki, you’re so fine, you blow my mind, hey Miki!

    • Watching Time

      There was a whole section on smart watches (whether you agree or disagree with the conclusion of it), it references a Deloitte study which shows that smart watch sales haven’t had a measurable effect on Watch sales. I am not a smart man, so I side with a consumer research study over my personal opinion. I have no doubt it takes away from cheap Swiss watches, but these represent a very small amount of Swiss watch sales value.

  • E. Cheng

    I totally agree with the notion that luxury mechanical watches have become the art of expression, rather than telling time. Nowadays, people use smartphones to read time. So, if the definition of luxury watches have been changed to “the art of expression”, then I don’t think the luxury watch market should include smartwatches, which actually compete with smartphones due to their similar functions.

    • ??????

      Excellent point.

  • Shinytoys

    A very sobering, but extremely well researched article Mr. Stark. With the exception of the exclusion of smart watches being part of the equation, this is one of best ABWT pieces I’ve read to date. Keep up the good work.

  • cluedog12

    Good article, well-researched. In summary: there’s a lot of overpriced garbage to flush down the toilets.

    Recently, I’ve seen some recent NOS in auctions and grey markets going for 60 – 80% off (e.g. Roger Dubuis Pulsion Chronographs). I bet a lot of these items come straight from the source. It’s not like we, the loyal commentariat of ABTW, did not crap all over these daringly “modern” designs when they were originally unveiled. Geneva Seal micro-rotor chronographs for 7500 USD, but even at that price they’re too damn ugly.

  • Dinkee, H. O.


  • The Reclusive Boogur T. Wang

    Welcome to the Game Mr. Stark.
    Just to let you know – NO Power Point presentations allowed!.

    • Aaron (Author)

      @disqus_oRIS81PgW2:disqus deal!

  • Carlos Trejo Vázquez

    Wonderful article, really insightful and well documented.
    If I may ask something to the author, would you think that reevaluating the prices towards middle class would help at all?, watch prices have increased way beyond inflation while income has stagnated and the brands’ response seem to be “save more money” to buy my products, conceding this market to the Japanese, Chinese and micro brands. Or is it possible that abandoning the middle class is a sound strategy?

    • Aaron (Author)

      Great comment. This topic is surprisingly not as easy as a simple price drop. Simply put (without looking at specific models, where volume plays could be made), large drops in price are not likely due to thin margins (from high fixed costs). Due to high fixed costs, Swatch operating profit margins are around 9% (down from 18% a year ago, and ~25% 3 years ago) and Richemont at 16% (down from 24% a year ago). If Swatch cut prices 10% today and took a corresponding 10% drop in revenue (all else being equal), they’d be unprofitable. In addition, I doubt a 10% drop in price is enough to satisfy the price drop most people are talking about, or enough of a drop to drastically improve sales volume. That is a short run answer. The long run answer depends on dealing with some of the topics covered in this article, but is also a much more complicated situation. I’ve attached both Swatch and Richemont excerpts, which are available in their recent semi-annual letters to shareholders. I hope that answers your question.

      • Carlos Trejo Vázquez

        I understand perfectly, they can’t drop prices because there isn’t certainty that it’d correspond to a sales increase big enough to make up for the profit lost. Makes sense, thanks for taking the time to respond.

  • Watch Ponder

    Here is another piece I have written on the current problems facing the industry that looks at the problem from a slightly different perspective:

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