As the full effect of the coronavirus pandemic began to hit the US in March, the watch industry, like nearly every other industry, felt the repercussions. The severity of the damage is still unknown, as figures were not available as of this writing, but with activity at a standstill for US luxury retail and watch manufacturers, it will undoubtedly be dramatic.
“The watch and jewelry industry has hit the pause button,” says Reginald Brack, industry analyst for watches and luxury at market research firm NPD Group. Many manufacturers and retailers around the world have suspended their operations to protect workers and customers, he observes.
‘We can’t see beyond the horizon’
The pandemic’s impact was apparent in the most recent data from the Federation of the Swiss Watch Industry (FH), which showed the value of February’s watch exports falling 9% year on year to CHF 1.6 billion ($1.62 billion).
“However, this does not yet fully reflect the actual situation in certain markets,” the organization cautioned.
The one country that was seeing growth in demand was the US market, which increased 18% year on year to CHF 205.8 million (approximately $210.7 million) for February. It overtook Hong Kong — which was already being plagued by protests before the coronavirus arrived — as the top market in the world for Swiss timepieces.
March figures will likely reveal a different story. Much of the US is on lockdown — either voluntarily or under state government orders — particularly in large urban areas where luxury spending is most prevalent.
“So much is out of our hands,” says Steven Leed, co-owner of Royal Jewelers in Andover, Massachusetts. “We are in unknown waters, and we can’t see beyond the horizon.” Like most others in his area, Leed has closed his store, which specializes in luxury jewelry and watches.
Many businesses are coping by shifting their focus to e-commerce, but Brack believes this track will provide little relief for the watch industry. Online sales for new timepieces are marginal at this point, and some popular high-end brands like Rolex and Patek Philippe don’t allow their watches to be sold on the web.
Still, he acknowledges, it’s better than nothing. “E-commerce is fairly minimal, but at least it’s keeping the customer engaged.”
When demand outpaced supply
Before the crisis happened, US demand was burgeoning. In 2019, Swiss watch exports to the country increased in value by 8.6% to more than $2.4 billion, according to FH figures.
Retailers confirmed this rise in interest. Wempe New York — the US branch of German watch and jewelry company Wempe — had the best Christmas season in its 40-year history, reported the branch’s president, Ruediger Albers. He attributed this in part to the strong US economy and the relatively mild weather.
“[The season] started late and finished very strong,” he said in February. Nearly all of the business was from the local customer base, as the brand’s sales from Chinese tourists had dwindled dramatically in the last five years.
“We miss them, and hopefully they’ll come back soon,” Albers said. Before the drop-off, “we actually expanded the store (on 5th Avenue) because it became almost unbearable with the large number of Chinese customers who came in groups. We couldn’t find enough room. I was concerned local customers would suffer because of the lack of space.”
In fact, luxury watch sellers were having trouble keeping up with demand, according to Brack.
One example is Watches of Switzerland, which operates more than 130 stores in the United Kingdom and recently made a big push into the US market. In 2017, it purchased the 15-store Mayors Group jewelry and watch chain, then spent the next two years opening four Watches of Switzerland stores in New York, Las Vegas, and Boston, Massachusetts. It also opened Rolex, Omega and Breitling boutiques in Las Vegas, which are managed under franchise agreements. In 2019, the company went public on the London Stock Exchange. With this influx of cash, the company had plans to open 11 more monobrand boutiques in the US.
But Watches of Switzerland’s expansion would have been even more aggressive if product were more readily available, asserted CEO Brian Duffy in February. “The demand for Rolex is a multiple of what we’re able to secure and supply at this point. It’s the same for Patek Philippe and the same for Audemars Piguet.”
In general, he said at the time, acquiring enough watches to satisfy the rapidly growing number of customers “is a huge challenge. I think the US is still way underserved. I think if supply was much more plentiful, we could move at a faster pace. That would be the biggest constraint. It’s not the opportunity. It’s not the capital. It’s just getting the supply of product.”
Millennials and Gen Z
A major change in the watch market recently has been the increase in younger buyers — millennials and Generation Z — who have different ways of interacting with brands, retailers and each other.
“They still love the experience [of buying watches], but the experience they want is different than the black-tie experience,” Leed said in February. “We did an event with 12 younger collectors, and they wanted primarily a beer-and-wine event and an opportunity to play and try on watches. All 12 purchased.”
While few people are entering brick-and-mortar shops in today’s coronavirus climate, in-store experiences have been key to attracting customers in the last several years. Provident Jewelry, for instance, which has seven stores in south Florida, would partner with other entities “such as charities and sports, from lacrosse to racing,” co-owner Rob Samuels said in February. “That is the way we [target] our experiences to the millennial.”
Another element important to this demographic is a “sense of transparency while receiving advice,” Leed observed.
“They want an unadulterated opinion of the benefits of a particular watch. They want you to substantiate [the watchmakers’] claims. We’re very good at showing the differences among brands, the nuances of different watches, like explaining a movement, and then tying that all into value.”
In some ways, it’s easier to understand younger consumers because of their participation in internet forums, social media and online watch publications.
“They are all about community,” Leed remarked. “They are the ones on forums and watch groups, and their opinions are being formed by a collective mass as opposed to forming their own opinions by discovery.”
Indeed, Provident has “moved a higher percentage of marketing to social media — Instagram, Facebook and the like,” Samuels reported.
Watch producers have been responding to the feedback from younger buyers. “Brands are finally listening to the consumer and possibly the retailer. They used to dictate the models and tell us how it’s going to be. Due to all of these forums and communities, they are forced to provide what consumers are asking for.”
The result has been a huge increase in steel sport watches and vintage watches, which are more affordable and suited to a variety of occasions. “Steel sport watches can be worn in the gym [or at] the beach and continue to be worn all day long,” says Brack. “This is part of an overall ‘casualization’ trend where people are wearing more casual wear throughout the day. We see brands not normally into sport watches debuting steel sport watches to capitalize on this trend.”
The most popular vintage watches are those that either have a military reference, or reflect styles from the 1970s and ’80s, he adds.
What’s moving
In the under-$1,000 category, people prefer mechanical watches over quartz, according to Brack. That’s a big change, and it’s one that Watches of Switzerland recently confirmed in a market report based on the company’s sales data.
“We always note that consumers are rejecting 1970s (quartz) technology in favor of mechanical,” Duffy said, adding that among mechanical movements, automatic (self-winding) ones were by far more popular than hand-wound.
Like men, women are leaning toward more expensive watches, swapping quartz-powered timepieces for those with mechanical movements and opting for complications over diamonds and gems. “Women’s watches over $5,000 are up 15%,” Brack reported in an earlier February interview. “Women are coming into the luxury watch sector, and that’s something we love to see.”
Case sizes for women are also increasing. In fact, Brack sees gender-neutral watches as an up-and-coming trend. “No more shrink it and pink it, or bling it and swing it, put diamonds on it and then hope it will be attractive to women,” he declared.
Duffy echoed that sentiment. “Automatic is the big trend for women. And they’re moving away from smaller, dainty watches. In addition, there’s a huge trend of women buying watches classified as men’s watches.”
Surviving the crisis
Most retailers believe the current product trends will be consistent for the next few years, though it’s hard to tell what the outcome of the COVID-19 situation will be. One thing Leed is sure of is that his family-run business will survive this, like it has every other crisis it’s faced during its more than 72 years of existence. But he’s less certain about others in the industry.
“Right now, it’s a bit of a waiting game,” he says. “I think we’re back to 1928 [and the Great Depression]. What is most upsetting to me is that we will have friends in the business, competitors in the business, who won’t survive this. I think if you were hit with this crisis when you had debt, it will be very difficult to survive. The landscape will change.”
Brack is optimistic that the loyalty of watch consumers will overcome the virus and that they’ll return to the stores after this crisis ends. Swatch Group is already reporting signs of recovery in China, he says, and he is hopeful the US and other countries will follow suit. “I think the watch community is a strong community. On social media, you’ll see great signs of support of the industry. Watches and jewelry are celebration industries and well loved, and hopefully we’ll be able to celebrate again soon.”
Image: Trunk Archive Article from the Rapaport Magazine - April 2020. To subscribe click here.