As major contributors in terms of image and revenue (with combined annual sales estimated at $330 billion), fine jewellery and watches are key segments of the luxury industry. They also represent important cultural assets which, for centuries, have reflected human preoccupations with creativity, symbolism and status, expressed through patiently acquired expertise. According to McKinsey’s The State of Fashion: Watches & Jewellery special edition report, published last year in collaboration with The Business of Fashion, both sectors now find themselves at an inflection point. This is less to do with growth prospects – McKinsey forecasts realistic average annual growth of 3% to 4% between now and 2025, with Asia set to expand its share further – than changing consumer behaviour.
“One of the surprising things is that a few years ago—even just five years ago—people shopping for watches looked first for a design they liked. Then they looked for particular features, like movements or certain complications,” explains Alexander Thiel, a partner in McKinsey’s Zurich office and co-author of the report. “Only after that did they look for a brand. Now, it’s completely different: consumers look first for a brand that they identify with, that they like and that they want to wear as part of their public persona. That is also one of the reasons why an aspect like sustainability—and a brand being authentic in its sustainability appeal—is so important. An individual watch can be sustainable, but it’s difficult to communicate that. For an entire brand, however, it’s much easier to put forward what you’re doing for sustainability. It’s also more obvious to the consumer if you’re not doing sustainable things.”
A few years ago, sustainability was almost exclusively discussed as a risk.
This is also true of fine jewellery, where consumers’ expectations of sustainability have radically changed over the past two years, forcing the industry to respond. According to the McKinsey report, by 2025 sustainability-influenced purchases will account for 20% to 30% of global fine jewellery sales (equivalent to between $70 and $110 billion). This would be three to four times more than in 2019. Importantly, these figures take into account the “attitude-behaviour gap”, i.e. the difference between what respondents say and what they actually do. The exponential increase in the number of Google searches for “fine watches” or “fine jewellery” plus “sustainability” is a sign of changing mindsets. “A few years ago, sustainability was almost exclusively discussed as a risk,” says Alexander Thiel. “I remember when the movie Blood Diamond came out. Everyone was afraid that consumers would stop buying diamonds altogether and the discussion was entirely about how to mitigate this risk, how to avoid loss of consumers and what kinds of practices, checks, balances, certifications and insurances to put into place. What we are seeing now is that the much more powerful sustainability argument is one of positive sustainability, where it’s about end-to-end sustainability—not just mitigating the biggest negative externalities but really building a positive brand. A positive message that enables you to positively associate with a brand is much more powerful than a risk-mitigation message that tells you, ‘Look, what you’re buying here is really not doing so much harm’.”
Three seismic shifts
Aside from sustainability, McKinsey has identified other key areas that will shape tomorrow’s watch industry:
- Customer relationships and direct-to-consumer (DTC) sales. For decades, the watch industry has been dominated by offline retail, with multi-brand retailers owning the customer relationship. As consumers demand better online shopping experiences and brands aim for higher margins, watchmakers will grow their direct-to-consumer channels and take control of the customer relationship. Not everyone will find this easy, as Thomas Baillod, founder of watch brand BA1110D, observes: “DTC will be a challenge for a lot of companies. They are not store operators and, perhaps more importantly, they have not historically been consumer-facing, and so need a very different set of skills to manage those direct conversations.”
- Pre-owned. Once the preserve of private dealers and small-scale retailers, the pre-owned watch market has become the industry’s fastest-growing segment and is expected to reach $29 to $32 billion in sales by 2025. Brands can’t afford to stay on the sidelines.
- Pressure in the mid-market. At entry level, brands face competition from fashion brands and the smartwatch category, while customers at the higher end are trading up to luxury. Also, “lower barriers to entry due to a rise in online retailing and digital marketing are favouring the entry segment,” says Silas Walton, chief executive of pre-owned watch platform, A Collected Man.
Brands “need to succeed with women.”
Having identified these “seismic shifts”, the authors of the report advise on where brands need to be taking action. First off, they need to engage women – a part of the market that is currently underserved – with products that are certainly more gender-fluid but which also correspond to what women want to wear. The second piece of advice concerns Chinese consumers who repatriated their purchases during the pandemic and will continue to buy locally. Thirdly, brands are advised to rethink their icons. In Alexander Thiel’s words, “You need to have iconic items that everyone identifies with your brand and that have such a big appeal that everyone, or at least a lot of people, want to have it. In the past, in the watch industry, iconic items were largely defined by design, scarcity, movements, and the like. These things haven’t gone away, but there are now other sources that make a watch iconic, and they have more to do with the experience, the product, and the brand story behind it—and sustainability is a key aspect of that.”