The sector and its specificities:
The watch making industry represents 1.2 billion watches sold annually worldwide and contains more than 300 competitors in which 10 of them account for about 70% of market share.i (Fig 1) The three leaders of this industry are all Swiss group: Swatch Group, Richemont and Rolex. Even if China and Honk-Kong export each more than ten times quantities than the Swiss watch industry, Switzerland has 5% market share in quantities, but this represents 54% market share in value. Indeed, in 2014 the average price for Chinese products was CHF 7, in Hong-Kong CHF 27, while Swiss watches were bought for an average of CHF 730 (Fig 3). It clearly points out the segment targeted by Swiss watchmakers: luxury goods segment. “Between 2000 and 2014 the average price of an exported watch made of precious metal increased by more than 300% from CHF 4,000 to CHF 14,600 due mainly to an increase in the price of gold. In total, precious metal watches contributed to 40% of Swiss watch sales” (Fig 4)ii. After some years of decline due to quartz watches, Swiss wristwatches renew with growth and are even exported better than ever in 2014. With a growth rate of 38% on the 2010-2014 period, exports have reached CHF21 billion.
However, geopolitical events occurred early 2015 and in key markets for Swiss watch industry, reducing sales. First in Hong-Kong, the top export market, the Umbrella revolution made by students had a strong negative influence (about -20%) on sales of luxury goods (Figure 5). The lower growth rate of Chinese economy mingled with anti-corruption and anti-kickback new legislation have led to a consequent decrease of high-end and high-luxury goods sales. This decrease of sales is also explained by raising tensions between both countries which led to difficulties for Chinese to have visa for Hong-Kong place of shopping tourism where rich Chinese people used to go. Besides those events the terrorist attacks in Paris, world capital of luxury shopping tourism, add another issue to face in difficult times, even though it should be a temporary one: customer will go through a sort of normalization soon.
Another competitive threat has raised with the introduction of smartwatches since 2014. When Apple launched its new product, the Apple watch, it drew the presages of a new epoch for the global watch industry. From now on, the watch industry will have to deal with those new comers on the market even if they are on the first stage of the product. The partnership between Apple and Hermès introduce nevertheless the product as a fashion accessory as its best feature is the high-end leather bands. Figure 6 shows that smartwatches and especially the Apple watch is a rising concern henceforth for 25% of those surveyed. The latest release of Tag Heuer the $1,500 Carrera connected in conjunction with Google and Intel sees early success for sold out and corroborate the interest as much as the concern for smartwatches from luxury brands.