It was not a long time ago when a percentage on retail price meant discounts. In the post-lockdown world, the same word now refers to a premium on price for certain brands that are the poster boys of short supply, particularly in the premium steel sports category. To understand why there is a short-supply of luxury watches from the likes of Rolex and Audemars Piguet, we need to understand how the industry of handcrafted industrialisation works.
Swiss watch exports are having a sustained bull run over the past two years. Notwithstanding the Covid-related closing down of China and Hong Kong (among the top three traditional markets of the world) and the ongoing war between Russia and Ukraine, Swiss watch exports are having a 12% growth so far (till October 2022 reports released by Federation of the Swiss Watch Industry, FH), driven by unprecedented growth in the top markets of USA, Japan , the UK, Singapore, and even the 22nd ranked India growing at 27% in 2022-21 and 125% in 2022-23. There can’t be a better time for the luxury watch industry. Having said that, what are the reasons behind this bullish demand and subsequent failure to supply at retail.
I remember returning from Watches and Wonders 2022 this April with the country head of one of the brands which was perpetually in short supply. Surprisingly, even he complained as to how he had to turn down most requests since January.
To understand this crazy post-lockdown demand for luxury watches world over, I spoke to GPHG (Foundation of the Grand Prix d’Horlogerie de Genève) president, Raymond Loretan, who was visiting New Delhi in October. His one-word answer was “compensation”. ”When you deprive someone of something, he or she will find something else,” he said. The lack of travel and shopping opportunities, coupled with decent returns from the stock market have created a propensity to indulge and invest in luxury watches.
I am often asked why Rolex cannot supply more. According to a New York Times report, Rolex manufactured 1.05 million pieces last year, which is a market estimate as Rolex never shares any statistics. There are lots of conspiracy theories behind this short supply such as the deliberate holding-back of watches by the company, retailers hoarding stock to increase market premium, and shortages in production due to pandemic-related factory closures. While they all can be partly true, they cannot be the predominant reason. I was fortunate to have visited the Rolex manufactures (three of them) in Geneva in 2011 and can say with some authority that a company like Rolex cannot suddenly increase production involves meticulous handcrafting at almost every stage of production. What they must have done is to produce more high-end timepieces than entry-priced steel watches. And this led to FOMO (fear of missing out) by watch collectors and investors (who were not otherwise in the watch market), increasingly pushing secondary prices up, even so for the relatively cheaper steel variants.
This high demand for Rolex, Patek Philippe and Audemars Piguet has also helped sales of the entire luxury industry. And marquee brands from Richemont, LVMH and Swatch Group, the three big listed companies selling luxury watches, have all sold well, inspite of increasing prices and reducing trade discounts. Retailers who usually offered 20% and above as discounts on certain brands are now comfortably selling at single digit discounts on the same brands. Also, some new launches have rewritten rule books. The hunt for the Swatch MoonSwatch priced at ₹21,100 (launched last month in India, and available at the new boutique in Palladium Mall, Mumbai) across the globe, since the flagship store in London had to shut down due to overcrowding earlier this year, has kept collectors busy.
But all was not easy for the industry to tide over the pandemic-induced negative growth. Speaking exclusively to The Hindu from Nyon, Switzerland, the CEO of Hublot, Ricardo Guadalupe, terms the pandemic as an experience that has helped the manufacture and marketing departments streamline many things to take advantage of the post-lockdown world. Among the measures taken by the brand, he says, “It’s clear that the pandemic has brought many changes: push to digitalisation, finding solutions to production challenges. We see the importance of bringing human connection to the digital world and this will play an important role in the growth of luxury. Clients are looking for authenticity, and personalised experiences.” As for future trends, Ricardo says, “Watches are becoming genderless and the 40mm size has become popular for both men and women today”. Keeping the tradition of innovation going, the brand successfully added earlier this year a new square shaped watch, the Square Bang Unico and is continuing its timekeeping partnership with the recently-concluded FIFA World Cup 2022 at Qatar for the fourth time, an association that had started in South Africa in 2010.
While we talk about Swiss watches, Japanese watches have done well too. At the luxury end, Grand Seiko today is a highly recognised name around the world that offers great accuracy, legibility, beauty, durability and ease of use. Talking about the strategies to tackle post pandemic growth, president, Seiko Watch Corporation Akio Naito says, “All our decisions regarding research, development and manufacturing are made with a long-term perspective in mind. Hence, the arrival of the pandemic did not alter our investment strategy, however, we have adjusted our marketing strategiesand increased our online presence.”
The bull run will not last forever, but the industry will settle at a higher place than before. Availability will increase, premiums will soften. Clients will continue to seek enduring value and pay top dollars to acquire pieces they like. And middle of the road size of 38-42mm will see more and more launches.