Swiss watch industry facing uncertain times
The weaker foreign demand, strong Swiss Franc and the rising competition from smartwatches compel Swiss watchmakers to rethink strategy
Zurich, 15 September 2015
For the first time since the Deloitte Swiss Watch Industry Study was launched in 2012, the number of watch executives who are pessimistic about the outlook for the Swiss watch industry outweighs those who are optimistic. Watchmakers are increasingly worried about the ongoing strength of the Swiss Franc and the weakening demand from countries such as China. Another concern is the growing competitive threat from smartwatches. The Swiss watch industry is at a turning point, according to the 2015 edition of the study. Yet the future prospects are still promising, with the luxury segment leading the way.
According to the watch executives surveyed for the fourth edition of the Deloitte Swiss Watch Industry Study, the downward trend in sales in the first half of 2015 is likely to continue over the next twelve months. 41% of executives are pessimistic about the industry outlook, with a mere 14% maintaining a positive view. These figures are very different to those from the last three years. The pessimism is though not surprising given the low expectation for growth in emerging markets such as China and Hong Kong. In contrast, optimism about the US market is at a record high amongst watch executives.
Switzerland is the global watch export leader
Even though Switzerland does not export nearly as many watches in terms of volume as its two main competitors, China and Hong Kong, no other country generates higher watch sales in terms of value. In 2014, the average export price of a Swiss wristwatch was CHF 730, compared to CHF 27 in Hong Kong and CHF 7 in China – a clear testimony to the strength of the luxury segment in Switzerland.
Exports of Swiss wristwatches in terms of value reached a record high of CHF 21 billion in 2014, 1.8% more than in 2013. There was also a slight increase in export volume (+1.7%) after two years of decline, whereas the drop in 2012 and 2013 was mainly attributable to lower sales of quartz watches.
According to the surveyed watch executives, volume growth expectations in the next twelve months remain strongest for high-end watches. Karine Szegedi, Partner and Head of Fashion and Luxury for Deloitte in Switzerland, said: “The rise of non-local players such as Ice Watch and the growth in demand for smartwatches in the same price range continue to put pressure on Swiss exports priced below CHF 200. But despite the decreasing foreign demand in China and Hong Kong, there are still opportunities ahead. Given its growing population and increasing wealth, India is the emerging market that is seen to have the greatest potential for the luxury goods industry in general and watches specifically.”
Strong Swiss Franc remains troubling
The majority (57%) of watch executives see weaker foreign demand as a significant risk to their business over the next year. The strength of the Swiss Franc is perceived as the greatest risk (69%) in the current environment. To counter the currency strength, more than half of the watchmakers surveyed (51%) state that they are looking to cut costs (excluding labour costs). Many watch companies have also renegotiated or increased prices – but this is a strategy that not all brands can adopt, especially in the lower-priced market segments.
Jules Boudrand, Senior Manager and co-author of the study, commented: “Helped by its ability to pass on increases in prices, mostly in the high-end segment, the Swiss watch industry has coped better than most export sectors with the strong Swiss Franc in the past. But we seem to have reached a critical point now, especially in the low- to mid-price range segments of the market.”
Smartwatches, an increasing competitive threat
According to the study, a quarter (25%) of watch executives consider smartwatches to be a growing competitive threat, up from 11% in 2014. There was also an increase from 29% to 39% in the number of respondents stating that the launch of the Apple Watch (and other major smartwatches) has increased their awareness of this disruptive market.
An additional online survey conducted on the use of smartwatches among consumers in China, France, Italy, Japan, Switzerland and the US, shows that more than 60% of Chinese, 48% of Italian and 35% of French consumers intend to buy a smartwatch in the next year – whereas in Switzerland, the percentage is only 17%. Karine Szegedi commented: “According to our survey, the overall proportion of people intending to buy a smartwatch is greater than the proportion intending to buy a classical wristwatch. The willingness and ability of Swiss brands to offer smartwatches at Swiss-quality standards and with a long battery life could potentially pay off as a successful competitive strategy.”
About the Deloitte Swiss Watch Industry Study
The 2015 version of the Deloitte Swiss Watch Industry Study is the fourth of its kind, based on an online survey with a total of 51 watch executives conducted between May and July 2015 as well as personal discussions throughout the year. For the first time, a consumer survey was also conducted among 3,000 people in China, France, Italy, Japan, Switzerland and the US by the data collection provider Research Now.
You can find our 2015 Deloitte Swiss Watch Industry Study on our website.
About Deloitte in Switzerland
Deloitte is a leading accounting and consulting company in Switzerland and provides industry-specific services in the areas of audit, tax, consulting and financial advisory. With more than 1,400 employees at six locations in Basel, Berne, Geneva, Lausanne, Lugano and Zurich (headquarters), Deloitte serves companies and institutions of all legal forms and sizes in all industry sectors. Deloitte AG is a subsidiary of Deloitte LLP, the UK member firm of Deloitte Touche Tohmatsu Limited (DTTL). DTTL member firms comprise of approximately 210,000 employees in more than 150 countries around the world.
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