Losses and slowly making up
We already know that the situation with Covid19 turned the whole world upside down, and the effects of subsequent lockdowns will probably be felt for the next few years. So far, changes are already visible in the watch industry. What will this year be like? Everything seems to indicate that it would be unique, as there is no turning back from certain phenomena and events of 2020.
Every year, at the end of January, the Federation of the Swiss Watch Industry (FHS) publishes data on the export of Swiss watches. Now everything is clear: according to the previous year’s data, exports fell by 21.8 percent compared to 2019, and in terms of value they were at the level of the 2010 quotations (in 2020, they amounted to CHF 16.9 billion, and in 2010: CHF 16.2 billion). Commentators thus talk about a lost decade this industry is about to face. Making up for the losses will certainly take a long time, and it is unclear whether ten years would be enough to return to excellent results (less than CHF 17 billion achieved last year is a decline compared to the record export in 2014, i.e. 22.3 billion CHF).
Things are bad, but it would be even worse were it not for China, which is the largest importer of Swiss watches. Despite the pandemic, Swiss exporters recorded double-digit increases there: by 20% compared to 2019, and by as much as 39.4% compared to 2018. And this is the only good news for the Swiss, as the remaining markets in the top ten saw declines, for example in the United States (second on the list of importers), imports have fallen by 17.5%, and in Hong Kong (third on the list) by as much as 36.9%. Unfortunately, Europe was hardest hit by the crisis, as overall exports fell by 25.2%, with vast country-to-country differences: France (-37.9%), Spain (-34.8%), Italy (-33.3%), UK (-24.6%), Germany (-21.4%), Austria (-27 %), the Netherlands (-9.5%) and Russia (-3.9%). Looking at the list of the major importers, the result achieved by Ireland may be surprising, as the only country in Europe to import more watches than in 2019, and their value increased by a record 611.6% (or by over 1000% compared to 2018). This spectacular result, however, had nothing to do with local demand, but was achieved thanks to accounting tricks (due to lower taxes, watch importers are registered in Ireland, but the watches they import do not reach the Irish market). Either way, Ireland is officially ranked 24th on the list of the largest importers of Swiss watches. Right behind Oman, which also noted a very good result (+73.4%).
While looking at the statistics published by the Swiss, one can see that the amount of watches exported plummeted, reaching rock bottom in April (exports fell by 81% compared to April 2019), i.e. a time when full lockdown was in force in Europe.
What was happening in the individual price segments? The biggest drops were recorded by manufacturers of watches in the range below 50 and 100 CHF (-41.7% and -46,% respectively), and from the 200-500 CHF segment (-33.4%). The situation was a bit better in the mid-range segment: 2,000-3,000 CHF (-16.4%) and 3,000-5,000 (-19.5%). However, in the two most expensive groups: 20,000-50,000 and over CHF 50,000, the value of exports decreased by 16.6% and 21.4%, respectively.
Statistics also show that the Swiss are exporting fewer and fewer watches: in 2000, there were about 30 million of them, and last year only 13.7 million.
For several years, the export of watches from the lowest price segments has been falling significantly, because too strong competition from smartwatches is driving them out of the market. And most smartwatches are manufactured outside Switzerland (the largest share in the smartwatch market, as much as 55%, belongs to Apple).
Some Swiss media comment on the current situation as the worst since the Great Depression in the 1930s, when the value of watch exports fell by as much as 40%. Until now, crises have always been used by the strongest to their advantage. Therefore, in this and perhaps next year, commentators expect a reshuffle; in other words, acquisitions and buyouts are anticipated (I wrote recently about the purchase of the Tiffany brand by the French company LVMH). But this is only part of the landscape when fighting the virus. It is equally important to minimize the losses suffered even by the giants. And how long will the “great cleanup” take after the pandemic? We’re yet to see.