How the Swiss Figured a Way to Make More Money While Selling Less Watches
There has been a measurable drop in the amount of watches exported by Switzerland in 2015 (the year when the Apple watch was launched), causing many to speculate on an impact on Smartwatches on the future of traditional luxury watches.
Even if we pretend that there has not been a Great Recession that caused a rift in most of the markets after 2007, there are two factors that are still worth taking into consideration.
Price Increase
Firstly, luxury watchmakers have been raising the price of watches. Here is a chart from a 2018 article Price Watch: Rolex Price Evolution — ATELIER DE GRIFF, that shows how a brand such as Rolex has been raising their prices year on. This chart follows a quantitative methodology that I outlined back in 2013 in mypiece on The Speedmaster Standard. Hint: a lot of prominent luxury watch brands have been following the same price increase pattern.
In essence, the same watch that consumers could buy 10 year ago costs between 12% to 50% more today…
Secondly, budget watchmakers have also evolved into luxury watchmakers and abandoned the so called affordable luxury segment. If the reader are not familiar with the concept, it used to be those sub USD 300 Swiss Watches that you could find in the kiosks outside the store.
After Swiss watchmakers realised that they could raise prices and still sell, most of them have been abandoning the sub $300 price segment and leaving it open to fashion brands such as the Fossil Group or to lifestyle brands such as Daniel Wellington and their copycats.
Value Proposition Increase
Another great way that luxury watchmakers have found to rase the price is by switching from quartz movements to mechanical movements. If a brand can sell for $1,000 a mechanical watch that would only command $500 in its quartz version, the brand can make the same money by selling two times less watches. That translates into less labour cost, less handling cost and less shipping cost. What’s not to like?
All in all, there are less luxury watches being put on the market because companies have figured out a way to earn more money with less watches. And they achieve this by increasing both the price and the value proposition of their products.
Notwithstanding a contraction in 2016, sales of watches in value reached its highest ever peak in 2019, pre-pandemic.
There has of course been a drop in consumer expenditure overall due to the Great Recession (and now the COVID-19 crisis), but it also affects other industries as well. I don’t think that luxury watches can be singled out: it is not as if sales of smart phones have been killing it either.
If a 2020 budget phone offers the same specs as a 2018 flagship phone, consumers feel like they can keep their smartphone longer and no longer need to change it as often as in the past.
