The post-pandemic Swiss watch industry

The Swiss watch industry has reason to be cheerful according to Deloitte’s eighth study, based on a survey of industry executives and consumers in 11 countries. This sentiment is borne out by export figures. Over the first eight months of 2021 and compared with the same period 2019 (2020 is not a reliable base for comparison), shipments of Swiss watches recorded a small increase of 1.7% in value to reach CHF 13.5 billion. The situation is more preoccupying in volume terms, as exports lost 28% over the same January to August period. This decline is mainly the result of falling sales of quartz watches at entry-level price points. Over ten years the export value of quartz watches has been halved, from 28% of total in 2010 to 14% in 2020. Pandemic or no pandemic, luxury mechanical watches are the main driver for the industry. It should also be noted that sales of smartwatches have more than doubled from 8.6 million units in Q2 2018 to 18.1 million in Q2 2021, with Apple grabbing half of the global pie.

Positive outlook

Despite a lack of visibility in this post-pandemic context, the overall mood is significantly more buoyant than it was a year ago. According to the Deloitte survey, “a clear majority (77%) of the executives surveyed judge the economic outlook for the Swiss watch industry to be positive for the next 12 months. This optimism extends to both the main export markets and the Swiss economy.” Once again, the strongest growth expectations are for the high-end and very high-end segments. China – currently the top export market for Swiss watches at 14% having gained 63% from January to August versus 2019 – remains the market with the highest projected growth.

“Chinese consumers are willing to spend the most on a luxury watch,” reports Deloitte, with “one-fifth willing to spend CHF 2,500 – 5,000 and one-quarter willing to pay CHF 5,000 – 10,000. In the battle of the wrists, 49% of respondents in China wear both a traditional watch and smartwatch compared to an average of 20% across other surveyed countries.” This good news does, however, come with a caveat, namely that Swiss-Made is no longer a sufficiently powerful draw. According to the survey, only 15% of Chinese respondents (12% across all countries) consider country of origin to be important when purchasing a luxury watch. The shortest route to the Chinese consumer has become considerably more complex. Not only are their tastes becoming more eclectic, their purchasing decisions can be swayed by celebrity endorsements and key opinion leaders in an environment that is increasingly influenced by social media and user-generated content. Both these areas are beyond the reach of brands which are accustomed to “controlling their narrative.” An inconsistent message on WeChat or a key opinion leader behaving badly can result in reputational damage, as several luxury brands have found out.

Sustainability: could do better

Accelerated digitalisation is seen as one of the decade’s biggest challenges, and nowhere more than in China. “China is at the forefront of digital shopping experiences, with Chinese consumers being some of the most digitally active in the world. Smart technologies and immersive omnichannel brand experiences are pervasive. (…) Shoppertainment, a combination of shopping and entertainment, treats shopping as more than just the act of purchasing an item. It includes tools and technologies such as gamification, augmented reality and live streaming that put consumers in a fairy-tale-like metaverse (avatars sometimes included), which happens to be shoppable. Forrester, a market research company, estimates that by 2023, livestreaming commerce in China will be worth US$ 100 billion.”

Understandably in this context, the surveyed executives said that their top priorities for the next 12 months would be to optimise sales channels, develop e-commerce and digital channels, and develop or strengthen omnichannel strategy; all trends that were fast-tracked by the pandemic. While no-one is losing sight of the virtual economy, the experience of shopping in a traditional brick and mortar store hasn’t been underestimated. A majority of the surveyed executives (73%) believe that offline sales will continue to dominate online sales. Meanwhile, 53% of respondents said that they preferred to purchase watches in a physical store. Not that brands can rest on their laurels. As Deloitte makes clear, “the watch industry needs to find ways to attract and engage with new audiences.” This can involve new ways of retailing such as QoQa, a Swiss-based digital retail platform whose Qlock channel offers unique and targeted experiences. Breitling, to give another example, has developed a service that allows subscribers to try watches from a selected portfolio with the option to purchase one at a special rate. Collaborations with artists, electronic music producers/DJs and designers are another of the ways brands are introducing their products to a different audience. Ultimately, these strategies are intended to convey heritage and values, and to show how they align with those of the brand’s consumers.

Uppermost among those values is sustainability. An overwhelming majority of surveyed executives (93%) rated sustainability as an important topic for the industry going forward. However, as Deloitte points out, “sustainability scepticism persists and the industry still suffers from greenwashing and makes sustainability claims that lack substance.” Indeed, the survey notes that 66% of brands are investing more in sustainability as a way to improve their brand image. Changing consumer demand is also driving this shift, with 60% of consumers in the survey declaring that sustainability was one of the factors they considered when buying a watch. The percentage is even higher among Millennials and Generation Z. Consumers “are no longer wooed by ethical, sustainable and responsible business practices, they have come to expect them. By seizing the opportunity to make itself more sustainable in all aspects of production, sales and distribution, and by stressing the enduring value of its high quality craftsmanship, the Swiss watch industry can guarantee for itself a healthy and sustainable future.” Deloitte’s conclusion is simple: while the pandemic disrupted the Swiss watch industry, it has also proved a catalyst for much-needed change.