Luxury brands make watches that even fewer people can afford

Luxury watchmakers had their best year in 2021 – selling fewer watches.

The Swiss watch industry is moving higher and higher as brand owners target wealthy consumers and try to differentiate their products from Apple Watch and other wearable technologies.

However, while this approach is increasing revenue now, it could lead to problems in the future if the industry continues to shrink by selling less expensive models, analysts say.

Swiss watch revenues increased by about a third last year compared to 2020, reaching a record 21.2 billion Swiss francs, or $ 21.5 billion, according to the Swiss Watch Industry Federation , industrial association. Sales in the United States increased by 28%.

The rise is caused by the resumption of demand for higher-end watches, said the association, which has benefited from the wider luxury goods boom as the pandemic eases.

At the same time, volumes are declining. Swiss watchmakers sold 15.7 million watches last year, half less than a decade earlier, according to the association. The decline was driven by a collapse in demand for affordable models that compete directly with Apple Inc.’s watch. from $ 399 to $ 799.

These trends continue this year as well, with watch sales growing 13% of revenue in the first four months of 2022 compared to the same period last year, the association said.

Watchmakers say demand for expensive models has shown sustained consumer interest in watches, despite predictions by some analysts that the business of making classic, mechanical watches will soon be swept away by smartwatches and other new gadgets. p>

The expensive watch looks more like a collector’s jewel than a device, said Georges Kern, CEO of Breitling SA, adding that it is far from a drawback, low functionality is at the heart of attractiveness.

“People want to balance the surplus of the digital age,” Mr Kern said. “I don’t know anyone who collects Apple iPhones or watches – there’s no emotion, you use it and then throw it away.

This feeling tempted John Royer to replace his Apple Watch with a $ 10,000 Rolex GMT-Master II when he recently turned 40. “I wanted something I could pass on to my son when he grows up,” said the Alabama-based doctor.

Top brands like Rolex, which have always had high prices, are the main beneficiaries of the growing demand for high-end watches.

Although there are around 350 Swiss watch brands, four independent watch manufacturers – Audemars Piguet Holding SA, Patek Philippe SA, Richard Mille Horometrie SA and Rolex SA – represent 61% of the industry’s profit of 8.5 billion francs in 2021 Morgan Stanley calculates.

Other brands are trying to take advantage of the trend by adding high-end models to their series.

Last year, Breitling, whose watches start at $ 3,300 in the United States, launched its Super Chronomat range, raising the highest price of an existing product line to $ 25,650. Mr Kern said Breitling had increased demand for its watches by modernizing its stores and refreshing its marketing with exquisite commercials featuring movie stars such as Adam Driver and Charlize Theron to appeal to younger consumers. p>

Now the company plans to increase production to 250,000 watches next year, almost double in 2017.

Hermès International SCA also recently reported an increase in watch sales, which analysts attribute to the luxury company’s move away from relatively affordable products. Efforts to target more affluent customers include selling unique watches worth six figures. A recent example was the Arceau Pocket Aaaaargh !, a pocket watch with a leather mosaic of Tyrannosaurus rex on its cover and priced at 300,000 euros, or about $ 315,000.

Not all watchmakers follow suit. Rolf Schuder, CEO of watchmaker Oris SA, said that while the average purchase price of a Swiss watch has risen by about half since 2019, his company is resisting the trend of pursuing super-rich customers.

Excessive price increases risk making Swiss watches too elitist, Mr Studer said, adding that Oris had increased prices by around 10% in the last three years to cover higher costs. “

If we only talk to the richest 100,000 people in the world, we may no longer have a reason to be here as we used to be,” Mr Studer said.

Oris, whose watches start at around $ 2,000 in the US, increased its share of the shrinking market for “affordable” watches last year by offering an “inclusive” form of luxury that most consumers can realistically aspire to, he said. -n Studer.

The trend among enthusiasts to buy a variety of watches from brands they find attractive, regardless of price, is helping more affordable brands like Oris, he added. However, many other watch brands are struggling to grow and relying on sales of smaller but more expensive models could threaten the structure of the industry, analysts say. “Apart from alienating everyone except the millionaire buyer, there is a danger that volumes will fall to a critical level, with suppliers failing to cause a cascade of closures among smaller brands that can no longer supply parts,” he said.